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SAP for Insurance

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Insurance Industry is in the midst of radical changes. Amongst the key challenges faced by the industries, the following are the salient ones:

  • Managing risks and adhering to the stringent regulatory guidelines are paramount.
  • Make processes simple and reduce the cost of operations. With low interest rates, especially in the growth-engine life insurance, performance on the investment side is no longer a given.
  • New competitive landscape and increasingly demanding customers are driving insurers to innovate and integrate to become digital insurance companies with customized offerings.

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New Technologies to Solve Today’s Challenges

SAP has innovative product and solutions for Insurance companies to seize the opportunity and to operate more efficiently and profitably. .  For example:

  • SAP HANA in-memory database technology accelerates analytics and enables smarter transaction processing, with a 360-degree view of the customer.
  • Cloud solutions simplify deployment in the front, middle, and back office, and scale rapidly for quick ROI.
  • Industry-specific content and pre-configured business processes simplify and standardize implementations.
  • SAP mobile solutions help create an Omni-channel experience for each individual customer.
  • SAP Insurance Analyzer powered by SAP HANA enables not only Solvency II and IFRS

compliance, but also offers an integrated finance and risk platform.

 




SAP Solutions in action

Use Case 1: A multi-brand insurance carrier with gross written premiums exceeding €20 billion defined a strategy to become the most integrated and digital insurer. The goal was to offer maximum flexibility for customers while pushing for industrialization in the back office.

  • The company leveraged SAP best practices for core insurance processes to enable true straight-through processing for standard processes.
  • It applied SAP HANA technology for a single database with real-time analytics and customer data.
  • In combination with SAP for Insurance solutions and mobility, that allowed the company to engage customers and create a superior user experience.

Use Case 2: One of the largest multi-national insurers in Europe, with 50 companies and 24 brands in 20 countries, suffered from high M&A cost and heterogeneous insurance processes. Using SAP for Insurance, it reduced its IT cost ratio below 2%. Even in a local business like insurance, the company ran 80% of processes out of the box. Our cloud solutions make this possible.

Use Case 3: A large public health insurer needed to provide better medication and treatment for diabetes and heart disease. But it struggled to analyze data on 24 million customers, 1.2 million companies, 20,000 pharmacies, 50,000 medical products, 570 million visits at 140,000 doctors, and 18 million surgeries in 2,000 hospitals. Today, the company can identify best medications and best doctors, and analyze fraud immediately.


Conclusion

There are many more stories from our unmatched customer base. In the insurance industry, more than 5,000 companies run SAP, and more than 300 of them run SAP’s core insurance solutions. They enjoy the immediate benefits SAP provides: lower operations costs, individual customer propositions on any device, and solutions delivery in weeks on-premise or in the cloud. Come find out more at sap.com/insurance. You can follow us @SAPforInsurance for the latest updates on SAP offerings and updates.

 

You can watch the detailed video here.

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Warning: Before reading on, I do not profess to be competent in the fine art of anything dance related. However, during a ten week assignment in Dallas I had the opportunity to witness the local dance style of the Texas Two-Step; that experience reminded me of how Risk and Finance must cooperate within the Insurance market today. For those that are not familiar with the dance style, when performed properly, it is a country western dance by two partners who create a smooth, fluid motion in unison to the music. In one of the larger venues I visited, there were hundreds of partners moving in a seamless rhythm to the beat (everything’s BIG in Texas). And that is the picture that comes to mind when I think about how Insurers must smoothly manage the intricate balance of Risk and Finance…and here’s why.          

 

Today, it is more critical than ever for risk and finance to come together in a unified view in order to best achieve corporate, regulatory and stakeholder objectives. These disciplines have been wedged together as a result of the evolving legal and accounting rules as directed by IFRS4 and the EU Insurance Solvency legislation. Compliance with these emerging standards requires quantitative and qualitative reconciliation across systems, accounting principles and risk approaches…no easy task. To accomplish this goal, Insurers must connect their various applications, including actuarial, claim management, reinsurance reporting, asset, and policy administration systems. Fortunately, a solution has been developed recently which will deliver a platform (dance floor, so to speak) for integrating risk and finance management.                

 

About a year ago the SAP® Insurance Analyzer was introduced, an analytical application which offers a cost-effective foundation for integrating risk and finance management, with preconfigured business content. The solution acts as a central platform for connecting transactional systems, actuarial engines, general ledgers and reporting systems. Solvency capital requirements can be calculated, and valuation processes are available as the cornerstone for further reporting needs (read why New York Life selected the Insurance Analyzer here). The need for such an innovative approach to efficiently consolidate risk and finance was so important that SAP recently commissioned IDC to create a study on this topic. The research will be available within the next few weeks and the first update can be found here.

 

So, it’s time for the Heads of Risk and Finance to work together seamlessly, easily and gracefully. And maybe they can even put on their dancing shoes and try a little Texas Two-Steppin!

It is clear that the core of an insurer’s business is managing risks. But do insurers effectively identify and address all risks?

 

To be successful in today’s changing landscape insurers need to pay close attention to multiple critical areas of risks. Risks of losing customers or failing to provide them the right product at the right time; Risk of making decisions based on out-of-date-information; Risk being non-compliant in the face of ever-changing regulations. Now that we have begun to scratch the surface on some of the risks, what are the next steps in addressing them? Are you ready for the future of insurance?  Watch this video and learn more how SAP can help you solve your business challenges.

I recently returned from SAPPHIRE and heard Clayton Christensen’s presentation on Innovative Disruption based on his book, the Innovator's Dilemma. I have been a fan of Michael Porter on strategy and competition for many years, especially his book Competitive Advantage. Christensen is viewed as one of the leading successors to Porter in strategy.

 

The key tenet of Innovators Dilemma is that doing the right thing is the wrong thing, meaning that companies actually often handicap themselves using “good decisions” and actions.  Christensen classifies innovation into defensive, or sustaining innovations, which make good products better but don’t create new growth, and offensive, or disruptive innovations, which simplify complex products, and do create new growth.

 

All too often, we use “all or nothing” thinking.  However, we don’t need to "throw the baby out with the bath water." We can create an Innovation Think Tank (or Lab) and incubate projects using new approaches, technologies and processes before radically trying to make over an organization which in itself is clearly disruptive. Realistically organizations are not going to replace 20 and 30 year old business processes, cultures or applications easily.  But new products are often great candidates for innovation.

 

More insurers are revisiting how they develop and market new products. They are looking to leverage more external or third party data to identify key risk and market characteristics. They are revisiting their underwriting systems and their underwriting processes and re-evaluating their business rules based on true risk characteristics instead of traditional rote underwriting questions. They are using analytics to identify the relevant criteria and define business rules as part of new processes and embed them into often new applications.

 

Mark Breading and Denise Garth of SMA (Strategy Meets Action), recently published a research brief, Data and Analytics in Insurance in which they state that “analytics will be the biggest source of competitive advantage to insurers in the coming years.”  I couldn’t agree more.

 

Insurers who want to innovate can do so using analytics but they need to encourage and incent employees to experiment; they need to provide the analytic tools, skills development, budget and overall managerial support for selective innovation.  Simply put, they need to create culture of innovation. They can also take advantage of SAP's Design Thinking approach and workshops to help them leapfrog their competitors in innovating.  

 

Pat Saporito is a senior director in the Global Center of Excellence for Analytics at SAP. She is SAP’s insurance analytics thought leader. She is the author of the forthcoming book, Applied Insurance Analytics, available July 27 on Amazon.com. http://amzn.to/1mfmYiC

You could argue that the insurance industry has been historically one of the most successful business models in the world. In fact, it has basically existed in its current form for hundreds of years. But today, new market dynamics, new consumer behavior, new risks and new regulations are all placing new pressures on the insurance industry. I don’t believe that the first paragraph will hold true 15 years from now.

 

In almost every industry, from Music to Banking, from Education to Manufacturing the landscape has radically changed in  the last 2 decades.  Will the insurance industry also transform? In this blog, I wanted to touch on the topic of how the regulator is changing insurance. Insurers are being forced (in part by regulators) to achieve a new level of transparency to remain both compliant and solvent.

 

How did we get here?

 

Why is there this sudden influx of new regulations? You can trace some of it back to the financial crisis, where it became clear that banks needed more control and better regulation. They also needed better transparency to make sure they met capital requirements. Even though it was quieter on the insurance side, the financial meltdown was a wakeup call to the industry and especially the regulator. Insurance companies had to look at themselves and make sure they weren’t heading down a similar path.

 

What they found was a disconnect between finance and operations. The CFO in most insurance companies operates in a different way than in say a manufacturer. When a CFO at a large manufacturer wants to explore a particular number, he just drills-down to every level of detail he/she needs all the way to a goods movement on a factory floor in Brazil.

 

The Insurance CFO is usually not so lucky. Due to the enormous amounts of data in an insurance company, it is often quite a challenge to decipher the meaning of summarized and aggregated data. Without being able to drill down to a specific level of detail and to make assumptions based on aggregation, regulators were concerned that this created  the same lack of transparency that contributed to the financial crisis. In banking, CFOs were also unable to fully understand the risk of individual loans that were bundled together, and so we ended up with the subprime mortgage  crisis.  Insurance is also bundled risk!

 

There’s another problem: the capital markets are no longer as easily lucrative as they used to be. In the past, insurance companies didn't mind taking a loss on their core business because they made so much money on the investment side. That's no longer so easy, forcing insurers to look at their data in a new way in order to ensure profitability in their core business.

 

New expectations for transparency

 

 

In the past, transparency was more of an  internal consideration, rather than a regulatory requirement. But now, the regulators are forcing more transparency.

In terms of solvency, regulators are  looking for more than just sufficient capital. Rather, they want to ensure that a series of individual cash flows cover specific risks. Or if they don’t, an explanation for how the risk will be covered.  (Had we done this  in mortgage lending, we probably would not have had the financial crisis.)  Auditing is no longer just checking to see if you’re in compliance; regulators mandate how you connect finance to operations to capital at a detailed level.

 

Not Big Data, Huge Data

 

The main challenge for insurance company CFOs is getting to the detail-level data in a manageable way. That’s a big proposition, when you consider that we’re not talking about Big Data, we’re  talking about extremely huge data. Companies that want to process that data in a meaningful way are looking for new ways of using in-memory technologies in conjunction with new accounting valuation systems.

 

In order to handle this challenge, companies need to take the most powerful financial systems, the most powerful analytic systems, and the most powerful real-time technologies, and connect them to their  core systems so they’ll be in a better position to handle the challenges that are ahead. In the end this will benefit not only the carrier, but also the insured whose premiums will match more closely their underlying risk.

SAP Reinsurance Management  7.0 has successfully completed the Ramp-Up Phase: all customers can take now advantage of this new State of the Art – running on SAP HANA - release.

 

carrusel.jpgSAP Reinsurance Management (FS-RI) supports the management of assumed and ceded risk portfolios, through treaty administration for proportional and non-proportional business. The application also supports the handling of claims and delivers functionality for technical accounting. Automatic retrocession can also be processed as a standard functionality.

 

For the ceded business an on-line interface with the front systems (Policy and Claims Management) enables the simulation of capacity required to affront the possible maximum loss, determining which portion of the risk should be further ceded.  


State of the Art

Running on SAP HANA, SAP FS-RI 7.0 accelerates batch processes and provides the ideal platform to optimize performance and approach new business areas through innovative solutions. HANA Live content for FS-RI has been already planned and is currently under design with the aim to be roll out to the customer in the coming months. Additionally, first efforts towards Reinsurance High Performance Applications have been undertaken already.


New Release Strategy

Following SAP’s Strategic Goals: deliver our customers higher business value & innovation without disruption, starting from FS-RI 7.0 a new release strategy for early adoption of newly developed functions and features is planned.


On completion of the 7.0 Ramp-Up Phase functional enhancements to 7.0 will be delivered in Support Packages.


The new Release Strategy presents the following advantages/benefits: 

 

  • Faster Innovation without Business Disruption - Support Packages enable the delivery of new functions in a short timeframe, making them available without the need for a new software version. (Support packages will be delivered at Intervals of 3 - 6 Months compared to the current development strategy which foresees new releases every 1-11/2 years)
  • Lower Costs - The cost/effort required for applying Support Packages is lower than the cost/effort associated with upgrading the software to a new release version.

 

Language and Country Availability - EMEA, APA, AMERICAS

 

Customer Profile


Insurance Companies seeking for optimized risk procurement and management

Reinsurance companies seeking to optimize reinsurance administration efficiency


Four global brand companies have already decided to go for the new release. Gen Re in North America has successfully deployed the solution and three other in EMEA, namely, Munich Re, Hannover Re and Zurich Insurance Group are currently up grading to the new version. With these four customers moving towards SAP Reinsurance Management 7.0, the Ramp-Up key performance indicators (KPIs) are overachieved.

 

With SAP Reinsurance Management 7.0 fully delivered to the market, it is now important to turn our focus on Field execution. Now is the time to ensure that your customers benefit from the value and success of SAP Reinsurance Management 7.0. We have worked hard this year, we are proud of our achievements, and we look forward to working with you in the future.

Ever wondered what's possible with mobile technology in the insurance industry?

 

I would like to make you aware of an overview webinar on mobile scenarios and solutions specifically for the insurance industry.

 

All information and a sign-up link is avaliable here: http://www.sap-webseminare.de/?page=espressofilter&subpage=details&webseminar=1027&language=de

THE WEBINAR WILL BE HELD IN GERMAN.

I came across a requirement where I have to add a new tab to the FS-CD transactions FPE1, FPE2 and FPE3. I was bit surprised when I could not find any BADI or Exit. Even BDT, which is quite common to Collections and Disbursements module was not available. I then figured it out that this is a special case and could be resolved through SPRO customizing. I did follow the path and successfully completed the development. Below steps will guide you to achieve this requirement whenever you come across document posting transaction enhancement.

 

Steps:

a) Create your custom screen using screen painter (SE51)

b) Go to SPRO

c) Navigate to Financial Accounting --> Contract Accounts receivable and payable --> Basic Functions -->

    Posting and Documents --> Document --> Screen preparation --> Include own fields and detail screens.

d) Enter the below details

       Program: SAPLFKP1 (Document)

       Application: DOP (Business partner item detail screen)  *This can change based on the requirement

       Number: 0

       Application area: V (Insurance company)

       Screen number: <Your custom screen number>                       * Created at step (a)

       Program: <Your custom screen program name>

 

    The below FMs are needed for data transfer

       Init module: <Your custom function module for Initialization>        

       * You can use sample FMs as well e.g. FKK_DOCT_SAMPLE_INI_OP

 

       PBO Module: < Your custom function module for PBO >              

       * You can use sample FMs as well e.g. FKK_DOCT_SAMPLE_PBO_OP

 

       PAI Module: <Your custom function module for PAI >                   

      * You can use sample FMs as well e.g. FKK_DOCT_SAMPLE_PAI_OP

 

e) Run the transaction and check.

 

NOTE:

a) For enabling/disabling the screen fields, you need to write the code in the screen program's PBO.

b) The tab name is taken care by the system and by default it is "Customer's Data". You change this in the Initialization function module.

 

Hope this blog helps you.

The benefits of machine-to-machine communication go far beyond auto insurance.

 

 

275660_l_srgb_s_gl.jpgTelematics may have evolved from auto insurance, but it doesn’t stop with it. More specific pricing approaches and more capable, complex technologies mean insurers can handle ever-increasing amounts of data in real time. This could trigger changes that go further than the insurer-customer relationship.

Lets stick with vehicles for the moment.

 


User-based insurance doesn’t have to be a one-way street. The potential is there to add valuable extra services, ones that don’t just monitor and maintain driver safety and efficiency, but which can also, for companies with fleets of vehicles, diagnose mechanical health, spot problems before they become expensive, recommend the most efficient routes and so save costs in personnel, fuel and maintenance. Moving into houses and homes, the amount of technology we have lying around is increasing all the time. And as it grows, so does the Internet of Things.

 

 

According to Gartner there will be nearly 26 billion devices on the Internet of Things by 2020. Insurers who are already engaged in a service-based approach evolve beyond being pure insurance companies and instead become consumers of information. The opportunities are massive. Not just for using data but also changing and adapting products based on measurements. In the future, your home insurer might offer a suite of products that offer preventative solutions as well as indemnity: sensors that help detect fire or water damage (and control emergency shut-off valves), services that back up sensitive documents securely in the cloud in the event of burglary or damage, as well as support the burglar alarm and home security.

 

 

Looking at health, life tracking and data-collecting devices such as the Fitbit are already willingly consumed, but also cost less for the insurer and the consumer in the long run as they motivate people to stay healthy. An added user-based insurance option could offer rewards and education depending on activities and behavior. More exciting still, devices such as pacemakers could be made to transmit vital information that could prevent small problems becoming worse.

 

 

Meanwhile, manufacturers and owners of big plants also have huge amounts of data that can be used. Insurers can use this to protect customers by ensuring that maintenance is done on a regular basis and that products are stored and transported under optimum conditions and according to changing national or local regulations. The big picture is a massive confluence of little things that, together, add up to one big thing: being able to run the world better.

 

 

With effective machine-to-machine communication and, critically, the ability not just to gather but also to analyze mammoth amounts of data in real time, user-based insurance can offer helpful insights and education as well as discounts for good behavior, winning a competitive advantage in areas traditionally dominated by higher premiums. What we’ve mentioned here only scratches the surface of what is possible; the technology already exists. The next step is for the insurers to pick it up and start designing products with it.

 

 

                                                                                                    - Eva Walter, Senior Solution Specialist, SAP

 

 

 

 

What do you think about the issues discussed here? Continue the conversation in the comments below.

 

 

 

The new wave of telematics means better value and safer roads for auto insurers and policy-holders alike.

 

The theory behind usage-based insurance is pretty simple. It can be handled in different ways, but they all boil down to the same thing: you pay for what you use. Crucially, it’s easily understood by consumers; a natural next step for an industry with such high cost pressures. It first evolved in the US automotive sector about 10 years ago and has spread slowly but steadily since as the costs of technology have dropped and driver appetites have grown.


275660_l_srgb_s_gl.jpgTelematics are the key. Odometer readings monitor people’s mileage (pay-as-you-drive), while easily-installed sensors build on this by noting how and when they drive (for pay-how-you-drive and pay-as-you go solutions that can also offer active feedback).


The combination of real time information on acceleration, braking, speed and location means the insurance company can tell the difference between types of driver – those who take off from the lights at top speed, corner and brake hard, those who drive at night…or those who drive slowly and gently – and adjusting their base premium accordingly. Adding other data that the insurer knows about the policy holder – age, occupation and other characteristics – you can quickly see how it can be an incredibly sophisticated product. Many of the current crop of usage-based insurance products are aimed at young drivers, rewarding them for good behavior.

 

So that’s an idea of the service, but what’s in it for the insurer? Well, while it's in its infancy and not without resourcing costs, the benefits quickly add up. Policy holders can make big savings by signing up. Insurers who are quick to pick up early entrants and ‘good’ risks first will pay out less claims, which also leads to safer roads and fewer traffic deaths. Further use of data is a sensitive topic, but one clear fringe benefit is that with the extra data, insurers would greatly improve their fraud detection – each vehicle’s telematics effectively creating a ‘black box’ that would say where it was and how it was being driven whenever an accident might occur.


Then there’s the product and service story. User-based insurance means a completely new relationship with the customer. Especially when insurers are making first contact with young drivers and people who are on their first steps towards buying life assurance and so on. Fluctuating monthly bills means constant contact with policy holders, creating further chances for cross- or up-selling. It’s a brave new world.


Auto insurance is a hugely dynamic market. Margins are under constant pressure and competition is intense. Consumers have more choice than ever before. This is not a situation that looks like it will change in a hurry. But with the right use of technology, insurers can afford to assess risk more completely and so stand out with new pricing models and products that focus on the individual, while also collecting experience in machine-to-machine technologies that can be transferred to other lines of business.

 

                                                                                               - Eva Walter, Senior Solution Specialist, SAP AG

Technology is a key driver for innovation in the insurance industry. Trends such as customer centricity and omnichannel, new distribution models and disruptive technologies like telematics are motivating insurers to rethink their digital value chain.

 

Innovation today requires a digital transformation -- not only automating expensive and inefficient manual tasks but enabling your employees and agent/brokers to service today's customers seamlessly across channels. Insurers should be looking to standardize processes and integrate their diverse landscapes in order to achieve these efficiencies.

 

Watch the video and hear  Chad Hersh, Managing Director at Novarica and Bob Cummings, Global Head of Insurance at SAP discuss the current trends that are driving insurers to re-think their business models.

 

 

Many insurers today are dealing with siloed, inflexible legacy systems. These are not only expensive to maintain, but also hamper speed to market and the ability to respond to customer demands. In order to engage today's customers, bring tailored products to market quickly and gain the insight and transparency into exponentially growing amounts of data, insurers are looking towards an integrated insurance platform.

 

Today's successful insurer knows its customers. This means gleaning data from a variety of internal and external sources and being able to transform that data into actionable and insightful information. They must be able to use that information to bring tailored products to market quickly and within current guidelines and standards. The best run insurers are using today's innovative technologies to modernize their core systems to gain competitive advantage. Hugh Anderson from SAP discusses how insurers can address some of these issues to become more agile, customer-focused and integrated.

 

Did you miss this event? Access some of the presentations here!

 

 


Banking & SAP BusinessObjects Predictive Solution



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Banking Breakout



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Capital Markets - Trends and Opportunities



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Enterprise Risk Reporting Solution



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Real-Time Reporting with HANA Live



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Insurance Breakout



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Partner Driven Next Generation Solutions For Capital
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SAP UX Strategy - FSI Partner Day



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Collections in Insurance cover all aspects of collecting outstanding receivables from preventive dunning to late stage collections. This is achieved by taking advantage of FSCD collection strategy capabilities that have been available since many releases with ERP 6.0.

 

The needs of the hour for Insurers has been flexibility in determining the right activity for a customer and providing additional functions for the Collections Manager to manage the work in his / her area in the most efficient way and use new functions for the Collector to process work through work lists and views to accelerate.

 

There has been a shift in the approach for dunning to cater to this requirement.

 

In the traditional dunning process the dunning procedure assigned to each contract account which determines the number of dunning levels and the respective dunning activity sequence. This determination of the next dunning level is primarily based on the days in arrears and the amount of debt as shown below.

 

DP.jpg

 

 

With the introduction of dunning by collection strategy the determination of the dunning activities in the dunning programs takes place using the Business Rules Framework (BRF) / BRF +.

 

CS.jpg

 

Here we see that dunning by collection strategy is based on business rules that are evaluated at runtime. Therefore new dunning activity that can create work items of various types for processing by Collectors can be carried out efficiently

 

Moreover this allows for a flexible evaluation of a broad range of parameters in collections. A collection strategy is assigned on master data level. Contract accounts (or Insurance object) can be treated individually or can be grouped together for collections. The evaluation of the business rules within the strategy return the next collection step (as well as related activities) to be carried out.

 

Hence there is not necessarily a fixed sequence of steps to be carried out one after the other. It is more to do with the specific circumstance of an account that determines the next collection step.

 

The data that can be evaluated in the rules engine include the dunning data, dunning history, credit risk data and many more (including customer-specific tables) as shown in the above screenshot.

 

CS - cycle.jpg

 

SAP Organizational Management can be used to determine responsible teams and/or agents for dunning activities. Rules can be set up based on a variety of criteria to determine which activity shall be carried in which organizational unit and by whom.

 

Thus it is possible to automatically assign a collection team or an agent/collection Specialist according to a company’s specific business rules.

 

Based on the new capability to determine responsible teams and/or agents, it is possible to see how much collections work (i.e. dunning/collections activities) will be created. Before final creation of the work, the Collections manager can do a capacity balancing.

For e.g : Collections department may have a limited capacity of collection agents doing outbound calls, therefore the Collection Manager can limit the number of work items created for these Collection Agents and instead have SMS sent to those policyholders that shall not receive a call from the Collection Agents.

 

The integration with BI to analyze collections can provide Insurer a good view about the collection success and plan better to increase collection efficiency.

 

 

 

The Latin American market is highly competitive market and full of challenges, but insurers who manage their environment can find opportunity and advantage

 

320px-SaoPaulo_PrestesMaia.jpgIn the last couple of years, Latin America’s insurance market has outstripped overall economic growth in the region. The growth of small businesses, together with the modernization of infrastructure and industry are driving demand well above the rate of most other global regions. The consumer sector is showing significant growth too, as healthier economies are accompanied by a corresponding demand for insurance.

 

That’s not to say there are no challenges. Competition is high and penetration is low, while regulatory reform, inflation and volatility loom on the horizon of practically every economy. But chief among the things insurers can actively address do something about is fraud. In Latin America, it makes up an estimated 10% of ingress.

 

Let’s look at a hypothetical example. ‘Individuo A’ is a large segment company that’s active in automotive insurance in Latin America (one of the most exposed to fraud). It deals with about US$6bn of business per year. Considering a rate of fraud around 7%, that means Individuo A is losing US$420m every 12 months. But how?

 

Typically a fraud will occur during the claim notification process. Companies, anxious to improve customer satisfaction (and retain their customer), are under a lot of pressure to resolve matters quickly, so they rush the process. Simple human error means it’s easy to miss people massaging their claims and committing fraud.

 

Another reason a fraud might slip through the net is sheer weight of numbers. Given the ever-increasing amount of data that Individuo A has to deal with, sometimes there’s simply too much going on for it to process in real time. And if its staff do identify a potential fraud, often they simply get to it too late for it for recovery to be economical.

 

A third menace is fraud networks: agents colluding with friends or family to help them put through a high claim which is actually fake. This happens far more than you might think. Latin American companies are going through turbulent times, so policing fraud is a difficult thing to accomplish.

 

From where I sit, our customers want several things. First is to be able to manage high volumes of data as fast as possible so they can go through it and identify potential fraud while reducing claims leakage. Second is some sort of framework or set of rules to help them pick up fraud in time to do something about it.

 

Finally, perhaps most complex of all, they need help with patterns and predictive behavior. Fraudsters are quick to adapt their modus operandi when the heat is on, and if you shut them down one way, they immediately focus on finding another route to exploit, so understanding or anticipating future frauds is critical.

 

Insurers would benefit from making certain changes. Key among them is changing the way they evaluate policy-holders when taking on new risk, but there is also a need for a major collaboration between companies, interacting and exchanging information, sharing fraud patterns in order to prevent it.

 

At SAP, our fraud management solution means insurers can reduce the number of false positives by up to 90% and lower the cost of fraud detection by as much as 85%. For companies like Individuo A, this means a reduction in claims leakage, an improvement in quality of service and it frees up capacity to focus on customer centricity and other areas.

 

What do you think about the issues discussed here? Continue the conversation in the comments below and on Twitter @SAPforInsurance

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