richard hill_fico_marketforce insurance fraud_final_20150324
TRANSCRIPT
© 2015 Fair Isaac Corporation. Confidential. This presentation is provided for the recipient only and cannot be reproduced or shared without Fair Isaac Corporation’s express consent.
Fraud is the cost of doing business – why bother chasing the bad guys?
Richard Hill Client Services - Partner FICO 24th March 2015
Agenda
© 2015 Fair Isaac Corporation. Confidential. 2
► Too much fraud, crime & deception
► Should we care?
► What can we do about it?
© 2015 Fair Isaac Corporation. Confidential. 3
Too much fraud, crime & deception
4 © 2015 Fair Isaac Corporation. Confidential.
Not being 100% honest isn't always a crime…
► “I think the blue dress is better than the red one”
► “That was such a delicious meal…”
► “I love listening to the junior school concert”
► “Ha ha that joke was hilarious Boss…”
► “Have you lost weight? You look great!”
► “It was already like that when I got here…”
Oxford Dictionary definition of fraud:
Wrongful or criminal deception intended to result in financial or personal gain
5 © 2015 Fair Isaac Corporation. Confidential.
Famous criminals – known & revered through the ages
► Convicted murderers are more easily remembered & recognised
►Al Capone
►Fred & Rosemary West
►Dr Harold Shipman
►Ian Brady & Myra Hindley
► However financial fraudsters are less well known/recognised
►For example, who is this?
6 © 2015 Fair Isaac Corporation. Confidential.
Bernie Madoff – King of Financial Crime
► Former Non-Exec Chairman of NASDAQ – a respectable chap…
► Founded Bernard L Madoff Investment Securities in 1960
► Became one of the top market maker businesses on Wall Street
► 10/12/2008 his son told authorities his father had confessed to running a Ponzi Scheme
► 12/02/2009 Madoff pleased guilty to 11 felonies going back to 1970’s
► Amounts missing from client accounts valued at $65 Billion
► Estimated actual losses to investors was $18 Billion
► Sentenced to maximum 150 years in prison
► BUT HE WAS ONLY CAUGHT AFTER HIS SON BLEW THE WHISTLE - NOT BY REGULATORS, CLIENTS OR POLICE
7 © 2015 Fair Isaac Corporation. Confidential.
► "Year-on-year, impersonation fraud continues to grow. Since 1999, impersonation fraud has risen by 163% and is one of the fastest growing fraud types in the UK" - CIFAS
► False identity/impersonation fraud remains the most rapidly growing type of fraud in the United Kingdom." - CIFAS
► "An annual figure of £1.3 billion pa is the minimum quantifiable cost to the economy arising from identity fraud" - Identity Fraud: A Study, Cabinet Office
► "Identity theft is Britain's fastest-growing white-collar crime, increasing at nearly 500% a year." - BBC TV's Money Programme
And when you don’t know who is actually committing
the crime it is even more difficult…
► "A recent report on identity theft warned that there is likely to be "mass victimisation" of consumers within the next two years. The report said consumers should be extra careful to monitor all their financial transactions for unexplained account activity, withdrawals, or fund transfers." - The Gartner Group, a technology research group
► "More than £1.6 million worth of card fraud occurs on UK plastic cards every day. A fraudulent transaction takes place every eight seconds" - APACS
► "Experts report that a victim can spend anywhere from six months to two years recovering from identity theft." - CNNfn.com
► "Most people don't find out they have been a victim of a stolen identity until they are turned down for a loan or credit card. A copy of their credit report explaining the denial may unveil weeks or months of fraud." - CNNfn.com
© 2015 Fair Isaac Corporation. Confidential. 8
Should we care?
10 © 2015 Fair Isaac Corporation. Confidential.
► Private Sector fraud
► Fraud losses as a proportion of turnover estimated in the region of 0.54 per cent, with 0.18 per cent lost to detected fraud and 0.36 per cent lost to hidden or undetected fraud.
► This is approximately equivalent to £15.9 billion per annum
► Financial Services fraud
► The Department for Business, Innovation and Skills (BIS) has indicated that turnover data for Financial and Insurance activities were not comparable with other private sector turnover data.
► To overcome this, the business survey has been supplemented by an analysis of identified fraud losses and an estimate of possible undetected fraud loss from Financial and Insurance activities using the relative percentages of gross domestic product (GDP) for the sectors.
Estimated UK Fraud Losses – it’s a lot…
- Source: National Fraud Authority –Annual Fraud Indicator 2013
► If Financial and Insurance activities represent 11 per cent of all GDP, compared to 67% for the rest of the private sector, hidden or undetected losses would equate to £1.8 billion.
► In conjunction with other identified fraud loss estimates we have a combined figure for fraud in the Financial and Insurance activities of £5.4 billion
► The identified fraud losses in the Financial and Insurance activities include:
► £2.1 billion of insurance fraud
► £1 billion mortgage fraud
► £475 million of retail banking fraud.
► This is clearly an under-estimate as it does not include unknown fraud losses that have not been identified.
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/206552/nfa-annual-fraud-indicator-2013.pdf
11 © 2015 Fair Isaac Corporation. Confidential.
Fraud is where there is a financial benefit involved
Opportunistic Premeditated Organized
Fraud schemes cross a wide range of perpetrator intention, potential impact and planning
► Eric’s home is broken into. How does it hurt if he claims he had an 80” television?
► Marissa knows most insurers will give her easy money for whiplash to settle a claim quickly before it escalates to higher payments. She slams on her brakes in front of a tailgating policyholder.
► Michael takes his job seriously. He knows the more people he can pack into the two junk vehicles he is staging a crash with, the higher the payout.
12 © 2015 Fair Isaac Corporation. Confidential.
The Impact of Not Managing Fraud
► Direct financial loss
► Act as a magnet for MORE fraudsters when identified as a “soft touch”
► Increased policy costs encourage “claim inflation” by customers
► Reputational damage to your corporate brand ►Instant 24hour news
►Permanence of the internet
© 2015 Fair Isaac Corporation. Confidential. 13
What can we do about it?
14 © 2015 Fair Isaac Corporation. Confidential.
► “Veteran fraud management company FICO lives up to its reputation,” the report stated.
► “FICO is one of the most long-standing fraud management companies; its product provides robust real-time, cross-channel interdiction and easy configuration of case management fields.
► It offers easy alert aggregation as well as integration with third-party reporting and analytical solutions using a published database schema.
► The company has a differentiated mobile and cloud partnering and extensive behavioural analytics strategy. FICO has a large vertical footprint in financial services/banking, insurance, retail, government, and telecom verticals.”
Talk to FICO - Analysts rank us Leaders in Enterprise Fraud
► Forrester’s report cited the need for stronger defence systems in the face of staggering worldwide losses. “Forrester estimates that globally … banks and financial services organizations are losing between $12 billion and $15 billion annually,” the report said. Companies struggle to balance tougher antifraud efforts with a positive customer experience, the report noted.
► Companies reviewed included 41st Parameter, ACI Worldwide, CA Technologies, CyberSource, Fair Isaac Corporation (FICO), FIS, NICE Actimize, and SAS.
► Companies invited to be reviewed but declined were Accertify, Detica, Fiserv, and Retail Decisions Source: The Forrester Wave™: Enterprise Fraud Management, Q1 2013. FICO was among the select companies that Forrester invited to participate in this Q1 2013 report.
15 © 2015 Fair Isaac Corporation. Confidential.
Marketing Policy Underwriting Loss Ratio Solution
Development Fraud
Profit per account through cross
marketing and selling
Straight-thru processing
Decrease in loss ratio Decrease in systems development time
Decrease in fraud losses through early
identification
30% 99% 35%
Sample Client Results within Insurance
8 % 50%
FICO bring benefits to the insurance industry
► FICO has engaged with a large number of insurance clients to improve their business’ functions and profitability
► FICO has driven performance improvements in core business functions through Decision Management led initiatives based around business rules, analytics and optimisation
► We work with insurers around the world and can share “global best practice”
16 © 2015 Fair Isaac Corporation. Confidential.
Case Management
Analytics Social Network Analysis Business Rules / Model
Authoring Tools
FICO Fraud Solutions for the Insurance Industry
FICO provides the expertise, the analytics and the
environment for insurance fraud within the following portfolios:
MOTOR / PROPERTY / HEALTHCARE / INSIDER FRAUD
with immediate bottom line impact
An end-to-end fraud management solution
Business Consulting
Professional Services Operationalize:
17 © 2015 Fair Isaac Corporation. Confidential.
FICO Analytic capabilities – use your data effectively
Fraud trained Outlier detection
Use tags to
differentiate the
innocent from the
guilty
Learn patterns and
identify aberrance
Fraud
SNA
Connects fraud rings across
seemingly unconnected data by
detecting and linking identity
information
Learn complex relations from identified fraud in historical data, then leverage this to predict fraud
Uncover new types of fraud by identifying outlier and aberrant claims
Social Network Analysis for identity and entity resolution
FICO uses multiple detection methodologies to improve detection rates and reduce false positives
18 © 2015 Fair Isaac Corporation. Confidential.
“Organizations should continue with business analytics projects that
can help reduce costs or retain customers. There is growing evidence
that higher business analytics competency and pervasiveness
have a direct impact on competitiveness.”
—Worldwide Business Analytics Software 2009-2013 Forecast and 2008 Vendor Shares, August
2009, IDC #219383
“Through 2015, analytic applications will remain one of the fastest-
growing categories of BI and business applications..”
— Gartner: Predicts 2010: the Top Five Concerns in the Analytic Applications Space for the Coming Year,
12/14/2009, G00173384
“The chaos in the markets…should be a boon to firms that evaluate
portfolio risk. Buying in companies like these is a bet that in a world
awash in data and complexity, the firms that crunch the data will
become more valuable.” — Forbes, May 7, 2010
Today’s Top Businesses Compete Analytically Today’s Top Businesses Compete Analytically
19 © 2015 Fair Isaac Corporation. Confidential.
“FICO is growing its presence in and beyond financial services by extending the
precision of analytics across all decision areas and by bringing more advanced
decision modeling and mathematical optimization within the reach of decision
management professionals.” — The Forrester Wave: Predictive Analytics and Data Mining Solutions, Q1 2010 (February 4, 2010)
“FICO continues to lead the services operations analytic applications segment
of the market.”
—Worldwide Business Analytics Software 2009-2013 Forecast and 2008 Vendor Shares, August 2009, IDC
#219383
“FICO is notable among analytic application providers in its extensive experience in
delivering high value in industry-specific, decision-centric applications.”
— Henry Morris, Senior Vice President , Worldwide Software and Services IDC
.”
FICO is the Leader in Analytics for Decision Management
20 © 2015 Fair Isaac Corporation. Confidential.
FICO Identity Resolution Engine
Federated Search
Search across disparate data – BIG data and
SMALL data - in real time, or in
batch, to see where entities match across records
Discover
Real time visualization of
linking from known attributes and their
related entities
SNA
Pre-built visualization and inquiry of smart
networks to promote proactive analysis,
and facilitate reactive review
Reactive Review Proactive Analysis
21 © 2015 Fair Isaac Corporation. Confidential.
Federated Search – Unique linkage across data sets
Search Request
• Full Name John Smythe
• Address 325 Mast Ct
• City Midland
• State MI
• Country USA
• DOB 9/22/1966
• Passport 981347823
Match Results
Match Full Name Address Passport Ref #
99% Jon Smythe 325 Mast Ct 981347823 345333
96% John Smythe 335 Mast Apt 202 981347820 656966
95% Jonathan Smith 202 – 325 Mast 981347820 965233
92% John Smith 352 Mast Ct 981347832 966898
• Connects to any data source – internal or external
• Utilizes more than 50 proprietary similarity search algorithms that can be tuned to the nuances of your
data and your appetite for fuzzy matching
• Avoids privacy issues and exposition of sensitive data via the privacy mode
• Does not require data cleansing, ETL or warehousing thereby eliminating problems associated with data
normalization and protecting the forensic integrity of data
• Leverages standards-based architecture utilizing technologies like SOAP web services, Java Script, XML,
LDAP and JDBC
• Easily tunable and extensible to scale to your needs
22 © 2015 Fair Isaac Corporation. Confidential.
Discover (link analysis)
Expensive
• Valid identity info (phone numbers, addresses, etc) must be obtained and managed
Physical limitations
• People are limited to how many cell phones they can carry with them or number of addresses that they can have access to
Mental limitations
• There are only so many fictitious details a person can remember
Re-use or recycling of information
Relationships between seemingly unconnected data can be found
Extending the single entity view to visualize where attributes
are shared between these entities, in real-time
23 © 2015 Fair Isaac Corporation. Confidential.
Link Analysis
Social Network Analysis
SNA is link analysis on steroids
Social Network Analysis (SNA) delivers 2 core functions:
► Analytics to drive detections of undesirable behavior
► Visual user interface to guides analysts to the connections that matter
While Link Analysis is an investigative tool that starts with a lead,
such as a customer whose connections you want to explore,
Social Network Analysis starts by building all the connections in the
data so that we can use analytics to inform where we investigate.
24 © 2015 Fair Isaac Corporation. Confidential.
General Usage Models – Bi directional analysis B
atc
h F
raud
Dete
ction
Broad Search Analytically
Prioritized Results New Suspects
Tra
nsactional
Investig
ation
Known Suspect Targeted Search Specific Output
25 © 2015 Fair Isaac Corporation. Confidential.
FICO Analytical capabilities – the best fraud defense
Description Claim Level Network Level
Association with
Known Bads
Using known bad data such as
hot addresses and existing
case data to find more fraud
Individual on a hot list
appears as a claimant
Multiple cases with fraud
outcomes and recoveries
exist on this network
Domain Specific
Rules
Using known footprints /
patterns of fraudsters, business
rules are written to identify for
review
Delayed claim report date
Incident date is close to
policy inception
This network shares injured
third party claimants across
otherwise unconnected
incidents
Statistical
Outliers
Using profiles of grouped claim
characteristics to identify
aberrant patterns
Medical billing is unusually
high given typical claim type
profile
High velocity of claims on
this network compared to
most networks
Predictive
Analytics
Using statistical models to
understand if and how
predictive varying indicators
and attributes are of future fraud
Claims containing a high
number of soft tissue injuries
is correlated with a fraud
outcome
Networks which contain
repeated incident
descriptions across claims
are correlated with fraud
outcomes
Fraud
Analytic capabilities
26 © 2015 Fair Isaac Corporation. Confidential.
Conclusion
► However good you think your fraud defences are, you are under attack.
► Your data plus FICO’s expertise and analytic tools can help the fight back
► Don’t leave it till another day to talk to us…
► FICO can uniquely offer consultancy, software, data and analytic tools plus the associated training to make you self sufficient.
► Cloud hosted options reduce delay in obtaining IT resources
► All FICO fraud prevention investments pay for themselves within 6 months
© 2015 Fair Isaac Corporation. Confidential. This presentation is provided for the recipient only and cannot be reproduced or shared without Fair Isaac Corporation’s express consent.
Thank you.
Richard Hill Client Services – Partner E: [email protected] T: +44 7930 451758 Find me on Linked In.