Fair Isaac and Company (FICO), the firm that is known for the consumer credit score system, is now in the insurance game. Bankrate reports that FICO has devised a system to help catch insurance fraud. Revealed Tuesday, experts predict that the new FICO system will save billions of dollars in fraudulent insurance claims worldwide.
Finding fraud fast
Using a predictive model designed to identify insurance fraud quickly, FICO claims that its system works much like a certain control center of the human anatomy.
“The model is based on neural networks, modeled after the human brain,” said FICO via a media release.
By locating insurance fraud and stamping it out before the cumulative effect is dispersed across the network of honest consumers within the insurance claim pool, FICO believes it is doing a great service for society. Considering the amount of money at stake – reports indicate that $52 billion is lost each year worldwide as a result of insurance fraud – the insurance industry isn’t about to question the efficacy of what FICO is attempting to do
If FICO’s actions help to turn the numbers around, numbers that indicate that 10 percent to 20 percent of U.S. insurance claims are fraudulent, a great deal of money will no doubt be saved.
Other weapons in FICO’s arsenal, but not yours
When it comes to battling insurance risk, FICO and other credit data providers like TransUnion and LexisNexis – have other weapons available, notes Bankrate. These companies provide insurance scores that are predictive of the likelihood that an individual will file an insurance claim. This score is based on information found in a consumer’s credit report, and it applies to claims for automotive and homeowners insurance. Underwriters use this data to set premium prices.
The assumption – based upon some statistical data – is that consumers who frequently miss credit card payments and owe their creditors sizable sums of cash come across as insurance claim risks. Broken down, a consumer’s payment history accounts for 40 percent of the insurance score; 30 percent comes from how much outstanding balance a consumer is carrying; how long the consumer has held credit accounts equals 15 percent; and the types of credit carried amount to 5 percent of the score. The remaining 10 percent comes from demographic and other actuarial data, according to FICO.
Consumers don’t know their FICO insurance scores
Unlike a FICO score for consumer credit, consumers cannot easily access their insurance score. Insurers aren’t obligated to disclose the scores, either. All that consumers can hope for is that if they have good credit scores, their insurance scores will also be good.
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