CHICAGO, Sept. 26, 2018 (GLOBE NEWSWIRE) -- Striking the delicate balance between customer experience and fraud prevention is not an easy feat. This was a common theme among newly released Forrester Consulting global studies exploring fraud in the financial services, insurance and single and multi-family rental industries.
TransUnion commissioned Forrester to conduct studies focusing on these industries in the August/September 2018 timeframe. Each study can be downloaded at the TransUnion Fraud Trends 2018 website. Register for a webinar to learn more details about the financial services and insurance studies here.
The studies come at a time when TransUnion’s own proprietary fraud data found that outstanding balances of suspected synthetic fraud for auto loans, bankcards, retail cards and personal loans have now surpassed $1 billion as of Q2 2018. Insurers and large and small property managers also face new fraud schemes as the prevalence of online applications continues to rise.
Increases in fraud are corroborated by the research conducted by Forrester.
“It’s clear that a major hurdle for decision makers in industries such as financial services, insurance and the rental market is how to fight fraud while ensuring prospective customers have a good experience. Consumers are demanding a better experience and those businesses that are not delivering on this are losing out to their competitors,” said Geoff Miller, head of global fraud and identity solutions for TransUnion. “It’s also apparent that many of the same fraud issues that plague American financial services and insurance companies are impacting similar businesses in Canada, India and likely other countries around the world.”
Exceptional customer experience is critical for most decision makers featured in the studies. Nearly three in four financial services firms (71%) said customer expectations influence the methods they use to detect fraud. About two-thirds (65%) of insurance professionals agree that the tactics they have in place to weed out fraudsters can negatively impact their good customers.
Executives also lamented that a major problem in fraud prevention and detection is that many fraud solutions lack the flexibility to adjust in real time. As well, the end user verification process is too complicated, resulting in poor customer experience.
“To effectively fight fraud, businesses cannot wait days, hours or even minutes to make the right decision. They need effective tools that utilize evolving, overlapping networks of physical and digital risk signals that will inevitably help both businesses and the consumers they serve,” said Miller.
Forrester study participants included 465 decision makers from the financial services, insurance and property management industries. Executives from the United States, Canada and India participated in the financial services and insurance studies while leaders from the United States contributed to the property management research.
More information about the Forrester studies can be found here. Continue to read for in-depth study highlights about the insurance, financial services and single and multi-family rental industries.
Fraud Costs Insurers Billions of Dollars Annually; Negatively Impacting Customer Experience
The Forrester insurance study, “Insurers: Strike The Right Balance Between Fighting Fraud And CX,” found that 66% of insurance firms revealed that fraudsters are evolving their tactics, threatening customers and their bottom line.
According to a government study1, in the US alone, the total cost of property-casualty and auto insurance fraud is estimated to be more than $30 billion per year.2
One of the biggest problems identified by insurers is the verification of identities as fraudsters are exploiting weaknesses in the application process through three main types of fraud, including:
“The types of fraud we see in the insurance industry have serious economic implications for both insurance providers and their customers,” said Mark McElroy, executive vice president and head of TransUnion’s insurance business unit. “Customers are demanding exceptional experiences throughout the insurance process. This means that false alerts, detection, prevention procedures and the investigations that go with it can negatively impact their customer experience.”
As more consumers expect to receive frictionless, high quality interactions, fraud continues to threaten insurance firms. In fact, 49% of insurers are not confident in their ability to detect soft fraud, 40% are not confident in their ability to detect identity fraud, and 55% are not confident in their ability to detect hard fraud.
The study also revealed that in the past year:
“Every stage of the customer journey is susceptible to fraud, but identifying the types of fraud and detecting it as early as possible is key,” said McElroy. “Misidentified or undetected fraud can have a major impact to insurers’ reputations and ultimately their bottom line.”
When insurance carriers were asked “What impact does fraud have on your business?”
While fraud is hard to eliminate completely as fraudsters evolve their tactics, there are ways to alleviate fraud risk in the insurance industry. It’s important for insurers to combat fraud by arming themselves with solutions that bridge the gap between customer experience and fraud prevention.
“Taking a pre-emptive strike against insurance fraud will serve to help prevent bad debt, fraudulent claims and losses down the road,” McElroy concluded.
Increase in Digital Intensifying Rise in Financial Services Fraud
The Forrester financial services study, “Fraud Detection and ID Verification in Financial Services,” found that fraud is a widespread issue in the industry with 94% of firms experiencing some sort of fraud in the past two years. Not only is the fraud becoming increasingly more difficult to prevent and detect, it poses a new challenge to financial institutions – how to maintain a competitive edge without sacrificing the customer experience.
Approximately 70% of financial services firms reported their customers prefer to use digital channels over other channels. While this trend is nothing new, the shift in consumer behavior has made way for new types of fraud to emerge. Financial institutions now encounter fraudulent activity such as synthetic fraud and loan stacking, where sophisticated technological capabilities such as real-time insights, machine learning and predictive analytics are necessary to flag the suspicious activity, quickly.
What types of fraud, if any, has your company experienced in the past two years?
|Identity theft / new account fraud||65||%|
|Synthetic identity fraud||58||%|
|Account takeover fraud||56||%|
|None; we have not experienced fraud in the past two years||6||%|
*Base: 153 professionals involved in the evaluation/ selection of fraud detection technology.
“Consumer behaviors are changing; savvy fraudsters have recognized that and they have evolved their tactics to mimic those of legitimate customers,” said Steve Chaouki, executive vice president and head of TransUnion’s financial services business unit. “Financial institutions need to ensure their legacy systems are keeping up with fraudulent activity without negatively impacting their customer experience.”
To combat the rise in digital fraud, advanced technologies are needed to identify red flags at the first warning sign. The majority of fraud tools, however, do not bring both fraud detection and ID verification solutions into one seamless experience. Nearly six in 10 decision-makers noted that their company currently has three or more fraud detection or ID verification solutions – yet less than one-third are confident in their ability to identify fraud.
The study also found that customer experience correlates strongly with brand loyalty and the likelihood of consumers coming back for more products. Customers have also come to expect that every digital interaction, customer service call and application process should be seamless and consistent.
More than half (54%) of financial institutions indicated that their current identity verification and fraud detection processes are too complex and burdensome – not only for customers to conduct transactions, but also for the organization to maintain. Furthermore, half of financial institutions are not satisfied with the capabilities that they currently have in place.
“When financial services customers feel they are burdened with extra steps to verify their identity, it increases abandonment and reduces future engagement,” said Chaouki. “A poor verification experience can turn away good customers and increase the risk of customer defection and lost revenue.”
The implications of fraud can be felt across the business, with high costs for victim remediation, fraud loss and legal complications for non-compliance. Financial institutions must take all of these factors into account while also keeping costs down. Forrester estimates that fraud claims 2.39% of revenue for financial services firms, costing companies billions every year.
Evolving Fraud Schemes Impacting Property Managers
The Forrester rental housing industry study, “Misunderstanding and Inconsistency: The State of Fraud In The Rental Housing Industry,” found that certain forms of fraud are increasingly putting pressure on property managers.
These forms of fraud include synthetic, digital and true name fraud. Synthetic fraud, in particular, has become a new weapon of choice as fraudsters can use manufactured identities during the application process. Unless sophisticated technology is in place to flag suspicious information as part of the verification process, the fraud may not be realized until months after approval.
The impact of such fraud is real. More than eight out of 10 decision makers at property management companies have experienced fraud up to 20 times within the past two years.
The study found that the advent of online rental applications is a primary driver for the fraud that exists in the rental housing industry today. Online applications are now outpacing those that are submitted in-person, with nearly 59% of applications taking place online. As a result, more than half of property management companies surveyed identify online applicant-based fraud as a critical or near-critical issue.
“As the rental housing industry continues to move to a digital application process, we are working closely with many property managers to better understand the new risks that are out there,” said Mike Doherty, senior vice president in TransUnion’s rental screening business. “It’s critical that they are more effective in getting the right renters as this will reduce involuntary turnover cost while increasing cost efficiency.”
Please click here to secure the complete Forrester studies on the financial services, insurance and the single and multi-family rental industries.
About TransUnion (NYSE:TRU)
Information is a powerful thing. At TransUnion, we realize that. We are dedicated to finding innovative ways information can be used to help individuals make better and smarter decisions. We help uncover unique stories, trends and insights behind each data point, using historical information as well as alternative data sources. This allows a variety of markets and businesses to better manage risk and consumers to better manage their credit, personal information and identity. Today, TransUnion has a global presence in more than 30 countries and a leading presence in several international markets across North America, Africa, Latin America and Asia. Through the power of information, TransUnion is working to build stronger economies and families and safer communities worldwide.
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