Insurance Fraud is Getting Smarter: How Alorica Stays Ahead

How AI behavioral analytics is tackling a $308 billion fraud crisis with smarter detection.

Insurance fraud isn't just a line item on a corporate balance sheet; it's a hidden tax that every policyholder pays. At $308.6 billion annually in the US alone, fraud costs the average American family between $400 and $700 each year in higher premiums. But here's what's really concerning: 78% of insurers reported steady or increasing fraud in 2024, with 68% expecting this trend to continue over the next three to five years.

The old approach to fraud detection, watching for red flags and following set rules, can't keep up. Fraudsters now use advanced techniques like synthetic identities and AI-generated fakes to beat conventional security.

The insurance industry's answer? A complete overhaul of how we catch and stop fraud.

How Fraud Has Gotten Smarter

Insurance fraud has moved far beyond simple staged car accidents and fake medical claims. What used to be small-scale, individual scams have evolved into sophisticated operations involving organized criminal networks. Today's fraud is more complex, harder to detect, and happens on a much larger scale.

The new fraud playbook includes:

Fake identities: Criminals create completely made-up identities using a mix of real and false information. AI tools make it easier than ever to create convincing fake documents and personas.

Online application fraud: As insurance moves online, fraudsters take advantage of digital processes to submit false information, lie about their risk profiles, and create multiple fake accounts.

High-tech staged claims: Modern staged incidents use advanced planning and technology, including coordinated social media campaigns and AI-generated fake evidence that can fool traditional investigations.

Organized fraud networks: Today's fraud often involves criminal groups working across multiple states or countries, sharing resources and stolen identities to maximize their impact. As insurance companies go digital to provide faster, more convenient experiences, they've also created new opportunities for sophisticated criminals to exploit.

Why Insurance Fraud Hurts Everyone

The $308.6 billion annual cost of insurance fraud is about more than just money, it threatens the entire insurance system. When fraud reaches this level, it stops being just a financial problem and becomes a threat to how insurance works for everyone.

For customers: Fraud doesn't just mean higher premiums. It also creates mistrust that can slow down legitimate claims and add extra verification steps that make getting coverage more difficult.

For insurance companies: The problems go beyond financial losses. They face higher costs for investigating fraud, damage to their reputation when scams become public, more regulatory oversight and compliance requirements, and loss of customer trust and business.

For the industry: Widespread fraud attacks the trust that insurance depends on, which could destabilize the entire system if it continues to grow.

Here's the troubling part: 96% of insurers already use anti-fraud technology, but fraud keeps growing anyway. This means the problem isn't that companies aren't using technology, it's that they need better technology combined with the right expertise to understand and act on what they find.

Why Current Detection Methods Can't Keep Up

Traditional fraud detection works by looking for specific warning signs and patterns from past fraud cases. If someone submits a claim that matches known red flags like filing multiple claims quickly, showing certain injury patterns, or using specific providers, the system flags it for investigation.

This approach has three major problems:

Reactive rather than proactive: Rule-based systems only catch fraud that looks like previous fraud. They miss novel schemes and evolving tactics.

High false positive rates: Broad rules often flag legitimate claims, creating customer friction and wasting investigative resources. Current systems generate false positives 20-50% of the time.

Inability to detect coordinated efforts: Traditional systems struggle to identify connections between seemingly unrelated claims or applications that are part of larger fraud networks.

The insurance fraud detection market is projected to grow from $5.6 billion in 2024 to $40.1 billion by 2033—a 22.7% CAGR—as companies need detection systems that can keep up with evolving fraud schemes.

How AI Changes the Fraud Detection Game

AI is transforming fraud detection by going beyond traditional rule-following systems. Modern AI learns, adapts, and finds patterns that humans and old systems would miss.

Key AI advantages:

• Smart pattern recognition: AI can spot subtle signs of fraud across massive datasets, even when everything looks normal on the surface.
• Real-time monitoring: AI watches user behavior throughout the entire process, from quotes to claims, catching suspicious activity as it happens.
• Behavioral analysis: AI understands what people do, not just what they say. When someone applies online, they leave digital clues like how they navigate, their typing patterns, where they pause, and how they interact with forms.
• Network detection: AI maps connections between applications and claims to uncover fraud rings operating across multiple locations.
• Continuous improvement: Unlike static systems, AI gets smarter by learning from new fraud patterns.

The biggest breakthrough is catching fraud before it happens, not after. By analyzing how people behave during applications, AI can prevent fraud at the earliest stage.

Legitimate customers show natural patterns like normal typing rhythms and logical navigation. Fraudsters often reveal themselves through copy-paste behavior, unusual navigation suggesting they know how to game the system, or timing patterns that indicate coordination with others.

Combining AI with Real Human Insight

At Alorica, we've learned that the best fraud detection combines smart AI with experienced human experts. Technology gives us the speed to analyze millions of transactions, but humans provide the insight to understand what it all means.

Our approach focuses on three key areas:

Complete behavior tracking: We don't just look at application data—we watch the entire customer journey, from first website visit through claims. This complete picture shows patterns that looking at single moments would miss.

Finding hidden connections: Our AI is great at spotting links between accounts, applications, and claims that seem unrelated. We can uncover fraud networks operating across multiple states with dozens of people involved.

Constant risk monitoring: Instead of waiting for warning signs, our systems continuously assess risk throughout the customer relationship, letting us stop fraud before it happens. But technology alone isn't enough. Our fraud experts work with AI systems to:

• Investigate complex cases that need human judgment.
• Train and improve AI models when new fraud patterns emerge.
• Provide the real-world context needed to understand how fraud tactics are changing.
  

Why Alorica + Pasabi Delivers Better Fraud Protection

This is where our partnership with Pasabi creates something powerful for insurance companies. Pasabi brings AI detection systems to combat insurance fraud. Alorica brings the human experts with deep knowledge of insurance fraud patterns to make the most of the technology.

Together, we deliver:

Pasabi's advanced fraud detection technology provides the foundation, using algorithms trained on advanced behavioral analytics, network analysis, and continuous learning systems that adapt to new fraud tactics in real-time.

Alorica's AI insurance-specific expertise enhances these capabilities with a deep understanding of insurance fraud patterns, industry-specific risk models, and compliance requirements to combat the complex cases that AI can miss.

The result? Fraud detection that's stronger than what either company could build alone, bringing together insurance expertise, smart AI, and proven human expertise. Your customers stay protected from the moment they apply all the way through their claims.

Get Ahead of the Next Fraud Wave

The insurance fraud detection market is expected to hit $40.1 billion by 2033 because fraud keeps getting smarter—but so do the tools to stop it. With 78% of insurers seeing more fraud, the question isn't whether to use AI fraud detection, but how to do it right.

Companies that combine AI with human expertise and specialized knowledge will be best positioned to protect their customers and stay competitive. At Alorica, we believe the future is about smart partnerships that bring together the best technology and human insight.

If you're ready to see how Alorica can help strengthen your fraud prevention, let's talk. Whether through partnerships like ours with Pasabi or working directly with your teams, we're here to help you build the protection your business needs.

Contact Alorica today to learn how we can help transform your approach to insurance fraud detection and prevention.

Alorica is a global leader in customer experience management and AI-powered fraud prevention, helping insurance companies detect and prevent sophisticated fraud schemes while maintaining seamless customer experiences. Learn more about our Digital Trust & Safety solutions at www.alorica.com/digital-trust-safety.