By Sameer Patnaik, Insurance Value Stream Lead – BizNeXT Consulting, YASH Technologies
With an increase in consumer demand for self-serve, the relationship between provider and consumer is being restructured through virtual channels – from the traditional model of face-to-face interactions to remote conversations via mobile devices (e.g., SMS, e-mail marketing, and website membership applications). The flip side is this has also brought consumers under the cyber risk radar.
Financial institutions have become more dependent on digital solutions, like other industries, to deliver their services and perform their daily operations. Cyber risk in insurance is a growing concern for financial institutions and customers. This is reinforced by the frequency of cyber-attacks that have only been exacerbated since the pandemic. The increased risk affects the business and customers’ trust in its services. Insurance Solution providers can mitigate these. To understand how an agile insurance solution provider can create a strong defense for your business, we need to understand the nature of cyber fraud in the industry.
The Rationale of Fraud Triangle in Insurance
The cost of insurance fraud is estimated at $40 billion annually in the US. The Fraud Triangle is where opportunity, incentive, and rationalization come together to create the perfect conditions for fraudulent behavior. The Insurance Fraud Triangle is a model used to help analysts and decision-makers in the insurance industry understand how fraud happens. It demonstrates how fraudsters can benefit from the financial world of insurance. This triangle has now swiftly moved to a Diamond, which has come to include fraudster’s capabilities!
The Problem Statement
Fraud capabilities continue to get more sophisticated: fraud activities are increasing with server attacks, digital fraud attacks, and other advanced cybercrimes. Fraud risk is high, and there is no practical framework to deal with it yet. Businesses and consumers often need to be equipped to detect the risk associated with cyber-fraud. There is a need to address this through a more organized, decentralized approach toward managing risk and challenging existing practices.
Migrating from Digital only to Managing Cyber Vulnerabilities around Digital
Digital technology has enabled consumers to shop for and purchase insurance in an increasingly technology-based environment in a consultative manner with insurers. Industry groups and federal governments have worked over the past few years to re-establish consumer purchasing power in the face of rising costs, regulation, and fierce competition. However, on the contrary, cyber vulnerabilities act as roadblocks to this growth.
If we study the illustration, we can understand the circular error. Insurance fraud adversely affects the Insurance Premium, impacting the Insurance Company’s financial statement.
For instance, Cyber insurance pricing in the United States rose by 96% and 73% in the UK in the third quarter of 2021, according to The Global Risks Report 2022, 17th Edition, by the World Economic Forum. These risks could lead to the rationalization of crime.
Adopt the Security-by-Design framework. A Security-by-Design approach is an initiative for organizations to build software or products securely from the beginning. It puts security at the forefront of the design process. It allows organizations to be proactive in reducing the risk of cyber-attacks instead of relying on extreme measures that are taken out of constant fear. This practical approach ensures that security will be consistent and monitored throughout the process, guaranteeing secure products/ services before they are released. The method is increasingly being adopted across many industries as it provides a more efficient and effective way to protect data before any attack can occur.
Therefore, Security-by-Design would be a physical necessity for the insurance industry’s digital anatomy and not a separate proposition. In addition, it will be up to the industry to adopt innovative technology and tools that can help in combatting fraud and maintain financial integrity. This can be an effective way to challenge the fraudster’s capabilities.
Where and how is Security-by-Design applied?
It is an approach to product development that integrates security requirements into the development process and ensures that data security is an integrated part of any new applications and products. Corporations also adopt this approach for their connected devices and infrastructure, as personal data needs to be secure from cyber-attacks.
Security by Design includes many controls that need to be implemented during the development process, such as authentication, encryption, authorization, etc., which are all essential for good cybersecurity practices. This approach also ensures that these controls are maintained throughout the product’s or application’s lifetime and can easily handle any changes or updates required.
Promoting the Value of Measurement and Building a Business Case:
An essential part of the Insurer’s job is communicating the logic between cyber risk mitigating technology Investment and business performance to the rest of the organization, its shareholders, and policyholders, thereby setting specific goals that include:
- Reduction of cyber vulnerability issues at the digital touchpoints and reduction in cyber fraud.
Measurement and Likeliness of Achievement:
- Stats on the number of issues and cyber fraud found for a specific period compared with historical stats, change dynamics, and Immediate-Short Term – Long Term Plans to mitigate threats.
- Regular and continuous war room strategy
- Training, awareness, whistleblowing, Behavioral Change, and Regular Retrospection
Insurers, irrespective of size, should embed the Security-By-Design framework as a must in their business operations and have it executed through employees, digital ambassadors, and customers. The goal is to ensure that products are secure from the start instead of worrying about implementing additional measures later. It further allows organizations to create more secure digital offerings with fewer resources and shorter time frames by utilizing existing design patterns and best practices and implementing new ones when necessary. It also helps reduce costs associated with post-release vulnerability management by proactively addressing potential weaknesses before they become problems. Ultimately, Security-By-Design provides insurance companies with comprehensive strategies for reducing risk while developing more secure products throughout their lifecycle.