Artificial Intelligence vs. Insurance Fraud: Shift Gives Fraud-Fighting Superpowers
The global insurance landscape is rapidly evolving. Incumbent carriers are looking for solutions to improve their business performance and underlying unit economics, to respond to new digitally-native entrants, and to grow the overall market. Shift Technology is exactly such a player. The company has gained considerable traction in the industry with its AI-driven fraud detection technologies and today, we’re thrilled to welcome Shift to the GC family.
Paris-based Shift was founded in 2014 by CEO Jeremy Jawish, a young French-Lebanese founder, CSO Eric Sibony, his classmate from Ecole Polytechnique, and CTO David Durrleman. Jeremy and Eric both have technical & mathematics backgrounds and experienced the problem of insurance claims fraud first-hand as analysts within the Fraud Detection department of Paris-based AXA, one of the world’s largest insurance carriers.
Shift stood out to us given the work the team has done to develop a contemporary, machine learning-based approach to fraud detection that leverages a cooperative data model. Each incremental customer contributes to the platform for scenario building, susipicious business detection, and increasingly, nefarious consumer detection. Learnings result in savings that could not have been achieved with a carrier’s own data alone, driving significant network effects. Shift is working with some of the world’s leading insurance carriers across the P&C and healthcare sectors in Europe and Asia, and is growing its presence in the United States.
Problem at Scale
The insurance industry is massive with over $1.2 trillion in net premiums written each year in the U.S. alone. The largest carriers are under immense pressure due to declining asset management revenues, high operating costs and high payout ratios partially driven by fraud. There is significant opportunity for companies that can help incumbents become more efficient and profitable without compromising customer experience.
As insurance companies’ margins get squeezed, there are two key areas where they can leverage technology: pricing risk and reducing fraudulent claims payouts. To better price risk during insurance policy origination, carriers must optimize their “loss ratio” of “$ claims paid out” to the amount of “$ premiums ingested.”
Carriers can also look to reduce the amount of mistaken and fraudulent claims they pay out to policyholders. While most reimbursed claims are legitimate, a surprisingly high ~10% are not (this can range as high as ~20% for some carriers, and varies by industry). A bottoms-up market analysis suggests that over $100 billion is spent by insurance carriers paying out fraudulent claims every year in the U.S. alone.
An illustrative example of the impact of recovering fraudulent claims: in homeowners insurance in 2015 in the U.S., losses (and associated claims expenses like personnel) were roughly 62 cents of every $1 in premiums collected, and operating expenses (including broker commissions, marketing, taxes, & general overhead) were ~29%. If just 10% of paid claims are fraudulent, catching those claims has the potential to increase profits by more than 66%. While loss and expense ratios vary widely by insurance category, claims payouts come directly out of carriers’ bottom lines. By reducing this cost, carriers can pass along part of these savings to consumers, which — in an increasingly competitive market — will be critical to their success and perhaps even survival.
Today’s solutions are not working. Despite best efforts, current methods of fraud detection create a lot of noise from false positive alerts (~25% “hit rate” of alerts that are validly suspicious is industry standard) and insurance carriers can expect to catch just 10–20% of fraud.
Shift in Solutions
Shift Technology is about to change all of this. The company’s SaaS platform leverages Artificial Intelligence and network effects to detect fraudulent claims among its carrier clients. By moving beyond rule-based fraud detection to machine learning, Shift’s efficacy and “hit rate” is more than 2.5x the industry standard. Given the myriad challenges incumbent carriers face with fraudulent claims and the high costs associated with processing such claims, Shift has an incredible opportunity to help its carrier clients drive further efficiency and cost savings in their claims management.
After spending time with a number of entrepreneurs developing tools and technologies to empower existing insurance carriers on the other side of the market, we are thrilled to partner with the Shift team and our co-investors at Accel, Elaia and Iris in this Series B financing, and to help the company with its growth in the U.S. market.
The best is yet to come,
— Team GC