The Impact of Insurance Fraud

AMSTAT Consulting has applied an effective analytical approach to evaluate the cost of insurance fraud and to quantify the value of investments in counter fraud analytics capabilities in order to reduce our client’s risk exposure.

By incorporating this empirical data into its simple Monte Carlo model, AMSTAT’s analysis shows that the annualized cost of fraud has a significant business impact. For every dollar of profitability in the property and casualty insurance industry’s profitability, the annual cost of fraud under the status quo is most likely to be about 60 cents, with a 10% likelihood that it will equate to nearly an extra dollar of cost.

By incorporating the P/E multiples for the property and casualty insurance industry into its Monte Carlo model, AMSTAT’s analysis further illustrates the significant impact of fraud: under the status quo, every $1 in fraud reduction would translate to an increase of $10.80 to $24 in market valuation, with a median of about $17.70.