Munich Re has tested and re/insured the security algorithm of German-Israeli InsurTech start-up Fraugster, which uses artificial intelligence (AI) technology to instantaneously check whether online payment transactions are fraudulent.
Fraugster’s self-learning algorithm allows online sellers to approve transactions faster and more reliably, which reduces costs and boosts profits by limiting the number of legitimate transactions that are refused.
Data analysts at Munich Re have tested the algorithm and found that its statistical theory, the quality of its transaction check, and its IT infrastructure are all fit for purpose and reliable.
Additionally, Munich Re has granted Fraugster a re/insurance policy against transactions that are wrongly deemed legitimate, as the start-up aims to reimburse its clients for any payment defaults caused by undetected fraud.
Working with Munich Re, Fraugster can now externalise this risk and focus on growth and new product development.
Online sales currently generate around €2 trillion in revenue worldwide and are growing at a rate of 25% per year, with credit card fraud accounting for losses of around €25 billion a year for online sellers, or an average of 1.5% of annual revenues.
Fraugster’s clients already make up around 4% of online sales worldwide, with a volume of roughly €100 billion, and its self-learning algorithm improves with each checked transaction, thus strongly positioning the company for growth as it hones itself and adapts to changes.
Doris Höpke, Board member for Special and Financial Risks at Munich Re, said: “The ever-growing volume of online sales means that there is great demand for better security.
“Fraugster and Munich Re’s Special Enterprise Risk Team have joined forces to provide this security through an innovative type of risk appraisal and a tailored insurance solution. This solution is creating macroeconomic value by reducing sellers’ costs and increasing their revenue and efficiency.”
Max Laemmle, Founder and Chief Executive Officer (CEO) of Fraugster, added: “With several million transactions passing through Fraugster’s system each day, our AI technology ensures that the product offered is very secure.
“The cooperation with Munich Re will make a significant contribution to our new AI-based product reaching e-commerce markets around the globe.”