It’s no secret that consumer data is “out there," being bought and sold on the dark web, and used regularly by bad actors for application fraud across the private and public sectors, including the insurance industry.
Identity theft has grown so rampant that it’s become a national conversation. President Biden made a point in his State of the Union address this year to mention that identity theft losses related to the distribution of funds during the pandemic will total billions of dollars. The White House is taking action and has since gone on to name a new chief prosecutor, Associate Deputy Attorney General Kevin Chambers, who describes the amount of data his team must sift through as “shocking.”
Of course, the problem is even larger than just pandemic-related losses. In the US:
Increasingly, insurance companies are experiencing the true cost of fraud first-hand in the form of damaged reputations, class-action lawsuits, and increased scrutiny from regulators. In this article, we’ll cover the macro forces driving fraud, explore the most common forms of fraud targeting the insurance industry, and review the three things every insurance company should do to protect themselves and their customers from fraud.
Fraudsters are using customer information stolen from breaches and other schemes (keep reading for the specifics) to target insurance companies via identity fraud. Because the bad actors have customer data, they can easily pass most application flows that require data input to "fake" an identity. As a result, even some of the biggest companies are realizing that many insurance policies are opened under fictitious identities, leading to fraudulent claims down the road.
Let's take a look at one important use case especially relevant to insurers: application fraud. Application fraud takes place when a fraudster uses false information to complete an onboarding flow.
In a recent high-profile case, fraudsters used basic consumer information to begin the quote process. The insurance company then auto-filled the application with additional customer information, including the victim’s driver’s license number, to streamline the process and accelerate onboarding. While this sounds like a good idea, it was actually a critical mistake. The fraudster “scraped” the new information that was auto-filled on the forms (including driver’s license numbers) and used the additional data to fraudulently apply for unemployment insurance under the victim’s name. By auto-filling forms with sensitive customer information BEFORE authenticating or verifying the user, the insurance company inadvertently helped criminals defraud victims. Lesson learned: identity proofing the user should be one of the first steps in any onboarding process.
Insurance companies have been making it easier for customers to obtain insurance products online in the last decade. While this is great news for legitimate customers, it also creates opportunities for bad actors.
Although banks have historically taken the hardest hit when it comes to fraud, insurers are far from immune. Today, fraudsters have learned that there’s big money in defrauding insurers and are leveraging application fraud at an unprecedented rate. To prevent fraud and protect their reputations, insurers must up-level their identity proofing.
To stop fraud, it’s important to get to the root of the problem. In the case of application fraud such as the example given above, the problem lies in the fact that the insurer’s application flow lacks the digital identity proofing capabilities necessary to provide a high level of assurance that the consumer is who they claim to be. Put simply, to build an application flow that prevents fraud, you need to know that you have the right person at the other end of the digital interaction. This assurance level is critical to the complete set of interactions that will follow.
Here are three steps every insurance company should take ASAP to improve their digital identity and security posture:
A PRO check is composed of the 3 checks companies should use to fortify their identity verification & authentication: Possession, Reputation, and Ownership:
While insurance companies who are proactive in leveraging the advanced identity technology described above will differentiate themselves by bettering customer experience and better protecting their customers, there are also important steps the industry must take as a whole to address rising rates of fraud. This year, the NAIC (National Association of Insurance Commissioners) created the Anti-Fraud Technology Working Group that is charged with reviewing and providing recommendations for the development of an Anti-Fraud Plan Repository. This repository will be used by insurers to create and store electronic fraud plans for distribution among various states and jurisdictions. The output of this working group and others focused on cybersecurity is expected towards the end of 2022 and should be a good start for an actionable plan.
Insurance companies today must develop identity proofing technology that protects their customers from a wide range of fraud and accelerates onboarding to boost revenue. By leveraging Prove’s cryptographic authentication technology, insurance companies will be able to protect their industry’s reputation among the public and avoid unnecessary regulatory scrutiny. With Prove’s exceptionally simple API structure and skilled team of identity experts, integration is a simple and straightforward process.
Want to get identity right for your insurance company? Contact a Prove fraud expert today.
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