The High Price of Synthetic ID Fraud during a Cost-of-Living Crisis
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16-Oct-23
Fraud is on the rise worldwide. In the UK the National Fraud Intelligence Bureau recorded 17% more fraud related crimes in the year ending March 2022 than the same period the previous year. [i] Fraud can affect most industries, with the insurance sector being no exception. The rise in insurance fraud is costing insurance companies huge amounts of money and time. With the current cost of living crisis and many clients already struggling to make ends meet, this is the worst time to be passing the cost of fraud on to customers.
Some statistics suggest that in a massive 85% of insurance fraud cases, the cause can be traced back to synthetic ID fraud. [ii] If synthetic ID fraud can be dealt with effectively, it will vastly reduce the cost of fraudulent activity to insurance groups and the clients they serve.
Types of ID fraud
ID fraud has long been an issue for businesses and individuals to contend with. In the past, ID was simply stolen and then used directly to open accounts or steal money. In this type of identity theft, there is a clearly identifiable “victim” who is likely, once aware of the issue, to log the crime and alert companies to the fraudulent activity taking place. In the case of insurance companies, they could then refuse pay outs and cancel policies.
However, the advance of technology has led to identity fraud becoming more and more complex, with the birth of synthetic ID fraud. Unlike with stolen IDs, these synthetic identities may have no single “victim” meaning that there might never be a crime recorded, so it can be very difficult to identify that a crime has taken place.
Synthetic ID can come in different formats.
In manipulated synthetics, a genuine ID may be modified in the favour of an individual person. In the case of insurance applications, they may moderate their own identity details in an effort to make themselves look lower risk and therefore be given a lower policy price.
Manufactured synthetics involves criminals building entirely new identities, by combining stolen details and fabricated details. This method of combining personally identifiable information (PII) from a number of different sources is extremely hard to track. There is no once clear “victim” and multiple identities can be created.
The cost of fraudulent ID
For the insurance sector, large amounts of money can be lost to payouts for fraudulent claims. Imagine a scenario where a fraudster creates a fake ID and sets up an insurance policy. There is then a fabricated “accident” (in which deep fake images can be used – [link to deep fake article]). Other fraudulent identities can be used to play the part of the other victims involved in the same accident. Still further fake IDs can be used to launder money. [iii] This scenario can take place multiple times, with it being very difficult for insurance companies to know which claims are suspicious enough to warrant investigation. Where fraud is discovered, it is hard to identify any real-life perpetrator to prosecute meaning that money isn’t recovered.
It is not only insurance companies themselves that are at risk from these manufactured synthetic identities. Buyers are also at serious risk of falling foul of what is known as “ghost brokers.”
What is Ghost Broking?
Ghost brokers use synthetic fake identities to create insurance policies at a favourable price, selling them on (via social media, or other means) to high-risk buyers who think they are getting a great deal.
This type of ID fraud is a serious concern to the insurance industry. It can affect the reputation of insurance companies – for example if a policy is bought in an insurance company’s name and is later found to be invalid. There is also an emotional cost to an individual of having an accident and then finding that they are not properly insured.
Stopping synthetic ID fraud
It is important that at the point of creating accounts and policies, ID fraud is identified and stopped. However, multiple complicated checks can be off putting for genuine buyers, who may then turn to other companies that have a more streamlined application process.
Is there a solution?
Oleg Zadalia, from LexisNexis Risk Solutions has an answer that is both straightforward and effective. Zadalia recommends email address verification as early in the application as the quotation stage. [iv] Email addresses are typically linked to so many online services that they can be used to establish that an individual is “real” quite effectively.
Identifying fraud as early on as the quotation stage means that no money is invested in cancelling insurance policies when they are later found to be fraudulent (or at the point of a claim). It also has the benefit of allowing a potential policyholder to input their details once from the beginning of the quotation process, through to buying the policy, renewing the policy and (if needed) going through the claims process. This makes the purchase and later interactions time effective for that client.
Other up-and-coming technologies, such as behavioural biometrics, used to detect whether the way someone is inputting data is human or artificial, can also be utilised in the fight against synthetic ID fraud. [v]
Having a team in place
As the insurance sector faces these new challenges, it is vital to have a professional, well-trained team in place. These should be technologically-adept individuals that understand the risks and issues and have capacity to be upskilled further to be able to support with identifying synthetic ID fraud and other types of fraud. Good customer service operatives, brokers, underwriters, analysts and claims handlers are needed. As you look to the future of your company, contact Aston Charles, Specialist Insurance Recruitment agency to discuss your recruitment needs. While the cost of synthetic ID fraud has the potential to be significant, with the right team in place, these expenses can be mitigated, enabling businesses to keep costs as low as possible for the clients they want to support.
[i] Nature of fraud and computer misuse in England and Wales: year ending March 2022 (2022) Census 2021. Available at: https://www.ons.gov.uk/peoplepopulationandcommunity/crimeandjustice/articles/natureoffraudandcomputermisuseinenglandandwales/yearendingmarch2022#:~:text=NFIB%20fraud%20increased%20by%2017,the%20year%20ending%20March%202020. (Accessed: 10 October 2023).
[ii] Chmielewska, I. (2023) Synthetic ID fraud - a growing threat to the insurance industry, Insurance Post. Available at: https://www.postonline.co.uk/market-access/claims-fraud/7954083/synthetic-id-fraud-a-growing-threat-to-the-insurance-industry (Accessed: 10 October 2023).
[iii] Battley, J. (2017) A case of identity fraud in the insurance sector, Trust ID. Available at: https://www.trustid.co.uk/a-case-of-identity-fraud-in-the-insurance-sector/ (Accessed: 10 October 2023).
[iv] Chmielewska, I. (2013) Synthetic ID fraud - a growing threat to the insurance industry, Insurance Post. Available at: https://www.postonline.co.uk/market-access/claims-fraud/7954083/synthetic-id-fraud-a-growing-threat-to-the-insurance-industry (Accessed: 10 October 2023).
[v] Murphy, J. How insurance carriers can tackle fraud with behavioral biometrics, Celebrus. Available at: https://www.celebrus.com/blogs/fdp/tackle-fraud-behavioral-biometrics-insurance (Accessed: 10 October 2023).
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