The insurance industry was making headlines as usual before the advent of the COVID-19 outbreak took the world by storm.
With the global health emergency, fraud in the insurance industry started to rise with each passing day.
The Allianz survey in 2019 shows a 4.4% increase in insurance scams as opposed to 2018 accounting for a staggering number of losses.
The insurance industry had gross premiums worth €3.906 trillion the same year that created more opportunities for fraudsters to benefit from.
While growth in health insurance was supposed to go up, demand for life insurance raised up from 2.8% to 4.4%. On the other hand, insurance rates for Property and Casualty (P&C) went down from 5.4% to 4.3%.
This did not discourage what cybercriminals were already doing, rather they stepped up the game as soon as COVID-19 arrived because more and more people were turning towards the digital space amid the social distancing restrictions.
What Impact did Insurance Scams Have?
Insurance scams are one of the main reasons why the industry is not prospering as it did earlier. The fact that insurers and policyholders are not well aware of these scams makes the situation even worse.
As a result, there is a rise in premium rates that has a direct influence on customers and companies. According to research, companies that work in the insurance sector face a capital loss of as much as $30 billion each year on average.
Unfortunately, this loss is usually made up by innocent users who are not even involved in the scams.
Although, there already exist policies and methods which insurance companies follow to deter money laundering instances leading to financial fraud.
Old-school and conventional security techniques are now easily outsmarted by clever fraudsters. This needs a modern solution purpose-built on identifying and verifying only legitimate customers and insurers so that cybercrime could be mitigated.
Identity verification of potential policyholders before they actually own the insurance will make sure they do not use someone else’s information to gain benefits.
What Are Some Insurance Scams?
The Federal Bureau of Investigation (FBI) shows that premiums worth $1 trillion are collected each year in the insurance sector by more than 7000 companies.
This sheer amount of revenue makes the industry lucrative and more appealing for bad actors that are always in the pursuit to exploit potential vulnerabilities in the system.
Here are some of the most common insurance scams and frauds prevalent in the industry.
New Account Fraud (NAF)
The number one fraud that exists in the insurance sector is called new account fraud or application fraud that consists of an imposter using synthetic and stolen credentials stolen to open fake accounts.
These, as a result, can have serious consequences for the actual insurance holder who was registered as a legitimate customer. Not only that, but there are also false insurers in the market that trick genuine users by opening fake accounts and false insurance policies against their name.
Identity verification thus becomes increasingly important to combat such instances.
Look out for Ghost Brokers
Bad actors are everywhere, and the insurance industry is no exception. Ghost brokers are identity thieves that use fabricated ID documents to create insurance policies for car motorists.
Although they may pose themselves as verified insurers, they may be hiding behind someone else’s identity. Insurance companies that hire such individuals must make sure they are genuine and honest with their profession.
In the digital space, online identity verification is a feasible approach towards solving this problem and protecting legitimate users.
Identity Verification for Better User Identification
The insurance industry needs to incorporate robust identity verification solutions in their Know Your Customer procedures so that they could stay compliant with globally-set financial rules and regulations and also to take down a significant amount of fraud that is already on the roll.
These digital identity verification solutions often come with state-of-the-art technologies powered by artificial intelligence that allows customers of insurance companies to breeze through verification and authentication procedures.
Identity verification is supported by intelligent facial recognition and document verification services, which are explained below:
Facial Biometric Verification
Facial recognition solutions take into account the unique biological (biometric) traits of end-users to perform identity verification.
Individuals applying for insurance policies could now verify themselves with a single scan of their face that acts as facial proof used for future authentication.
This way, insurers can not only meet KYC requirements but also make sure their customers are authentic and have a genuine identity.
Another means of performing identity verification of potential insurance holders is through validating their identity documents.
Digital KYC solutions offered by service providers in the market could be used by the insurance sector that extracts relevant information from user documents, uses it to verify essential details, and meet identity verification and customer onboarding standards all at once.
Address verification solution is crucial for verifying the address of an individual that is mentioned on their official documents.
Those official documents include government-issued identity cards, driving licenses, passports, insurance agreement, tax bill, utility bill, CPR smart, bank statement and more.
Acquisition of such a solution is mandatory to dodge illicit activities and evolving cyberattacks.
2 Factor Authentication
Businesses deal with different types of data each day. Securing the infrastructure of organization and user information with only a single password is not enough.
2 factor authentication plays a promising role in customer authentication and verification for the prevention of deep fakes and counterfeits. 2 factor authentication provides smooth and quick customer onboarding with the accuracy rate of 99% within 3 to 5 seconds.
Illicit money transfers and money laundering activities are evolving at a swift pace. Knowing your customer (KYC) checks helps to validate the identity of potential customers.
Anti-money laundering solutions are used to identify high-risk entities and by utilizing exhaustive AML databases.