Canadian Underwriter

Online insurance is no safe haven from fraudsters

September 27, 2019   by Jason Contant

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Online transactions in insurance have been identified as nearly twice as risky as other industries, new research has found.

Iovation, a U.S.-based fraud detection company, said Tuesday that among the 10-billion global online transactions it screened between September 2018 and September 2019, 9.14% were identified as “risky” in the insurance industry, compared to 5.09% across all industries.

It released the statistic, along with other recent industry fraud data, at the InsurTech Connect 2019 conference, held Sept. 23-25 in Las Vegas.

As consumers increasingly gravitate to digital platforms and mobile for their insurance needs, carriers will face new fraud challenges, predicted iovation, a TransUnion company, which works with P&C and life insurers.

One major challenge is application fraud, where fraudsters create accounts using someone else’s personal information, fake details or a mix of the two. For example, they may alter or falsify application information to reduce their premiums or open insurance policies for fictitious beneficiaries in the case of a life insurance application. Attempted online fraud of this type was up 516% among iovation customers from 2015 to 2018.

In Canada, getting a handle on how much fraud costs the industry has been difficult. The industry estimates auto insurance fraud in Ontario costs carriers $1.6 billion a year, based on a 2012 KPMG report. For its part, Aviva Canada estimates auto fraud costs the industry $2 billion per year Canada-wide. There is no estimate for fraud in non-auto lines.

According to the U.S.-based Coalition Against Insurance Fraud, fraud accounts for 5-10% of claims costs for Canadian and American insurers, with some insurers estimating the total as high as 20% of claims costs. Across all lines of insurance in North America, the estimated cost is between US$80 billion and US$90 billion.

As transactions move online, so will the fraudsters, said Melissa Gaddis, iovation’s senior director of customer success. She noted, however, that online insurance offerings do make business processes more efficient and the consumer experience more convenient.

Besides application fraud challenges, TransUnion and iovation identified several other fraud challenges:

  • Ghost broking: Fraudsters purchase insurance with false details or create false documents that look like they are from a legitimate insurance carrier. They then resell the policy to an unsuspecting victim, who is not covered if an event occurs. This type of fraud is up 139% among iovation customers from 2015 to 2018.
  • Fraudulent claims: A claimant makes up or exaggerates a claim. Online, first-party claims fraud is when a person applies for money to pay a fictitious or exaggerated claim; this is up 271% among iovation customers from 2015 to 2018. Online, third-party claims fraud is when a person falsely claims to be a broker submitting a fictitious or exaggerated insurance claim on behalf of a client; that for of fraud is up by 63% among iovation customers from 2015 to 2018.
  • Bad debt: Insurers provide coverage for a period of time for which they do not receive payment, which might happen when the lack of payment is due to a bad cheque, stolen credit card, etc. Bad debt is a particularly major issue for auto insurance carriers, typically making up 1-2% of all personal auto premiums written.
  • Account takeover: This form of fraud, more prevalent with life insurance policies, occurs when someone not insured on a policy accesses it to either obtain sensitive information or dishonestly route an upcoming claims payment to themselves.
  • Contact centres: Fraudsters may gather data about policyholders by mining social media or the dark web. Subsequently, they combine high-pressure tactics with spoofing technology to socially engineer and take over policyholders’ accounts, or apply for new policies.

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