Articles - Rise in fraud demands next generation of identity validation

In October 2022, Aviva reported that application fraud is up 16% on the same month in 2021 and 15% of cases relate to ghost broking . This is likely to be the tip of an application fraud iceberg. Knowing that in times of economic hardship fraud increases, the pressure is on insurance providers to employ ever more sophisticated techniques to tackle fraud at the front end. Taking a leaf from the banking sector, identity validation using email address-based intelligence is providing a solution for a growing number of insurance providers in the UK and, more recently, The Republic of Ireland.

 By Shane McCabe, Strategic Account Manager, Insurance, Ireland, LexisNexis Risk Solutions

 There seems to be little doubt that the actual number of ghost broking scams as well as people deliberately mis-stating or omitting information in an insurance application for a cheaper quote is on an upward trajectory. In October 2022, the Insurance Fraud Bureau confirmed it had discovered over 55,000 fraudulent motor insurance applications in the past 12 months - more than double the figure previously detected, with Ghost Brokers linked to thousands of cases.

 The challenge for insurance providers has been spotting the flags for possible fraud at the application and quote stage without slowing down the process or causing friction for the vast majority of customers who are genuine and simply want a fast quote at a fair price.

 The urgent need for a solution to this challenge is evident in recent research by LexisNexis Risk Solutions amongst insurance customers in The Republic of Ireland . In our study, 34% of Irish policyholders said they have been tempted by an advert for fake insurance on a social media site. This rose to 55% amongst 17-24 year olds. Furthermore, 16% of 17-24 year olds have actually purchased potentially bogus insurance through a social media site.

 While awareness of ghost broking is low with just 24% of customers knowing about ghost brokers, 58% of Irish policyholders are worried about having their identity compromised for insurance fraud . It is perhaps not surprising that 89% expect their insurance provider to carry out proper checks to ensure they are who they say they are when they apply for insurance.

 Insurance fraud costs insurance companies in Ireland an estimated €200 million annually and the faceless nature of the online application process has a big part to play in this. According to The Central Statistics Office in Ireland, nearly one third (32%) of younger persons aged between 16 and 29 years, and nearly one quarter (24%) of internet users in the 30 to 44 years age group bought or renewed insurance policies online last year .

 The first line of defence for insurance providers has been using public records data and data shared across the industry to support identity validation.

 Now insurance providers in the UK and Ireland can bring in an extra layer of validation in a very seamless way through a risk score for the email address. This can provide flags for fraud that may have been missed in traditional checks. The score swiftly indicates a genuine identity or whether the identity has any links to past fraud. It also flags whether it could be a fraudulent ID created to secure insurance to sell insurance on or to make a fraudulent claim. Additional metapoints such as whether the email address and domain even exist, when the email address was first seen, or whether the email address bears a close resemblance to the proposer’s name for the policy offer further insight on the risk.

 The additional benefit of this up front insight into whether an applicant could be a fraud risk is that it can help insurance providers avoid the cost of incepting then cancelling policies that are found to be high risk only once the customer is on board.

 As the cost-of-living crisis puts a squeeze on people’s pockets, it is up to us as an insurance profession to do what we can to help policyholders from falling victim to ghost broking, or being tempted into application fraud themselves. Email address intelligence-based risk scores can play a vital role in helping to tackle the ever-evolving tactics of fraudsters, offering the immediate flags for fraud that could stop this activity in its tracks.

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