The insurance industry has faced some drastic changes in 2020, with COVID-19 being the major highlight. Insurance companies were booming until the pandemic came like a wet blanket. According to Allianz, the combined value of premiums generated in 2019 was 3.906 trillion euros with a 4.4% growth rate. The insurance market giant, Lloyd’s made a massive $2.8 billion in the first half of 2019. The annual report by Deloitte on the insurance industry states that after 2021, the combined revenue of premiums accumulated by China’s insurance pool will top almost 777 euros which is even more than the total market size of Germany, Italy and France.
The Rise in Financial Crime
With the exponential increase in insurance-related services and products, identity theft fraud remains a persistent threat to enterprises. Unlike banks which provide on-going financial services, fake insurers deal with customers on a one-on-one basis, which provides them with an indirect means of legitimizing dirty money and carrying out suspicious transactions. In 2019, the Association of British Insurers exposed 130,000 false insurance claims worth 1.32 UK pounds, with further transactions going unnoticed.
The Financial Action Taskforce (FATF) keeps a vigilant eye on the insurance industry and has warned customers about the potential involvement of criminal entities in the market. With more than two-thirds of the sector comprising life and general insurance companies, insurers are unaware of the underlying risks and fraudulent activities. Some of the most common types of risk associated with the insurance sector are listed below:
Types of Insurance Fraud
As indicated by the FBI, the insurance industry comprises 7,000 organizations that accumulate over $1 trillion in identity fraud every year. 4 major types of frauds conducted in the insurance industry are listed below:
New Account Fraud
Application fraud also known as New Account Fraud (NAF) is the most common scam in the insurance industry which causes substantial loss each year. Application fraud is performed by either using existing credentials of genuine users or by creating new accounts with false and illegitimate identities. The personally identifiable information of current insurance policy holders is mixed to create a synthetic identity for illicit purposes. By initiating fake insurance policies a set of frauds are conducted on a daily basis by these criminals.
Surprisingly, application fraud is only the tip of the iceberg, with other frauds constantly rising. As a result, insurance companies have to face loss in revenue as well as non-compliance penalties since they fail to perform effective identity checks for their customers.
The next time you see an insurance policy with an unbelievable discount make sure it comes from an authentic insurance provider. Ghost brokers acquire genuine information of legitimate users, forge them to make synthetic identities, and sell to buyers, and with remarkable discounts. With little to no investment, ghost brokers typically fool motorists in buying false insurance policies which often end up as a headache for the customer. Since high-risk drivers are in need of a good insurance plan, they fall prey to invalid insurance policies by these scammers.
Cyber Security Threats
In 2018, 80,000 cyberattacks occurred per day with the number turning out to be 30 million yearly. The prevalent threat of cybercrime and data breaches puts insurance companies at the risk of losing user data directly which directly impacts customer loyalty. According to Protiviti, over 100 million people associated with the insurance industry have lost their data as a result of cyber incidents over the past years. The data breach on Anthem Inc. in 2015 stole almost 80 million records, causing a major blow to Anthem’s health insurance servers.
False Claim Scams
When insurance fraudsters make up false information to claim an insurance policy they are committing a false claim fraud. The purpose of this is to get the promised money guaranteed by the policy agreement. To achieve their illicit motives, these scammers may even make up fake accidents or stage a robbery to get their sum of money. These activities result in policy prices to become inflated for original insurance customers with increased taxes.
To sum it up, identity fraud poses a serious threat to the insurance industry since fraudsters get the better of policy holders and companies alike. To mitigate fraud attempts and data breaches enterprises should use online identity verification services to provide their users with foolproof protection.