Before the worldwide COVID-19 pandemic took over major markets in the world, the insurance industry was booming all along. According to a survey conducted by Allianz in 2019, an international financial service provider, there was an overall increase of almost 4.4% as compared to the previous year which had an income of €3.906 trillion. On the other hand, life insurance when compared to other insurances types like health, casualty, and property, faced encouraging growth from 2.8% to 4.4% in the year 2018, while Property and Casualty (P&C) insurance rates went down from 5.4% to 4.3%
The Impact of Insurance Fraud
One of the biggest reasons for diminishing insurance revenues is insurance fraud. The fact that people don’t realize that their actions could prove disastrous for others makes it even worse since higher premium rates significantly impact customers. A statistics report shows that on average insurance companies are subjected to a $30 billion capital loss yearly. The sad reality is that this loss is covered up by honest individuals who don’t even commit the crime.
There do exist procedures and policies which are followed by insurance investigators to spot potential money laundering and criminal activities, but traditional security procedures are being outwitted by modern means of deception employed by fraudsters. Since cybercriminals use synthetic and stolen identities for carrying out their scams, there is a need for a comprehensive identity verification system that safeguards insurers and authenticates them.
Types of Insurance Frauds
The amount of premium collected by more than 7000 companies in the insurance sector is more than $1 trillion yearly, as per a report issued by the Federal Bureau of Investigation (FBI). Due to this huge sum of income generated by insurance companies, the cost of insurance fraud remains high as it creates more opportunities for scammers to bank on. Below are a few types of frauds committed in the insurance sector:
Application Fraud
The biggest fraud faced by insurance companies is application fraud also known as the New Account Fraud (NAF), in which the impersonator opens a new account with stolen credentials of another person. This is basically a type of identity fraud since the scammer takes on the identity of another individual. False insurance policies are initiated by criminals by either using synthetic identities or by making use of forged identities to propagate their criminal behavior. As a result, companies are penalized for not complying with standard Know Your Customer (KYC) and Anti Money Laundering (AML) obligations, ultimately creating the need for verification of identity.
Data Breaches
The risk of cybercrime is always imminent especially for profitable businesses like insurance enterprises. According to Protiviti Inc, more than 100 million people have lost their personally identifiable information due to data breach attacks on insurance corporations for the past years. These cyber-attacks pose a serious threat to only the security of customer data but also to the company’s market reputation. Data breaches could be significantly reduced with identity verification of onboarding insurers being regularly performed.
The Popular “Ghost Brokers” Scam
Ghost brokers are insurance fraudsters who sell illegitimate and forged insurance policies to car motorists. Usually, they show themselves as a genuine insurance broker but in fact they are a bad actor trying to create a communication channel between the insurer and the insurance company using false methods and practices. Eventually, this impacts both the parties since false information was used to register the insurance papers. Authenticating the identity of third-party brokers could significantly reduce false insurance agreements which result in a major financial loss.
Identity Verification in User Authentication
Secure KYC processes ensure identity verification is transparent and carried out in light of internationally acclaimed standards and procedures. Digital KYC offers identity verification solutions that are integrated into the insurance service’s platform to ensure the mitigation of potential cybercrime and fraudulent activities. Below are a couple of methods through which identity verification could be ensured using digital KYC:
Face Recognition Technology
Facial identification takes into account the face features of a particular individual and creates a faceprint against their unique identity. A person willing to obtain an insurance policy would now be directed to a verification system after submitting the required information, using digital KYC for identity verification, where they will be prompted to display and scan their face to complete the authentication process.
Biometric Authentication
Biometrics mostly utilize unique fingerprint patterns and complex parameters to assess the originality of an end-user in order to perform identity verification. The verifying individual is asked to verify their identity using biometric services if they wish to associate with the insurance company.