Better identity verification: The key to combatting the industry’s $300B fraud problem

Fraud and cyber-attacks in the insurance industry have risen dramatically over the past few years. With highly sensitive data at the core of the sector, this spike in fraud is impacting everything from health care to corporate finance and personal identity security. Companies that deal with sensitive data must be informed – and prepared.

In 2022, global fraud in insurance increased by 134%, despite a 37% decrease in fraud across all other industries in the same period. This translated to $308.6 billion lost due to fraud in that year alone, according to estimates from the Coalition Against Insurance Fraud.

With these growing challenges, there is an urgent need for new standards and tools to help businesses navigate the evolving landscape. Although the situation is complex and involves a variety of factors, one element sits at the core of combating the threat: better identity verification.

Leaning into more robust methods to verify and process sensitive identity data is one way that insurance-related companies can get one step ahead of cybercrime. Technological innovation in the sector has led to new developments capable of helping businesses truly protect their data.

From all-in-one identity verification to decentralized identity management, almost every business will need to evolve their customer identity management technology stack to stay protected.

Here are some of the trends insurance industry leaders should be aware of as identity theft continues, and some actions leaders can take to prepare for and minimize risk.

Growing security challenges for insurance

A common challenge we’re seeing is that as more businesses digitize operations, fraudsters are finding new opportunities to penetrate cloud-based systems and pull off attacks. This is impacting processes from onboarding to payments and identity verification, all of which are areas experiencing an increase in cyberattacks.

In the United States, one particular area of concern includes mortgage and loan fraud. This looks like criminals attempting to impersonate homeowners in an effort to sell their properties or using stolen identities to take out mortgages with title companies. In 2020, 55% of fraudulent attempts caused a loss, compared to just 36% in 2019. In a post-COVID-19 environment, the rise of virtual document signings has made it easier for fraudsters to successfully pull off a scheme when physical meetings are less of a requirement.

Insurance claim fraud is also on the rise. This type of fraud involves people attempting to file false insurance claims and submitting falsified personal information to get lower premiums. Health insurance is a primary target here. According to a recent fraud report, one-fifth of the top 99 insurance companies are above the critical threshold in their susceptibility to fraud. The rising incidence of falsified insurance claims signals a need for these companies to make proactive changes to improve their identity verification and data security approach.

Why digital ID is crucial for the way forward

Insurance-related businesses must take extra measures to protect the customer interaction points that are particularly vulnerable to fraud. The industry has all the makings of a prime target for fraudsters, between the wide scope of data, multi-sector system integrations and the high volume of information the industry carries. Onboarding, authorization and account logins are all common points of the customer journey that contain points of potential vulnerability.

For example, phishing scams intentionally trick individuals into handing over sensitive login credentials or financial information at the point of sign-on. That information is then used to gain unauthorized account control. Not only is this costing businesses, the consequences are being passed on to customers and citizens as well. Identity-related insurance fraud, including these phishing scams, costs the average family between $400 and $700 per year in the form of increased premiums.

Leaning into a more robust document digital identity verification technology, along with future-proof decentralized identity systems, can help solve these challenges. Interoperability between systems is key, as is protected access to sensitive information as it travels between customer and company touchpoints. With more critical business operations transitioning to cloud-first environments, it’s now more important than ever that businesses embrace digital identity verification technology to safeguard the many customer touch points that make insurance a vulnerable sector for fraud.

Mitigating fraud through innovative solutions

To effectively combat the growing threat of fraud, insurance companies should adopt a series of strategic best practices to strengthen their technology and implement more robust digital identity verification and proofing processes.

As organizations look to improve their digital authentication technology, it’s critical that leaders lean into solutions built with widely accepted open-source standards. Embracing software built with open-source principles ensures that any efforts to upgrade your systems will be future-proof, and will easily integrate with other systems.

Open-source digital identity solutions also facilitate decentralized and self-sovereign identity. Many organizations are moving toward decentralized systems in an effort to give customers more control over their personal data. Decentralized identity verification solutions also provide additional layers of security for your organization, ensuring only authorized individuals have access to sensitive information.

It's important that insurance companies take proactive action to get ahead of the growing cyber fraud trends. As fraudulent activity in the sector evolves, operating with the status quo is not an option for businesses with an obligation to protect customer data. Having the right tools and technologies in place to robustly authenticate identity at each vulnerable entry point has the power to future-proof data security for an organization and ensure it isn’t on the wrong side of any future cybercrime statistics.

Azim Esmail is head of growth with ATB Ventures.

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