As consumers engage with insurance companies online, new types of digital fraud emerge
As more U.S. consumers use digital platforms when engaging with insurance companies, new fraud challenges are likely to arise for insurance carriers, according to TransUnion and iovation.
Among the 10 billion global online transactions iovation screened from Sept. 2018 to Sept. 2019, it identified 9.14% as risky in the insurance industry compared to 5.09% across all industries.
“The advantages of an online insurance offering is undeniable. It makes business processes more efficient and the consumer experience more convenient,” said Melissa Gaddis, iovation’s senior director of customer success.
“However as transactions move online so will the fraudsters. With U.S. consumers becoming increasingly comfortable transacting with insurance companies online, we expect new types of digital fraud to emerge here like they have in other parts of the world.”
According to research from Mintel, in 2017 only 9% of U.S. consumers said that they used their health insurance provider’s mobile app. A year later, that number nearly tripled to 25%.
Mintel also found that in 2019, 25% of millennials were interested in an online insurance application process while 29% of Gen Z consumers said they were interested in using mobile tools for their insurance.
As mobile becomes more prevalent, insurers face several fraud challenges
Application – Fraudsters create accounts using someone else’s personal information, fake details or a mix of the two. They traditionally open insurance policies for fictitious beneficiaries, or alter and falsify application information to reduce their premiums.
Attempted online first-party application fraud — when a person falsely applies for an insurance policy — is up 516% among iovation customers from 2015 to 2018.
Bad debt – Insurers provide coverage for a period of time for which they do not receive payment. This is caused by a lack of payment with a bad check, stolen credit card, etc. Bad debt is a particularly major issue for auto insurance carriers and typically makes up 1-2% of all personal automobile insurance premiums written.
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 then not covered if an event occurs. Online third-party application fraud — when a person falsely claims to be a broker applying for another person’s insurance policy — is up 139% among iovation customers from 2015 to 2018.
Account takeover – This fraud occurs when someone not insured on a policy accesses it to either obtain sensitive information or dishonestly route an upcoming claims payment to themselves. This practice is more prevalent with life insurance policies. Preventing this fraud is critical to do without harming the customer experience.
Claim – A claimant makes up or exaggerates a claim. Attempted online first-party claims fraud — when a person applies for a fictitious or exaggerated insurance claim — is up 271% among iovation customers from 2015 to 2018.
Attempted online third-party claims fraud — when a person falsely claims to be a broker applying for a fictitious or exaggerated insurance claim — is up 63% among iovation customers from 2015 to 2018.
Contact center – As online fraud prevention improves, fraudsters switch to the call center. They gather data about policyholders by mining social media or the dark web. Fraudsters then combine high-pressure tactics with spoofing technology to socially engineer agents and take over policyholders’ accounts or apply for new policies.
“Fraud is now top of mind for many insurance carriers, especially as digital engagement becomes more widespread in the industry,” said Mark McElroy, executive vice president and head of TransUnion’s insurance business unit.
“As more prospective policyholders move towards using digital platforms, it’s incumbent on carriers to leverage all available tools to ensure they avoid fraud and keep costs down for both themselves and consumers.”