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How to address the threat of identity-related fraud for personal lines carriers

How to address the threat of identity-related fraud for personal lines carriers

A new research study from LexisNexis Risk Solutions says identity-related fraud in the claims process is one of the biggest challenges facing personal lines carriers in the insurance sector.

Entitled “Detecting the Undetectable: What personal lines carriers are doing to tackle digital identity fraud in claims”, the study is based on a survey of the top 50 carriers in the U.S. It makes the case that some identity-related fraud has become sophisticated enough to avoid detection. Synthetic or stolen IDs are easier to exploit when claims processes are carried out through digital channels. The advantages that digitized claims offer in terms of customer experience and cost are offset by evolving threats from fraud, which can damage reputations and customer relationships.

“Carriers must be proactive in how they authenticate customer identities while keeping fraudsters out,” reads the report. “A multi-layered approach can account for the increasingly complex customer journey by connecting the dots between digital, physical and behavioral dimensions. And a multi-layered approach can help stymie sophisticated fraudsters exploiting stolen and synthetic identities.”

Shift to digital channels leads to more risk of ID fraud

Customer preference, changing demographics, and pandemic lockdowns have all played a role in the proliferation of digital claims channels and touchless processes.

“Customers are increasingly receptive to automated claims processing,” says the report. “Seventy-nine percent of Millennials and 64 percent of Gen Xers are comfortable with automated claims processes, citing convenience, faster claims cycles and increased accuracy and transparency as benefits of doing so.” But there is a corresponding desire for tight data security. “More than 60 percent of consumers have concerns over the security of their personally identifiable information (PII) when they submit virtual claims, and concerns about hacking have increased by five percentage points since 2019.”

Identity-related fraud is both common and costly. Of the carriers surveyed, 80 percent said identity-related fraud was occurring at least once a month in personal lines claims. And companies not following best practices risk losing 25 percent more in fraud costs per dollar than firms using biometrics and other tools for multi-layered authentication.

Years to build a reputation, one case of ID fraud to ruin it

But, the report says, the steepest cost of identity-related fraud is likely to be in an even more valuable resource than cash: customer trust.

“Insurance is an industry built on trust,” it says. “Consumers are already concerned about the security of their PII. Every incident of identity-related fraud has the potential to create repercussions that affect brand reputation, customer retention and acquisition, and long-term profitability.”

“Trust, once broken, is hard to repair.”

The LexisNexis research study findings underline that carriers who do more to set up robust protections are better equipped to balance customer expectations with the reality of fraud mitigation. Once again, biometrics plays a role in bridging security with convenience. According to one carrier quoted in the study, “We are integrating more comprehensive fraud detection solutions to avoid fraud losses. This year, we plan to include device fingerprint and biometrics.”

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