Identity-related fraud is a virulent crime, with 3.5 times the aggregate losses of all property crimes, such as burglary, larceny and vehicle theft, reported last year. In today’s technology/information-driven society, the threat is even greater, and it’s only getting worse.
Traditionally, many large banks and other financial institutions have provided their customers with little or no support in the area of identity theft. With no broad-based, effective solution, they have resorted to consumer-based offerings that are transactional in nature and expensive to boot. Recognizing the need to fill this serious void, property and casualty insurance carriers began to offer identity theft coverage through their homeowner’s policies.
To begin with, most carriers, including the Chubb Group and Liberty Mutual, offered support to reimburse the cost of identity resolution. Most of the older policies limited coverage to the crime defined as “true name” or “new account creation” identity theft, while excluding “account takeover.”
“True name identity theft” occurs when the policyholder’s social security number or other personal identifiers are used to open new accounts — unquestionably, the most heinous form of identity-related fraud. New account creation normally results in the greatest damage to the victim as well as to associated financial institutions and enterprises.
Excluding cases of existing account fraud from identity theft coverage was definitely a mistake. By offering a service including account takeover, insurers could reduce their overall claims by addressing the fraud at the account takeover level, while improving customer relations by providing them peace of mind.
In today’s marketplace insurers are moving toward a case-managed, victim advocacy approach with far less emphasis placed on the restoration of expense reimbursements.
Once a victim makes a claim on his or her existing homeowner policy, the person is assigned an advocate who will help in the difficult process of restoring the identity. These advocates work one-on-one with the victim to assist in placing credit file fraud alerts; completing the Federal Trade Commission fraud affidavit; making phone calls to police departments, creditors, collection agencies and credit rating agencies; and setting up a case file for insurance claims and law enforcement investigations. This comprehensive service is designed to help the victim spend the least amount of time in restoring his or her identity, and for the advocate to make the process as smooth as possible.
Many underwriters have concluded that professional, case managed resolution services dramatically reduce or eliminate totally policyholder’s claims for restoration expenses. More importantly, the policyholders want a professional in this area to support them.
Coverage offered As the marketplace has changed, the onus has shifted to the insurers to make sure they are offering the best possible coverage for their customers. The focus on advocacy and education has been key to these policies. Knowledge is the best defense. Property and casualty insurers such as Met Life Home & Auto, Chubb, Grinnell and One Beacon are willing to offer this to their policyholders at no additional cost, demonstrating the seriousness of this crime. In conjunction with the resolution services, most insurers now also provide proactive education to enable their members to protect themselves in every possible way.
As an example of the commitment of some insurers to ensure that resolution services and education are provided, Mutual Boiler Re, the equipment breakdown reinsurance arm of FM Global, provides reinsurance to more than 100 insurance companies across the country and has recognized the need in the industry to combat such a growing crime. Mutual Boiler Re has introduced its partner insurance companies to a customer-focused identity theft resolution product, which costs only cents on the dollar.
Competitors are focusing on a standard identity theft policy to be added to existing homeowners’ policies for approximately $20. While Mutual Boiler Re partner companies may also issue such coverage, their focus is on assuring that homeowners receive resolution and education services for less than a $1 per household. They argue that the focus should be on advocacy and education, not merely on insurance coverage.
The example of Mutual Boiler Re is being mirrored across the industry. Met Life Home & Auto is making the effort to protect its customers and provide them with the tools to arm themselves against America’s fastest growing crime. A recent study issued by the company demonstrated the growing demand for identity theft policies and how much customers value the service.
In the survey the company measured the satisfaction of the resolution service: 88 percent of MetLife Home & Auto’s existing policyholders said that they would maintain their existing policies and/or move other policies to the firm, and 87 percent said that they would recommend the policy to family and friends.
With free credit reports available to the consumer, the next most important proactive discipline becomes ongoing education. Timely alerts warning and explaining the most contemporary frauds are essential in today’s constantly changing information environment.
Auto insurers see the need Recent progress has seen the industry shift pace again as identity theft protection is being offered not just with homeowners’ policies but with auto policies as well. Met Life Home & Auto announced in March 2006, that it will be expanding the existing plan it offers to household policyholders to its auto customers. Grange Insurance and Mutual of Enumclaw were the first to follow that trend. This is a clear indication that identity theft endorsements and resolution services will be expanded throughout the personal lines sector, and may ultimately be viewed as a “named insurer” benefit for many carriers.
Overall, the shift in the insurance industry to combat identity theft crime has been significant — even smaller insurers are providing their policyholders with comprehensive coverage and education to protect themselves.
Providers of resolution services are in the unique position to watch it grow. There likely will be more changes in the coming years as technology continues to develop at such great lengths.
Steve Christenson is president of Identity Theft 911, a provider of identity theft resolution services and education to financial institutions. He has spent more than 20 years managing financial service companies, including registered investment advisors, brokerage firms and international investment companies, and has experience in identity theft resolution and data and risk management.