Online insurance companies are not immune to online fraud and scams that can affect their business. In fact, many fear the new practice makes people more susceptible to fraud as there is no guarantee that agents can verify their customers’ identities.
Similarly, customers may be tricked by an agent looking to make some money – not to protect the best interests of their clients.
However, there are ways that consumers can safeguard their identity and keep fraudsters at bay.
Companies Fighting Falsified Information
Insurance companies that operate online often deal with one common type of fraud: falsified information. Falsified information is particularly important to insurance companies as they are the primary victim of this type of fraud. This can come in the form of application fraud, which is the act of falsifying information entered into an online application. The goal is for an individual to obtain a policy using or omitting information from an insurance claim, defrauding the insurance company who will be awarding the policyholder money they do not deserve.
False Identities, Real Problems
The biggest threat to consumers and insurance companies is using identity theft to obtain a policy. This involves the use of stolen information to complete an application for a policy, and once a death has been faked, the payout will go to an undeserving beneficiary.
Successful scams hurt a consumer by damaging their credit and insurance history, making it harder for them to obtain a life insurance policy for themselves. One way to protect against application fraud due to identity theft is to run regular checks on your credit history and keep an eye on your credit score. Fraud alerts can also be placed on an individual's credit report that will require a company to call and verify the purchase or application.
Another type of fraud that is a threat to insurance companies is payment fraud, when a payment for a policy is made with a stolen credit card. In essence, this is the same as stealing someone’s identity. One effective method that can reduce the risk of credit card fraud is to require the Card Verification Number (CVN) for payments. The CVN is a three-digit number on the back or front of a credit card that those using a stolen card number will not have.
Improving Security Measures
Insurance companies may find that standard tools for verification are not enough to fight fraud. Scams by well-informed or educated individuals can easily interpret a card verification number and the use of address verification. This means additional tools are needed to reduce the risk of fraud and the security policies of many online financial institutions and insurance quote engines should be improved.
One tool that has been developed is Advanced Fraud Detection, used to supplement CVN and address verification. The goal is to have an umbrella of protection for an insurance company. This system has a variety of filters used to reduce the amount of chargeback fees and fraudulent transactions. One filter that is available allows for a pending review of a transaction before generating an authorization. Another filter is for IP blocking, which prevents specific countries or IP addresses from making a purchase.
Detecting online fraud is often difficult and can cost insurance companies millions of dollars each year in claims costs due to fraudulent policies, and steps will need to be taken by both customers and insurance companies to fight it. The most important tools available to consumers are credit reports and alerting the authorities if anything is suspicious. This will result in an alert being sent for any activity or force a merchant checking a credit report to call the customer for approval.
One step that can be taken by insurance companies, though, is to require a second form of ID, such as a driver's license or pay stub.
A few extra steps by the consumer and insurance companies can help to reduce the risk of fraud.
Edited by Braden Becker