Stamping out the identity fraud bug

Insurance fraud has traditionally been centred on dodgy claims involving fabrication or exaggeration by the policyholder, while banking fraud tends to centre on the misuse of a person's identity or the creation of a fake persona to obtain funds or abuse a line of credit. Now the criminal Frankensteins have combined the two to unleash a new monster: applications for insurance made using fake identification with the sole purpose of submitting a fraudulent claim.

This development forces insurers, brokers and loss adjusters to change their thinking on financial crime. To date, the tendency has been to react to incidents of fraud or potential fraud when the claim is made, yet now we need to be increasingly proactive to identify the existence of the would-be fraudsters.

This is easier said than done. The more effort you put into validating someone's identity at the point of sale, the longer the sales process becomes, which risks irritating honest customers. If the process is intrusive or accusatory, irritation can become alienation, with the applicant either seeking a less-onerous purchase routine or abandoning it altogether.

Perhaps the first thing that the industry should do collectively is to remind the public and the media that action taken to protect insurers' interests also protects those of honest policyholders. There is a clear link between the payment of unjustified claims and the need to increase premiums and it is the policyholders that pay in the end. This should be made apparent to generate support for anti-crime initiatives such as identity validation.

The industry should not be shy about explaining its case: identity fraud awareness is widespread and understood; many will have direct experience of it as a result of problems with credit cards or bank accounts.

At the same time, efforts must continue to combat fraud without making the purchase of insurance time-consuming and off-putting. It is no fairground ride at the best of times, so anything that can be done to make fraud more difficult and legitimate transactions more straightforward will prove valuable.

Shared information is a key asset for insurers. Persistent fraudsters try to repeat their success, moving onto a fresh victim if the heat becomes too intense or the well runs dry. Initiatives including the Claims and Underwriting Exchange and the Association of British Insurer's General Insurance Anti-Fraud Committee are up and running, while the British Insurance Brokers' Association is involved heavily in tackling fraud and, as brokers are so often the first line of defence against criminals, its endeavours must be applauded.

We need to support this activity to establish best practice and speak in unity. Efforts should be enhanced when the government's National Fraud Strategic Authority beds in to coordinate activity and information sharing between the public and private sectors.

In the short term, we can learn from the banking sector, which has intimate knowledge of identity fraud. They operate with contemporary best practice, so their models can be scrutinised to see where they are applicable in insurance.

It would be nice to think that there is a magic bullet to help insurers solve the problem of how validating customers' identities and reduce the likelihood of fraud. We have not quite found it yet but the quest for that comprehensive, slick and user-friendly system must continue.

We are heading for hard times in the economy and those conditions are fertile ground for fraud. Now is the time to improve our ability to prevent it, in the process fortifying the integrity of our underwriting and removing some of the most costly and awkward work involved in claims handling.

Higher cost efficiency and speedier claims resolution: it is good for brokers, good for insurers and, most importantly, good for honest policyholders.

Let us kill off the fraudulent identity monster without delay.

- Neil Joslin, claims technical manager, personal insurances, Groupama.