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Synthetic ID fraud - a growing threat to the insurance industry


Synthetic identity refers to an intricate web of fictional credentials, where the implied identity is not associated with any real individual.

Synthetic identities

Fraudsters employ two distinct approaches to craft synthetic identities:

  • Manipulated synthetics: This tactic involves altering select personally identifiable information (PII) elements, such as name or date of birth, in conjunction with genuine PII. It is often used to conceal credit history or gain services through fabricated data. For instance, individuals with poor credit may tweak their identity to secure credit approval, typically without malicious intent.
  • Manufactured synthetics: These identities are a concoction of stolen PII from real individuals, forming false identities for criminal purposes. Data breaches, the dark web, and manipulation tactics provide common sources for fraudsters. The rise of fictitious data usage poses detection challenges, making it harder for companies to discern fabricated identities.

A breeding ground for fraud

In the face of a challenging economy and continued cost of living pressures in the UK, more individuals have found themselves in severe financial difficulty, which has served as fertile ground for a diverse range of fraud types.

Recent statistics from Aviva indicate a 16% spike in application fraud in October 2022, with ghost broking accounting for 15% of policy fraud. The pressure intensifies for insurers to bolster counter-fraud measures during applications.

While personal lines insurers deploy data-driven tools against application fraud, organised criminals evolve their methods.

Ghost brokers, posing as legitimate brokers on social media, further complicate the landscape, peddling fraudulent insurance using fake policy documents.

LexisNexis Risk Solutions’ recent research highlights the issue’s magnitude: 34% of Irish insurance customers were lured by cheap social media insurance adverts, with 16% of young adults falling victim to such schemes.

Despite being challenging to quantify, recent data suggests some 85% of all fraud traces back to synthetic identity origins.

The evolution of the threat and its impact on stakeholders

The increasing use of so-called Frankenstein identities - the sum of many fictitious parts with often horrific consequences - presents an uphill battle for companies in the fight against crime. Many anti-fraud models cannot unearth such identities.

Dual challenges

Unlike traditional identity theft, synthetic identity fraud lacks a singular consumer victim, posing dual challenges:

  • Prolonged fraud: With no customer reporting, fraudsters exploit synthetic identities, maintaining credit accounts and disappearing without repercussions.
  • Debt write-offs: Companies often write off debts tied to synthetic identities due to the absence of evident fraud, complicating fraud assessment.

The surge in digital applications adds complexity, easing fraudsters' efforts to exploit gaps in credit and insurance processes.

Disagreements over fraud definitions exacerbate the issue, affecting lenders and service providers who bear losses.

Insurance professionals are constantly looking to apply more sophisticated techniques to make applicants confirm they are who they say they are, and are not linked to fraud.

However, simultaneously, it is critical that any verification checks are swift and do not add unnecessary friction to the quote process for genuine customers.

A valid solution for the industry

Oleg Zadalia, principal solutions consultant, fraud and identity at LexisNexis Risk Solutions, believes that instant email address validation at the point-of-quote is one way to help solve this challenge while avoiding the cancellation costs that arise when links to fraud are found after the policy inception.

As an email address is a unique identifier linked to numerous online accounts and transactions, it creates a digital footprint, which is one of the most influential tools for detecting application fraud.

As an email address is a unique identifier linked to numerous online accounts and transactions, it creates a digital footprint, which is one of the most influential tools for detecting application fraud.

Insurance companies are encouraged to assess and measure the risks associated with synthetic identities, aiming to enhance awareness of this threat’s expanding scope and dynamic nature to individuals.

Zadalia explains that LexisNexis Risk Solutions utilises comprehensive data and analytical tools to conduct in-house investigations that quantify the risk posed by synthetic identities in the UK. The primary objective is to foster an understanding of this evolving menace, specifically identifying and thwarting potential instances through better analysis of data-driven insights.

A proactive approach

With cost of living pressures likely to persist, and the anticipated escalation of fraud expenses, insurers would do well to take proactive measures.

Leveraging email address intelligence adds a layer of protection against fraud, while ensuring that the expectations of honest customers remain intact. Implementing identity validation solutions and data enrichment can provide genuine customers with a safeguard against organised fraud, while aiding those who may be swayed to engage in dishonest actions.

This [anti-fraud] approach enables insurance providers to extend a 'presumption of honesty' to each customer from the outset.
Oleg Zadalia

The emphasis on fraud prevention is expected to emerge gradually as a distinguishing factor for insurance providers. Achieving this distinction is best accomplished through an exceptional customer experience.

Many anti-fraud measures can be automated as part of the process, enabling insurance professionals to focus on investigating suspicious cases.

"This approach enables insurance providers to extend a 'presumption of honesty' to each customer from the outset," continues Zadalia.

"It facilitates a seamless and swift journey from obtaining a quote to submitting a claim – sparing customers the need to reiterate information that insurers should already possess."

By embracing this strategy, Zadalia concludes that insurance providers can streamline interactions and prioritise swift claims settlement, reinforcing trust and brand loyalty.

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