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COMBATTING INSURANCE APPLICATION FRAUD

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James Burton, senior director of insurance product management for U.K. and Ireland, LexisNexis Risk Solutions

 

The days when insurance fraud related almost entirely to exaggerated or false insurance claims are long gone. Application fraud is now a major challenge for the insurance market. Figures from the Association of British Insurers (ABI) show that in 2019, cases of insurance application fraud rose by more than 200% on the previous year, which equates to 760,000 cases of detected insurance application fraud, worth £1.45billion[i]. The vast majority of reported cases of application fraud relate to private motor insurance, which in 2019 amounted to £1.39billion[ii].

 

Application fraud is often the deliberate misstating of data (such as previous claims) in the application to get a cheaper quote. However, it also includes the more pernicious use of stolen or fake identities to buy insurance to sell on to unsuspecting motorists.

 

The individuals perpetrating these frauds are known as ‘ghost brokers’. Their common strategy is to promote unrealistically cheap car insurance on social media. They will then sell on fake policies using stolen identities to unwitting younger or high-risk drivers, perhaps with prior motoring convictions, who are in search of a cheap motor insurance policy.

 

James Burton

The growth in identity fraud related crimes has been highlighted during the pandemic.[iii] Aviva, one of the world’s largest insurers, recently confirmed that the number of cases of application fraud and ghost broking they had detected had grown over a third in 2020[iv]. And earlier this year, The City of London Police’s Insurance Fraud Enforcement Department (IFED) confirmed that from January to December 2020, Action Fraud – the national fraud and cybercrime centre – received 694 reports of ‘ghost broking’, with almost a third (29%) coming from victims aged 17-29. The reported losses for these victims alone totalled £113,500, nearly three times the amount lost by 30–39-year-olds, with each individual losing an average of £559[v].

 

In response to this rising threat, the insurance market has developed strategies to tackle ‘front end’ fraud using identity (ID) validation checks to help confirm the applicant is who they say they are. Crucially, these checks need to be conducted at speed, at point of quote and without unnecessary friction. As such, ID validation checks have become part and parcel of a swift risk assessment process. This process leverages data enrichment and high-volume capability platforms that provide a single point of entry to a whole host of private and public risk data for the insurance market, including industry databases of known fraudsters such as the National SIRA database[vi].

 

Access to National SIRA is a vital step in the ID validation and fraud prevention process. It works by matching the insurance providers’ customer data against the database to flag potential fraudsters, prior to or post policy inception.

 

Key to the success of this approach is the ability to match the two sets of data – especially where there may have been deliberate errors and misspellings included in the information provided to the insurance provider during the application. The more data points that can be matched – the greater the match rate. This has led to the inclusion of email address and telephone numbers in our Point of Quote API call to National SIRA, to deliver improved match rates – helping insurance providers to identify fraudsters before they become customers.

 

Along with enhancements to our service with National SIRA, email address intelligence can strengthen the ID validation process even further, helping the insurance market spot potential cases of application fraud early in the customer on-boarding process. It’s an approach that is already working to tackle identity fraud in the banking sector and now the benefits are being extended to the insurance sector.

 

An email address is a unique global identifier. 91%[vii] of people have had the same email address for three years or more and 51% for more than 10 years. In addition to being a persistent identifier that stays with a person over time, it is also linked to multiple online accounts and transactions. This means each individual email address creates a digital footprint which could make it one of the most powerful tools for detecting application fraud.

 

Based on billions of transactions from global payment processors and other online industries, including 82,200 fraud events shared on average daily[viii], insurance providers can now access an instant risk score[ix] as part of the risk assessment process. This score indicates whether the identity is genuine or whether it could be fraudulent – based on an individual’s email address information and other personal information provided, at the point of quote.

 

Risk is assessed by evaluating email address metadata points, such as whether the email and domain even exist, or whether the email bears a close resemblance to the proposer’s name for the policy.

As well as automatically validating every quote that comes through, the email address risk score can also bring a new layer of insight that helps inform pricing decisions.

 

The global pandemic has dramatically expedited the insurance industry’s adoption of digital business. This has only heightened the need for robust ID validation checks at the point of application, quote and post policy inception while at the same time providing a seamless online experience. The enhanced matching capabilities of National SIRA hosted by Synectics Solutions Limited and email address intelligence through LexisNexis® Emailage® Rapid are taking ID validation to the next level. These innovations are set to boost the insurance market’s resilience to identity fraud, without compromising the experience of the genuine end customer.

[i] https://www.abi.org.uk/news/news-articles/2020/09/detected-insurance-fraud/
[ii] ABI Fraud data 2019
[iii] https://www.statista.com/statistics/1175657/increase-identity-theft-coronavirus-outbreak/
[iv] https://www.aviva.com/newsroom/news-releases/2021/06/organised-gangs-and-chancers-drive-up-insurance-fraud-detection-rates-by-10-percent/
[v] https://www.cityoflondon.police.uk/news/city-of-london/news/2021/Template/ifed/city-of-london-police-warns-students-about-the-dangers-of-ghost-broking–ahead-of-national-student-money-week/
[vi] https://www.synectics-solutions.com/what-we-do/national-sira?gclid=Cj0KCQjw_dWGBhDAARIsAMcYuJw-yjSIKr6rQD-wd2oq34S0ug0rRpBDQK-sfeQhq3L-v2PeB3AK-u4aAny-EALw_wcB
[vii] DMA Insight: Consumer Email Tracking Study (2015) – UK respondents
[viii] https://risk.lexisnexis.co.uk/products/emailage?utm_source=google&utm+medium=paid&utm+campaign=brand-emailage&utm_content=business-non-profit&gclid=CjwKCAjwz_WGBhA1EiwAUAxIcXyaqiXwH5GzPcjUKXfKwUcXAWLYSVuw45tw0D9byethoBObxXhCVRoCqhEQAvD_BwE
[ix] LexisNexis® Emailage® Rapid is a powerful fraud risk scoring solution based on the email address and other personal information provided during the application process. In February 2020, LexisNexis Risk Solutions acquired Emailage, a fraud prevention and risk management solutions provider. LexisNexis® Emailage® is a proven risk assessment tool that is fuelled by continuously updating global digital insights and uses a patented, proprietary analytic approach to reimagine fraud detection.

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HIDDEN COSTS WHEN INVESTING… AND HOW NOT TO GET HIT

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By Annie Charalambous, Head of Communications at ETX Capital

 

According to recent figures, Brits plan to increase their investments by almost a fifth in the wake of the COVID-19 pandemic – with Gen-Z traders most keen to jump on the markets.

But are those looking to boost their profits paying over the odds without realising? A recent study claims UK investors often pay up to six times more in fees than advertised, costing some traders up to tens of thousands of pounds long-term.

ETX Capital is committed to shining a light on common hidden fees that can trip up new traders. Here’s how you can avoid feeling the pinch.

 

Taxing times

New traders are often unaware that profits made on their stocks and shares are subject to tax, in the same way they pay tax on salary earnings.

If your investment earnings are over £12,300 in a single year, you will have to pay Capital Gains Tax. This will either be 10 or 20 percent, depending on your annual income tax band.

However, married couples can ‘pool’ their tax-free allowance – meaning they can collectively earn up to £24,600 in trading profits each year without contributing Capital Gains Tax.

Some alternative savings vehicles also offer a larger tax-free allowance. For example, you can stash up to £20,000 each year in an ISA and earn interest on your cash.

For those looking to diversify their portfolio, many gold and silver coins are also exempt from Capital Gains Tax as they are technically legal British currency.

 

Commission costs

As with any commercial service, fund managers and platform providers that help traders set up and manage their investments will charge fees for their service.

However, the size of these costs can catch out unsuspecting investors. According to research, commission costs average 1.03 percent in the UK – around double the equivalent fees in the US.

While these costs are unavoidable for those who need support managing their investment funds, it is possible to reduce them. Research investment platforms and fund managers to ensure you find the most cost-effective commissions for your assets.

Alternatively, you may be able to avoid commission if you have the knowledge of the markets and are comfortable with the risk. If so, there are plenty of accessible platforms that will educate you on how to manage your stocks, forex, commodities and more. Although, keep in mind that you’ll likely have to pay fees to trade on these platforms.

 

Not that Stamp Duty

All stocks bought in the UK valued at £1,000 and over are subject to Stamp Duty Reserve Tax (SDRT). At 0.5 percent of the asset price, this can soon add up.

This tax is usually absorbed as part of a total fee charged by a fund manager. However, if you manage your own investments, you’ll need to submit details of your assets to the government in good time to skip late payment fines.

While SDRT marks a relatively small fee compared to the rewards on offer for successful investors, many may still wish to diversify their portfolios to avoid mounting tax bills. A common example is adding corporate bonds, which are exempt from SDRT.

 

Farewell feels

Many budding investors starting their trading journey simply aren’t thinking about what happens when you withdraw funds or transfer them to another platform. And for some, this means getting hit with unexpected ‘exit fees’.

These charges are typically written into the terms and conditions of an investment service and while many platforms and brokers have recently agreed to waive exit fees, there are still plenty leaving traders with a shock when the time comes to withdraw cash.

Exit fees are usually charged as a percentage fee of the withdrawn sum, which can represent a significant cost for longer-term investors.

It’s important to check for exit fees, which may also be referred to as ‘redemption fees’, before signing up for a platform or partnering with a fund manager. And those looking to escape these charges should look for providers that simply don’t apply them in the first place – or at least check the expiry date.

 

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INSURANCE TRENDS 2022

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INSURANCE TRENDS 2022
  1. The Insurance market will continue to grow in maturity based on the richness of solutions by InsurTech

In 2022, we’re going to see a true acceleration in the modernisation of the insurance industry. We’ve already started to see this change this year, but it will continue to grow at a rapid pace because of the amount of competition in the market. Competitors are now able to provide direct value propositions to clients that are much more convenient.

It will be key to modernise full technology stacks to get the value from IoT, data and the cloud. As a result, the rise of InsurTech is going to become the norm, with SaaS based solutions based on APIs put in place to deliver personalisation on a grand scale.

 

  1. The Insurance industry will become cloud native

Many companies are already using cloud as part of their growing infrastructure and this will be even more apparent in 2022.

Many of the newer technology solutions in the market are cloud native and as a result the insurance sector is starting to understand the true value of the cloud. Whether that’s based on accessing the wealth of third-party solutions available, improved efficiencies or cost savings , this trend will not slowdown and we’ll continue to see insurance companies look at solutions to help accelerate cloud migration.

 

  1. In 2022, the insurance industry will start using data managements at scale

Once insurance businesses move their IT infrastructure to the cloud, they will see huge gains from using data platforms.

While there are still many constraints in the sector around data management due to various regulations, the need to have proper solutions to cope with GDPR, cybersecurity and more has never been more vital.

We won’t see an explosion of new technologies, but instead insurance companies deploying current technology at scale and leveraging it to fulfil its true potential.

 

  1. The Insurance industry will continue to connect and work together with other industries

There is a huge role for insurance to play in several different industries and this will continue to increase in 2022.

For example, the automotive industry. Many modern cars have various IoT sensors which collect data on how a car travels. The telematics of the data is embedded in the car, which means data can then be sent back to relevant organisations, such as an insurance company, if an accident was to occur. This technology will only continue to get more sophisticated. AI also has a role to play and this will be driven by insurance as well.

There is also a huge opportunity in the healthcare industry and how the ecosystem of services and devices available can help individuals live a healthy life. As more products enter the market, such as Fit Bits and the Apple Watch, having the right solutions to process the data, store data and ensure its compliant will be key. It will continue to be an explosive market for insurance.

 

  1. The insurance sector will move towards being part of a wider ecosystem which will be API driven and open

With new platforms being created every day all over the world, we are already starting to see the development of micro insurance products that are built in a way that can be plugged into different marketplaces. This is driving product simplicity as well as ensuring focused customer engagement and services.

To take this to the next level, next year we will see the insurance sector take a larger role in this wider technology ecosystem. The focus for insurers will be on getting value from the technology. This requires a better use of APIs and creating partnerships with open architecture.

In Europe this has already started to happen and will become even more prominent in 2022.

 

  1. Throughout 2022, the cryptocurrency world will look completely different

We’re currently going through an evolution of tech ecosystems where insurance organisations are developing them and embedding into them more than ever. Already, we see Insurance players who are building payment mechanism leveraging crypto solutions.

As we move throughout 2022, we expect to see a growth in the alternative ways of making payments. We will start to see smaller players in InsurTech provide instant payments that perhaps are currently inexistant right now.

It will still take time for there to be a global crypto market, but blockchain will continue to provide new opportunities which will impact the insurance industry.

 

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