Now more than ever, it’s important to know who you are doing business with. In fact, what you don’t know can hurt you and expose your company to fraud risks that can lead to significant losses, both in revenue and reputation. To help proactively detect and prevent fraud, life carriers should be asking certain questions with each critical business interaction:
Who are you?
This first question is an important step in the process of gathering critical information about potential customers. It includes contact information generally requested on a life insurance application, such as first and last name, current address, date of birth, social security number, and telephone number.
Do you exist?
Next, it’s important to make sure that the identity presented is valid. In other words, is this individual a real person, and not a made up identity or one assumed from a deceased person? Performing a check against public record databases can provide insight by helping to show whether the identity components presented actually belong together.
This step is important because data from various sources might be valid individually, but may not all belong to the same person. For instance, criminals often use stolen Social Security numbers or driver’s license numbers, or those of deceased individuals, to perpetrate fraud.
This makes it even more important to confirm that the data is associated with the person in question and also necessary to determine if the person is using multiple identities or multiple people are using the identity presented. Any discrepancies are reason to perform further due diligence.
Are you who you say you are?
Simply confirming that an identity exists does not ensure that it belongs to the individual presenting it. Knowledge-based authentication techniques, such as interviews or questioning, are most commonly used in “faceless transactions” to help reconcile a customer’s identity. Using public, private and proprietary databases to obtain information not typically found in an individual’s wallet, knowledge-based authentication questions are designed to be answered only by the correct individual and can help reduce fraud significantly. Can I do business with you?
A life insurance carrier’s own underwriting guidelines best determine who that carrier can do business with. Third party data can also help highlight potential risks. For example, government watch lists can help address OFAC and USA PATRIOT Act compliance. And public record databases can provide criminal records history or highlight when a submitted address is an institution rather than a residence.
Are you exhibiting high-risk behavior?
Continuous evaluation of existing customers is critical to early fraud detection. For example, one red flag for potential fraud can involve beneficiary or address changes for new customers. Carriers should verify changes in address independently, as many consumers do not know their identity is stolen until after it has happened.
And applying relationship analytics may provide insight into the relationship between the insured, the owner, and the beneficiary of a policy, to help determine whether those individuals are linked to other suspicious entities or are displaying suspicious behavior patterns that could indicate STOLI.
As fraudsters have become more sophisticated and fraud has become more prevalent, life insurers must explore more aggressive and innovative ways to detect and mitigate fraud risks. Successful fraud prevention strategies will include a shift toward a proactive approach that detects fraud prior to policy issuance, and will also leverage red flags/business rules, real time identity checks, relationship analytics, and predictive models.
Carriers who leverage both internal and external data and analytics will better understand fraud risks throughout their customer lifecycles. And they will be more prepared to detect and mitigate those risks.