Identity Theft — A Threat for Indonesian Insurance Firms?

A new wave of identity fraud is affecting insurance companies worldwide.nnThe dark web is rife with stolen and leaked personal data, allowing cybercriminals to forge false documents for fraudulent purposes. With insurance companies migrating to digital platforms, it is now easier for fraudsters to falsify claims anonymously using new account fraud.nnTechwire Asia has reported that cyberfraud attacks on the fintech industry in Indonesia have occurred at a rate 252% higher than the global average. Cybercriminals are becoming increasingly sophisticated and adept at technological advancements, making it challenging for insurance companies to keep up.nnGiven this alarming trend, what kind of threats should insurance companies be aware of and what can they do to safeguard their interests?n

What Is This “New Wave of Fraud”?

nThis new wave of fraud refers to the impact of identity theft on companies worldwide. With over 47% of companies being affected by identity theft, companies should be more concerned about cybersecurity now more than ever.nnIdentity theft is a common fraud tactic being employed in Indonesia right now. Fraudsters are exploiting the nascent nature of Indonesia’s emerging digital economy. Furthermore, the lack of awareness among its citizens regarding the dangers of identity theft facilitates a breeding ground for fraudsters.n

New Account Fraud (NAF) — A Growing Threat to Insurance Companies?

nnnNew account fraud (NAF) is a type of identity theft in which a fraudster uses stolen or fabricated personal information to open financial accounts, credit cards, loans, or other services in someone else's name, without their knowledge or consent.nnThe use of synthetic identities by fraudsters is making NAF increasingly sophisticated. Synthetic identities combine genuine and fake information to create new identities that are difficult to detect. They are a key ingredient in NAF and make it even harder for insurance companies to prevent and detect fraudulent activity.nnFraudsters actively utilize these false identities to obtain insurance policies for high-value items such as cars or property. Once these policies are in place, they file claims for non-existent losses, causing immense financial losses for insurance companies. This type of fraud results in higher premiums for honest customers.n

How Bad is the Problem?

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nnThe Indonesian Financial Transaction Reports and Analysis Centre (PPATK) warns that fintech and cryptocurrency platforms may be targeted by organized crime due to their remote account opening, fast transactions, and real-time privacy.nnAs of February 2022, suspicious activity reports indicate that fraud (including cyberfraud and breaches of electronic transaction laws) is the most frequently reported crime in the country.n

How Are Insurance Companies Dealing With This?

nThe Covid-19 pandemic is to blame for the increasing activity in fraud. Efforts to address this issue remain inadequate due to unclear responsibilities and guidelines. Targeted measures based on a fraud risk assessment are recommended for future interventions.n

Why Should NAF Be a Concern?

nnnInsurance companies may be targeted by fraudsters who attempt to purchase insurance policies using stolen identities or false information, which can result in significant losses for the company. Here are some potential impacts:n

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1. Increased claims: Fraudsters may take out insurance policies using stolen information and then file fraudulent claims. This can lead to an increase in claims, which can impact the financial health of the insurance company.
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2. Higher premiums: If an insurance company experiences a high level of fraud attacks, they may need to increase premiums to make up for the costs of fraudulent claims. This can make it more expensive for honest policyholders to obtain coverage.
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3. Reputational damage: Insurance companies that are known to have a high level of fraud may suffer reputational damages, which can make it more difficult to attract new customers and/or retain existing ones.
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4. Increased regulatory scrutiny: If an insurance company has a high level of fraud, they may be subject to increased regulatory scrutiny from government agencies. This can result in fines and other penalties.
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Solutions For Combating Insurance Fraud?

nThe most viable option to prevent online-based frauds such as identity theft and NAF is through the implementation of eKYC technology.nnFinancial institutions in Indonesia have allocated an estimated budget of USD$88.9 million towards funding fraud prevention technology in 2020. With this sizable budget, there are new opportunities in which insurance companies can safeguard themselves from NAF.nn n

💡 eKYC (Electronic Know Your Customer) allows businesses to verify the identity of their customers electronically. It involves using the customer's personal information to verify their identity against government-issued identity documents or other reliable sources.

n nnCurrently, traditional paper-based KYC methods are already being used by many financial institutions as mandated by Indonesian law. However, in the age of the internet, whereby many financial institutions conduct their business operations online, paper-based verifications are no longer potent in weeding out bad actors. There is an urgent need for a more effective method to identify and authenticate actual customers. Here are some ways eKYC can help —n

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• eKYC can prevent NAF by verifying the identity of the person opening the account, making it more difficult for fraudsters to create fake identities or use stolen identities to open accounts.
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• Businesses can also ensure that the customer's personal information matches the information on the identity document, reducing the risk of identity theft.
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• Additionally, eKYC can be used to authenticate customers during subsequent transactions, such as logging into their account or making transactions. This helps prevent unauthorized access to accounts and reduces the risk of account takeover.
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Bottom Line

nnnThe rise of digital businesses in Indonesia has led to an increase in identity theft and new account fraud. Insurance companies are particularly vulnerable to these types of fraudulent activities, which can result in significant losses.nnThe implementation of eKYC technology provides a solution to these issues, allowing insurance companies to verify the identity of their customers electronically and prevent fraud. With the allocation of a significant budget towards fraud prevention technology, it is imperative for insurance companies to adopt eKYC technology to protect themselves and their customers from identity theft and new account fraud.nn

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How Innov8tif Can Help

nOur EMAS eKYC systems are holistically developed to provide an integrated and extensive cybersecurity framework to protect both the interests of your business and your customers.nnInnov8tif’s products make extensive use of artificial intelligence to analyze and verify the identity of individuals to prevent instances of identity theft or new account fraud from occurring.nnTo learn more about EMAS eKYC and how it works to screen out identity theft, head over to our wiki page.