Final Expense Carriers Should Put Up a Fight Against Fraud with Identity Verification and Authentication
This blog is the first in a series of three where we will highlight challenges and opportunities within the Final Expense market. The first blog will focus on fraud. The remaining two blogs will cover data hygiene and persistency.
Final Expense is a general term used to loosely refer to small face amount life insurance products intended to cover burial and other death-related expenses. The primary purchasers of Final Expense policies are lower-income seniors, those unable to acquire traditional life insurance or those with known health conditions. Final Expense carriers issue these simplified issue products1.
Taking it on the Chin
The Coalition Against Insurance Fraud estimates fraud costs insurers $308.6 billion a year2. People commit life insurance fraud to the tune of $74.7 billion a year, according to the National Association of Insurance Commissioners3. Fraud is a huge problem in Final Expense. Familial and producer fraud are easily hidden because of the low touch and high-volume nature of Final Expense policies.
Familial fraud occurs when family members or close friends have access to key information such as passwords, bank account numbers, or other pertinent information. Seniors are often a vulnerable target of this type of fraudster. An example of familial fraud is forging beneficiary changes on someone else’s policy. Forgery sits under the umbrella of identity theft or account takeover fraud.
Agent fraud is also a common occurrence in Final Expense. It can go undetected if carriers are not taking measures to prevent it. Premium diversion is a type of agent fraud where agents embezzle insurance premiums. This is the most common type of insurance fraud2. Other premium diversion schemes involve selling insurance without a license, collecting premiums, and then not paying claims.
Put on the Gloves
There are consequences to not having a fraud prevention plan in place. Final Expense carriers are even more susceptible because of lower face values and price sensitivity when it comes to purchasing tools to help fight fraud. With today’s increased focus on decreasing expenses, the customer experience, and minimizing friction, it can be difficult to balance these with high quality fraud prevention tools.
Final Expense carriers who arm themselves with identity risk management solutions and strategies will benefit in numerous ways. Carriers can appropriately verify consumer identities. This allows them to help stop fraud without negative impact to genuine customers. Mitigation of identity fraud (at the point of contact or even point of underwriting) occurs when carriers can verify the consumer’s data is real, correct and current. Carriers can reduce fraud risk by uncovering discrepancies, synthetic identities and deceased identity data found in an applicant's or customer’s data.
Identity verification at the point of contact helps resolve fraud. Carriers can expect a reduction of both fraud and the amount of back-office handling. Carriers no longer need to spend time looking up information on verified customers. They can instead spend more time focusing on triaging the unverified customers before moving forward with making a policy issuance decision. Verification can help reduce the time it takes to issue a policy. Customers experience less friction in the buying process as well.
In addition to identity verification at the point of contact, many Final Expense carriers should authenticate customers both before policy issue and after. For example, ensuring that the proposed insured is who they say they are is essential prior to issuing the policy. Then, post-issue, at the point of service, call centers can authenticate callers through phone identity, sending a passcode to a mobile phone or by asking questions that only the consumer should know. While a lot of identity verification happens at the front end of the process, most carriers still want customers to be able to access their information for self-service handling for certain items through a portal or a call center. Identity verification tools can help carriers resolve fraud while simultaneously reducing carrier touches.
Go for the Knockout
Insurers need to have multi-layered solutions in place (at the point of contact and the point of service/claims) to provide a seamless experience and defend their business from fraud and cybercrime. Mitigation of identity fraud and digital/online fraud can help streamline workflows and reduce both familial and agent/application fraud. This also improves data quality, regardless of the level of underwriting. Having a strong fraud strategy in place can help carriers go the distance against fraud.
At LexisNexis, we strive to give our customers the tools they need to protect themselves against fraud. For more insights on how to protect your company from fraud, or for information about our LexisNexis ID Compass solutions, please call 1-800-953-2877 or email insurance.sales@lexisnexisrisk.com
[1] 2022 LIC Final Expense Survey Report- 2021 Sales Data, Life Insurance Council, July 2022.
[2] Coalition Against Insurance Fraud website. https://insurancefraud.org/fraud-stats/
[3] National Association of Insurance Commissioners website. https://www.fbi.gov/stats-services/publications/insurance-fraud, August 2023.