Can Your Insurance Business Survive Without Identity Verification?

Fraudsters are becoming more intelligent. Is your verification system for policyholders able to keep up with them? The insurance industry has been hit by a wave of identity fraud caused by AI-created documents, synthetic identities, and deepfakes. The use of these skilled fraud techniques has outstripped the use of traditional identity theft, thus putting insurers at a much higher risk. It is pretty much a walk in the park for fraudsters to get through old verification systems that are no longer effective, and this will, in turn, result in financial losses, regulatory penalties, and the loss of trust from customers. Hence, it is crucial to have robust policyholder verification processes in place to prevent fraud and remain compliant with evolving regulations.

The cost of fraud in the insurance sector is rising, driven by sophisticated tactics such as synthetic IDs, AI-generated documents, and deepfakes. Traditional verification methods can no longer keep up with these evolving threats. Insurers must implement advanced identity verification systems to ensure the authenticity of every claim and policyholder, making robust fraud detection technologies essential for protecting against financial losses and maintaining customer trust.

Rising Insurance  Identity Fraud Threat 

Identity theft has become one of the most rapidly spreading crimes around the world, and the insurance sector has become a major target. One of the methods that scam artists resort to more often is synthetic identities, which consist of creating entirely fictional identities using a mix of true and false data. This type of fraud allows criminals to bypass traditional verification methods and remain undetected for extended periods.

The global cost of insurance fraud continues to rise. According to UK Finance, a leading trade association for the financial services industry, synthetic-identity fraud is increasingly becoming a significant concern. They stress the need for insurers to go beyond traditional onboarding measures and implement more sophisticated detection methods to tackle this evolving threat. 

These numbers highlight a major problem: the cost of fraudulent acts is increasing, and it is directly impacting the premiums, the claims, and the operational costs. The insurance companies that want to remain in the market will have to use strong identity checking methods in order to keep fraud from undermining their operations.

Reasons Why  Identity Verification is Necessary for  Insurers? 

Digital transformation is advancing fast, and the traditional methods of verifying a customer’s identity can’t keep up with the fraudsters’ cleverness. The fraudsters have already made their moves, and the insurance company has no choice but to follow suit. An extensive identity verification system that would encompass the entire customer lifecycle is indispensable for both protecting the company and gaining customers’ trust.

The Role of Identity Verification in Mitigating Risk

The verification of identity is not limited only to the validation of customers’ entry. It has to be a significant, continuous aspect of the insurance lifecycle, from customer onboarding and policy service to claims, processing, and payouts. Modern identity verification systems play a pivotal role in:

• Fraudulent claims prevention occurs when the identity of the claimant is verified prior to a payout.
• Underwriting accuracy improvement occurs as the applicant’s identity is verified and clearer risk assessments are provided.
• KYC (Know Your Customer) and AML (Anti-Money Laundering) regulations compliance assurance with reduced legal penalty risk.
• Operational efficiency boost through the automation of the verification process, less manual intervention, and faster claims processing.

Investment in modern identity verification systems can allow insurance companies to enjoy fraud detection benefits, customer experience enhancement, and operation streamlining.

How The  Identity Verification  Is Set To Secure Your Insurance Lifecycle

Advanced Identity Verification secures everything at each stage of the insurance cycle. This is how things work:

1. Streamlined Onboarding and Underwriting

The very first step in the insurance process is to confirm the identity of the people who are trying to get an insurance policy. Insurance companies face the dangers below if they do not have good identity verification:

• Fake applications are entering the system.
• Fraudulent claims later on.
• Mispriced policies based on incorrect information.

What modern verification adds: 

• Authentication checks for documents that can detect such fraud and manipulation.
• Biometric checks in the form of facial recognition are employed to authenticate the identity of the applicants.
• Liveness Detection to Prevent Deepfake Attacks and Spoofing during Remote Onboarding.

Insurance companies will have the chance to eliminate a great part of the fraud right from its inception, thereby getting more accurate underwriting and more equitable pricing.

2. Securing Policy Servicing and Account Changes

Scammers frequently focus on policy servicing, modifying the customer’s contact details, beneficiary names, or even bank information. This is a crucial point where insurance companies have to make sure that only the proper people are able to make such important changes to their accounts.

What modern verification adds:

• Step-up authentication for high-risk changes, such as updating payout details.
• Session and device analysis to detect unusual access patterns or compromised accounts.
• Liveness and biometric checks for higher-risk requests.

These systems reduce the chances of account takeover (ATO) and ensure that any changes are legitimate, protecting insurers from unauthorized modifications.

3. Fraud Prevention in Claims and Payouts

The insurance life cycle has its highest risk area in claims processing. The imitations of policyholders by fraudsters and the submission of fake claims with either false identities or stolen data are some common ways to commit this crime.

What modern verification adds: 

• Risk tiering for claims to assess whether a claim warrants stronger verification based on value or suspicious activity.
• Face matching and liveness detection for higher-risk claims.
• Document verification to authenticate supporting evidence.

Assurance providers may prevent financial loss risk to a great extent through the implementation of these fraud-prevention measures right at the claims stage, thus authorizing only the legitimate claims, synthetic IDs included, to be paid.

4. Compliance and Regulatory Assurance

The growing global regulatory pressure has made it absolutely necessary for the insurance industry to have proper identity verification systems. Regulations like KYC and AML obliged insurers to check who their clients are so that fraud and money laundering are less likely to occur.

The Financial Action Task Force (FATF) recommends flexible digital identity verification systems that can respond to different risk levels, thereby assisting insurance companies in keeping up with worldwide regulations. Although the use of facial recognition together with liveness detection is one of the suggested methods for remote identity verification in customer due diligence, it might not be the only option that the insurers should look into.

The Benefits for Insurance Providers

The implementation of modern user verification solutions in insurance carries multiple benefits for insurers in the following ways:

• Fraud detection is  improving: Sophisticated verification tools assist in the early detection of fraud, thereby stopping its impact on claims, which results in cuts in the total amount paid out and claims leakage.
• Onboarding and claims processing are getting faster than before: The process of verifying identities is automated, which in turn leads to faster processing of claims and also less time spent by the customers waiting.
• Compliance with the regulations: Insurers nowadays do not find it difficult to adhere to both AML and KYC regulations and thus are able to comply with both local and international standards.
• Customer experience improvement: A verification process that is unobtrusive and automated can be said to be a good customer experience. It becomes very fast and efficient, thus customer onboarding and claims submission are made even faster.

Fortifying Insurance Operations with Facia’s Advanced Identity Verification

Insurers are facing ever-growing fraud risks, so they have to modernise the verification methods and cannot afford to use the old ones anymore. The new threat landscape calls for top-notch and real-time identity verification solutions that would be a shield for both insurers and policyholders. Facia provides a wide range of biometric face matching, document verification, and liveness detection solutions that will not only catch the fraud early but also keep compliance intact and make the customer experience smooth.

By integrating Facia’s solutions into the customer onboarding process, insurers can prevent fraud, streamline verification, and build trust with new customers, all while reducing operational costs.

Request a demo today to see how Facia can enhance your identity verification and fraud prevention processes.