Busting Ghost Brokers to Prevent Underwriting Fraud

Posted March 31, 2017

Busting Ghost Brokers to Prevent Underwriting Fraud

An endless stream of TV commercials for companies, such as Geico, State Farm, Allstate and others, will tell you how easy it is to save money on insurance when purchasing a policy online.

However, the digital channels that make it so easy for consumers to save money are also making it easier for a different type of cybercriminal, called a ghost broker, to commit insurance fraud.

‘Ghost’ in the Machine

Ghost brokers fraudulently present themselves as legitimate insurance brokers. A ghost broker can be a single individual or part of an organized network of fraudsters.

Let’s look at a typical ghost broker scam.

Figure 1: Anatomy of a Ghost Broker Scheme

Anatomy of a Ghost Broker Scheme

As you can see, a ghost broker takes payment and personal information from a customer for a policy. The ghost broker then buys the policy from an actual insurer with a fraudulent electronic check or stolen credit card. After getting proof of insurance from the company, the ghost broker passes it on to the customer. When the check doesn’t clear or the credit card is found out to be stolen, the insurer cancels the policy — and the customer doesn’t even know it.

The ghost broker has just scammed the customer and the insurer.

However, as with just about every other fraudster, ghost brokers don’t stick to just one scheme. Some ghost broker scams involve selling fake policies without even bothering to go through real insurers.

Still others sell legitimate insurance policies through insurers, but using doctored applications with false information to secure a lower rate. Of course, these policies can, and most likely, will be deemed invalid if they’re ever used for a claim.

However it is done, it is clear that ghost brokers (and other fraudsters) are causing problems for customers and insurance companies. And, this kind of fraud is booming.

Today, one out of every 10 account creations is fraudulent — up 35 percent since 2015. Yet only 42 percent of insurers that use anti-fraud systems deploy them at this stage of the process.

There are signs, however, that this is starting to change.

‘Ghost’ Busters

A growing number of insurers appear to be building on the success of having advanced anti-fraud systems in place for claims and extending them to the point of sale.

“Application fraud traditionally has been the poor cousin of claims fraud, receiving little attention and not being fully understood,” Dennis Jay, Executive Director of the Coalition Against Insurance Fraud, told Property Casualty360. “Forward-thinking insurers are developing new strategies and employing new tools to not only detect underwriting fraud, but to prevent it as well.”

Indeed, as the publication reports, the number of insurers looking to extend anti-fraud capabilities to underwriting could reach 77 percent by the end of 2018.

Among the most compelling technologies being extended into underwriting are Digital Identity solutions. These combine in-house and partner data sets with shared, anonymized global threat intelligence from millions of websites and billions of daily transactions spanning numerous industries.

These systems integrate location, identity, behavior and more to establish the true digital identity of each applicant or broker (real or otherwise) in real time, so insurers can instantly reject suspicious applications. By analyzing a matrix of hundreds of dynamic data elements, the data can also reveal if the ghost broker is just an individual or an organized network of fraudsters.

All of this data helps Digital Identity solutions instantly recognize — with 95 percent accuracy — if a specific device is associated with fraudulent activities.

Beyond saving victims from potential catastrophe, such systems save the insurer money and allow it to accelerate the quoting process for legitimate applicants, increasing its competitiveness in today’s want-it-now digital world. It can also help insurers protect their brand from harm.

While it’s far too early to tell if emerging Digital Identity solutions will be enough to put ghost brokers out of business, one thing’s for sure — with underwriting fraud growing at such a rapid clip, the first line of defense may prove to be the most important one of all.

To learn more about the true digital identity of applicants and policy holders, please download our new e-Book “Digital Transformation and the Insurance Industry.”

Armen Najarian

Armen Najarian

Former Chief Marketing Officer, ThreatMetrix

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