Thin ice

August 7, 2006

Identity theft costs American businesses and consumers a reported $50 billion and victimizes an estimated 10 million people in the U.S. a year, according to the Federal Bureau of Investigation.

Recent reports suggest those numbers are going to continue to grow. It’s also becoming evident that the information-laden insurance industry, even as it advises others to take precautions, will find itself a target of ID thieves. Within the last few weeks alone insurance data has been the subject of concern.

Last month, AIG confirmed the theft of computer equipment containing personal information about 970,000 individuals from one of its offices in the Midwest. There was no indication that the information had been abused or sold.

Personal information on 72 workers’ compensation claimants was stolen from Sentry Insurance in Wisconsin and later sold over the Internet. Data on an additional 112,198 claimants was also stolen but there is no evidence it was sold, the company said.

In one episode with an apparently happy ending, a lost computer with the personal information of as many as 540,000 injured New York workers was found. The computer had gone missing from a secured facility of Chicago-based CS Stars, an independent insurance brokerage, since May 9. CS Stars said the FBI located the computer and that it appeared no one had used any of the information it contained.

The industry is also caught in the middle of the identity theft problem in another way, as it becomes a leading user of consumer credit information for underwriting and pricing. States have been enacting laws to grant consumers who suspect they may be a target of credit thieves the right to put a freeze on access and changes to their credit reports. Most states that have enacted such laws have exempted insurers from the freeze, agreeing with insurer contentions that consumers face little risk of identity theft from insurance purchases.

But New York lawmakers recently passed Senate Bill 6805, which does not exempt insurers. Nine other states have passed credit freeze legislation in 2006 and all of them allow insurers to continue to access credit.

Kristina Baldwin, regional manager for the Property Casualty Insurers of America, thinks the New York law is unfortunate. “It is highly unlikely that illegally procured credit information would be used to purchase insurance,” says Baldwin, citing a Federal Trade Commission study that found that 99.6 percent of identity theft complaints were related to areas other than insurance. “Consumers obtain little or no benefit from having a security freeze which applies to insurers,” claims PCI.

Insurers warn that if they can’t freely access consumers’ credit reports, these same consumers could face increased costs and inconveniences. That makes it sound like the victims of ID theft could again be penalized for circumstances that are not their fault.

Years ago, insurers probably would not have been involved in the credit freeze issue but now, with credit such an important ingredient in their underwriting models, they may be over-reacting to what appears to be a basic consumer protection.

Are insurers really so inconvenienced by having to turn off their credit scoring for victims of ID theft? If a credit score has been unfairly influenced by fraud, how are insurers — or their customers — helped by insurers gaining access to that tainted report? In the interest of fairness, perhaps insurers should warm up to a freeze now and then.

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Insurance Journal Magazine August 7, 2006
August 7, 2006
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