Insurance, Recovery Services and Preventive Measures
One in 23 adults can expect to be victimized this year by identity thieves, at a cost to Americans of more than $50 billion.
That’s according to the 2005 Identity Fraud Survey Report from the Better Business Bureau and Javelin Strategy & Research.
Identity theft is a growing problem and, as the security breaches reported by Bank of America, ChoicePoint and LexisNexis demonstrate, it is a not a crime where only individual con artists are responsible.
Data brokers, for example, collect and sell information to other businesses for marketing, employee screening or governmental uses such as homeland security. Just about anyone with a legitimate business function can buy this data. It is a huge business — ChoicePoint alone is estimated to have 19 billion pieces of information about people in the U.S.
Unless the personal files are credit report information or another specific category, there is no law requiring data brokers to validate the identity of their customers, making sure they are who they say they are. This is what happened at ChoicePoint–a theft ring opened about 50 fraudulent accounts.
Congress has begun considering how to crack down on this problem. Sen. Patrick Leahy (D-Vt.) noted the irony that thieves duped a company offering background screening. “ChoicePoint’s bread-and-butter business includes identity verification and screenings to help corporate America, as they say, ‘know its customers.’ Well this company failed to know its own customers.”
In early March, the Senate Banking Committee conducted the first hearing on these issues where Sen. Charles Schumer (D-N.Y.) asked, “Would it help consumers if companies were required to notify their customers before transferring their data to a third party?”
“It all depends on the database,” Federal Trade Commission Chair Deborah Majoras responded. “There are some databases that are used to go after people who have committed fraud, and, of course, we wouldn’t want to tell them in advance, ‘We’re looking at your personal information to try to find you.'”
Majoras acknowledged that jurisdiction over these crimes is complicated and said Congress might have to authorize new FTC powers to effectively regulate the industry.
Whatever lawmakers do, it is clear these crimes are not going away. Secret Service Agent Larry Johnson indicated the current trend in identity theft represented a quantum leap from the days when the main source of stolen information was waiters stealing individual credit card numbers.
“Now we’re seeing intrusions into financial institution’s data brokerages where thousands and thousands of either credit card access devices are stolen or personal identifiers, and then sold on the Internet,” Johnson said.
Even before ChoicePoint, there were signs that the problem was worsening, according to Nancy Callahan, divisional vice president at American International Group’s Affinity Group Services. Callahan maintains that before the big ChoicePoint breach, she saw a rush in inquiries from companies thinking about offering identity theft insurance as an employee benefit.
“Employers have come to understand that if an employee becomes a victim of identity theft, it can impact productivity. They have to make phone calls, take care of the correspondence and bear the stress and uncertainty of having to deal with this problem … So the service continues to be very popular.”
People whose identities have been stolen can spend months or years and thousands of dollars cleaning up the mess. In the meantime, victims may lose job opportunities, be refused loans for education, housing or cars, and even get arrested for crimes they didn’t commit.
As a result, coverage for the expenses associated with identity theft has become a standard add-on to many homeowners’ insurance policies. These riders typically protect victims from lost wages, loan fees and legal expenses.
St. Paul Travelers offers protection from this crime in two ways: First as an endorsement onto its homeowners, renters and condominium policies; and second, with its Identity Fraud Master Policy, which is designed for financial institutions, commercial businesses or membership groups.
The homeowners’ policy endorsement costs $25 per year for a $15,000 limit covering all members of the household. The Master Policy coverage limits range from $1,000 to $25,000. Both coverages reimburse victims for wages lost from time taken from work including for wrongful incarceration; notary and certified mail charges for fraud affidavits; fees to re-apply for loans denied due to erroneous credit information; phone charges for calling merchants, law enforcement agencies or credit grantors; and attorney fees incurred for suit defense, removing wrongly entered criminal or civil judgments and challenging information in a credit report.
Farmers Insurance offers ID theft coverage as an optional endorsement on a homeowners’ policy for a $25 premium with $100 deductible. This provides up to $15,000 for expense reimbursement.
Chubb includes the coverage for every policyholder who carries homeowners’ coverage including customers who purchase home, condominium, cooperative or renters’ policies with typical limits ranging from $5,000 to $15,000 and going as high as $25,000.
Several insurers have gone a step beyond offering basic coverage that reimburses for costs. MetLife Auto & Home has rolled out a program to provide free help in resolving cases of identity theft for all of its nearly one million homeowners and renters policyholders.
According to Noel Edsall, director of MetLife Auto & Home product development, the ID theft resolution service is being launched first in New York and Florida, then will be expanded nationwide.
“Our research over the last couple of years indicated that people needed help and assistance, not expense reimbursement,” Edsall said.
MetLife policyholders who are victimized by ID thieves will be urged to phone the MetLife call center listed on their policies. From there they will be directed to specialists at Identity Theft 911 LLC of Scottsdale, Ariz., which provides ID theft resolution services.
Fireman’s Fund also has a national identity theft restoration service giving customers access to a personal counselor to help victims deal with the legal and logistical burdens. This is provided at no charge to its Prestige Home Premier policyholders with Added Measure coverage.
AIG Affinity Group Services sells identity theft insurance on a group basis where a master policy is issued to cover any customers, members or employees. The coverage offers two levels of customer service. The first is a call center that is offered to address any concerns customers may have about identity theft and a step-by-step guide outlining actions to take if one becomes a victim. The second is a premium level of customer service that includes a case manager who will resolve the identity theft by taking on as much of the work as possible. The coverage includes reimbursement for out of pocket expenses, including lost wages, and legal expenses in the case of a civil suit as a result of the fraudulent debts. Limits on that policy go to $25,000 and deductibles go to $250. The price for their product tends to be $1 to $3 per person per year.
Despite efforts to manage the flow of personal information, skilled identity thieves may use a variety of methods to gain access to it.
Thieves obtain information from businesses or other institutions by stealing records or information while they’re on the job, bribing an employee who has access to these records, hacking or conning. They steal personal mail, including bank and credit card statements, credit card offers, new checks and tax information. They rummage through home and business trash cans, and public dumps in what is known as “dumpster diving.” They obtain credit reports by abusing their employer’s authorized access, or posing as a landlord, employer or someone else who may have a legal right to access confidential data. They steal credit or debit card numbers by capturing the information in a data storage device known as “skimming.” They even steal wallets and purses. Some thieves complete “change of address forms” to have mail diverted to another location. They steal personal information through e-mail or by phone conversation, posing as legitimate companies claiming that the victim has a problem with an account; this scam is known as “phishing.”
In addition to taking advantage of insurance options, there are steps consumers can take to protect themselves. The Better Business Bureau, Wells Fargo, Visa and CheckFree suggest replacing paper bills, statements and checks with Internet or “paperless” versions by moving to an electronic bill payment service.
“Shred all private documents before discarding them and sign up for automatic payroll deposits if possible,” the groups advise consumers. “Also, retrieve paper mail promptly and place outgoing checks or other sensitive documents in a U.S. Postal Service mailbox.”
Additional advice includes keeping passwords private and changing them frequently and regularly updating firewall and anti-virus software. Additional tips can be found at www.bbb.org.
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