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ID Fraud Policies Can Benefit Customers, Employees

By: Joe Reynolds

With identity fraud on the rise, banks are already sensitive to the need for tight security to protect confidential information. Most financial institutions have put in place specialized insurance policies to cover their costs for complying with laws and regulations and addressing notification expenses when breaches occur.

What they may be less aware of is the option of turning the threat of identity theft and identity fraud into an opportunity, and enhancing their service to customers and their benefits for employees. At a low per-person cost, identity fraud insurance can set a bank apart from its competitors as a business that goes the extra mile for its customers and employees.

High Cost for Growing Crime

The need to address identity fraud, unfortunately, remains high. Despite consumers’ widespread awareness of fraud and the precautions taken to protect personal data, identity fraud’s financial impact on consumers is growing. Javelin Strategy and Research’s 2011 Identity Fraud Survey Report noted that 8.1 million, or 3.5 percent of the U.S. population, were new victims in 2010, a 28 percent decrease (down from 11.1 million) the previous year. Although the dollar value of total frauds was also down to $37 billion from $57 billion in 2009, an important consideration is that the average out-of-pocket expenses increased nearly 60 percent from $387 to $631 per victim.

The cost of identity fraud goes beyond the actual crime. Javelin found that with debit card losses on the rise, fraud is more difficult and time consuming to detect and victims often are forced to go through a lengthy process to clear their credit records.

Victims often struggle on their own to deal with creditors, credit bureaus, law enforcement agencies and attorneys. These efforts consume hours of personal and work time. The Identity Theft Resource Center found that when a thief accesses a victim’s existing account, it takes an average of 58 hours to repair the damage done. In cases where a new account is created, the average time climbs to 165 hours.

Finding the Silver Lining

Identity fraud is not only costly for individuals but also for financial institutions. Banks must invest in security measures and mitigation plans, ranging from technology firewalls and encrypted data to credit monitoring for potential victims whose information has been exposed. These investments can pay off, not only reducing the likelihood of identity fraud but also increasing the confidence of customers that their data is protected.

Banks can find an additional silver lining in managing these risks when they offer their customers identity fraud insurance and add identity fraud expense reimbursement coverage to their employee benefit packages. The advantages include:

Inspiring customer loyalty and differentiating the bank from its competitors. Customers expect a bank to cover the costs of losses that are connected to bank activities but may not expect coverage for fraud that occurs outside the walls of the bank. However, when a financial institution provides expansive identity fraud expense reimbursement coverage as a no cost account holder benefit, customers know they are getting a valuable benefit that will respond no matter where the crime originates.

Keeping employees productive if they become identity fraud victims. Resolving identity fraud incidents often requires the victim to make contact with organizations and creditors during normal business hours. This can be a costly drain on productivity, whether the employee stays on the job and uses bank resources to make necessary arrangements or takes time off, requiring the bank to backfill the position. Identity fraud resolution services can relieve stress and streamline the process, saving victims time and helping them stay focused on their work. The insurance also makes an attractive addition to the employee benefit package at a time when rising healthcare costs and other benefits are causing companies to scale back on other coverage.

Proactively protecting consumers. If a lawsuit is filed, a financial institution’s overall approach to protecting data and its timely response for addressing breaches is often examined. Having identity fraud expense reimbursement insurance in place before a problem occurs may be a positive asset for courts to consider.

Shopping for Coverage

A bank’s insurance agent or broker can help sort through offerings to find a carrier that provides the best solution. In general, these types of policies cover lost wages from taking time off to clear records, attorney fees when legal services are needed, and child or elder care costs that may be incurred. Better policies include coverage for travel expenses, ID replacement costs, medical ID fraud expenses and other incidental expenses that can quickly add up when resolving a fraud.

The best policies also provide resolution services, giving victims access to experts who can guide their efforts to correct financial records and clear their credit reports of fraudulent information. While the victim typically goes through the steps themselves, having clear guidance and a source of experienced advice can make a difference in both time and cost. Credible providers of identity fraud expense reimbursement insurance also maintain an experienced claims staff dedicated to handling claims in a timely professional manner, which enhances the customer experience.

While the needs of policyholders vary, customers typically find value in identity fraud expense reimbursement policies with limits between $1,000 and $25,000. To effectively manage costs, consider working with a carrier that bills monthly and on an actual per-customer basis rather than annually on a bulk number of customers that the bank estimates it will need coverage for over the course of a year.

Other criteria to look for in selecting a carrier are educational resources for customers and employees, dedicated claims professionals that will work closely with banks when incidents occur, and assistance with marketing materials regarding the coverage.

In a highly competitive financial services market, banks will continue to look for ways to stand out compared to their competitors to attract and retain profitable customers. Providing identity fraud expense reimbursement insurance to customers offers value beyond traditional or legally required services. Providing similar coverage to employees pays off in productivity and adds to a bank’s reputation as a preferred employer. By working closely with their insurance agents or brokers, banks can identify the best coverage at the lowest cost — and turn the risks posed by identity fraud into an opportunity to be a proactive and service-oriented business partner.

Joe Reynolds is identity fraud product manager at Travelers. Contact the company at

Copyright © June 2011 BankNews Media


Hard Facts on ID Fraud

Burglary, stolen wallets and pilfered identifications continue to top the list of the most common known causes of identity fraud for Travelers customers, accounting for 76 percent of all cases, according to a 2010 study by the company. The top known causes of identity fraud for its customers include:

The study also revealed what criminals do with the stolen information. According to the study, 74 percent of the time criminals use the stolen personal information from Travelers customers to open new credit card accounts or use the existing credit cards to make charges. Of that 74 percent, 26 percent of identity thieves access existing credit and debit cards; 21 percent open new cards and make charges in the victim’s name; and 18 percent access and withdraw funds from existing checking, savings and online retail accounts.