Risk mitigation requires staying abreast of the schemes perpetrated by those who seek to profit from insurance illicitly. Perhaps the greatest threat to our industry since Stranger Originated Life Insurance (STOLI) is Imposter Originated (IO) insurance scams. Whereas STOLI only involved a relatively few companies operating in the senior market, IO is much broader in scope and perhaps depth. Also, STOLI mostly involved financial fraud, which allowed the perpetrators to purchase large life insurance policies.
The claims themselves were rarely fraudulent. IO fraud scams, on the other hand, may involve any insurance product line (life, disability, LTC, etc.) and the fraud may occur at time of underwriting, policy holder services, or claim. So, what is IO?
Defining IO: Understanding the Fraudulent Tactics
IO is a term coined by Nicolas Novy of Cozen O’Conner, a leading insurance defense law firm that has specialized expertise in defending against these scams. IO, and it involves an array of identity crimes affecting the insurance industry and beyond. These scams may involve one or more of the following:
● Stolen Identities: Using stolen identities to purchase insurance on a victim's life or taking over their existing account. For life insurance, the victims targeted, often targeting individuals have with pre-existing health conditions.
● Altered Identifiers: Slightly altering identifiers, whether on a stolen identity or on themselves, to evade medical record checks, falsely presenting an unhealthy applicant as healthy.
● Synthetic Identities: Creating entirely fabricated identities to purchase insurance on individuals who exist only digitally.
● Fraudulent Claims: Using a policyholder's stolen identity to take over an account and then file unwarranted claims for life, disability, LTC, or other benefits.
● Account Takeovers: Stealing a policyholder's identity to gain control of their account and withdraw cash value.
These schemes can have many permutations, and unlike Stranger Originated Life Insurance, fraud can occur at any time during an insurance policy’s life cycle. It may involve underwriting, policyholder services, or claims. Compounding the challenges with IO, Artificial Intelligence allows perpetrators to conduct these scams at a speed and quality that the industry has not seen before. Also, unlike STOLI, IO scams have caught the attention of organized crime rings who are sophisticated and knowledgeable about insurance products and the procedures utilized by insurers to detect fraud. They understand underwriting and claims, and for claims, they time their scams to avoid scrutiny. Express claim processes are especially vulnerable to these scams.
