Insurers tackle identity theft JOANNA PACHNER Special to The Globe and Mail November 1, 2007 at 12:01 AM EST
Chris Ross tells the story of an American man pulled over for speeding. The police discovered an outstanding warrant for his arrest and put him in jail. There was just one problem: they had the wrong guy, and the wrong name. The man who committed the crime and then skipped bail had stolen the speeder’s identity information.
Mr. Ross, manager of product development for personal lines at ING Insurance Co. of Canada, admits that’s one of the more spectacular cases of identity theft. More commonly, a crook swipes someone’s personal or credit information, takes out loans, charges up cards and empties bank accounts, then skips town, leaving the victim to deal with irate bankers, collection agencies and sometimes lawyers demanding payment. The costs of unwinding the damage can run into tens of thousands of dollars.
And, like for other unpredicted calamities, there are now insurance policies to help cover the losses.
Identity theft policies, first offered in the U.S. around 2000, have been introduced by many Canadian insurers in the last couple of years. Usually available as $25 to $50 add-ons to home or apartment insurance, they typically cover the cost of dealing with the bureaucratic problems that ensue.
“Many cases of identity theft perpetrated against Canadians are resulting in serious crimes that go well beyond simple credit-card fraud,” says Sheila McCracken, whose company, Intersections Inc., offers credit-monitoring services and recently sponsored a study on identity theft in Canada. “These more significant frauds can have serious implications for consumers in terms of losses.”
The incursions can range from social insurance fraud and mail theft to hacked bank accounts with information gleaned through fraudulent e-mails (known as “phishing”) and embezzlement committed in another person’s name.
As Mr. Ross explains, identity theft insurance doesn’t actually reimburse the money stolen or credit charged. “If you alert them in time, most financial institutions make good on those losses,” he says. Rather, ING’s policy, like other offerings, helps people deal with problems stemming from declined loans or bad debts, including costs of notarizing affidavits and legal fees. “You may have to send affidavits to 10 or 15 organizations,” he says. “Doing all that’s necessary may lead to lost income, particularly if you’re self-employed.” ING’s Identity Theft Assistance covers up to $500 a day in lost wages, as well as loan re-applications fees, phone and courier expenses, up to $25,000 a year.
Over the past few years, identity theft has become a high-profile issue, and the growing consumer awareness seems to be cutting into its spread. PhoneBusters National Call Centre, an anti-fraud agency run in part by the RCMP, reports a dramatic drop in the number of identity theft victims in Canada, from more than 12,000 in 2005 to 7,778 last year. But that hasn’t dampened the fear.
A recent survey sponsored by AOL Canada Inc. found that more than one-third of Canadians view identity theft as the main security threat online. Another national survey, released in 2005, reported that one in four Canadians had been, or knew someone who had been, a victim of identity theft.
Don Sollows, senior vice-president for Central Canada with insurance company Johnson Inc., says people are surprised by how much work, money and time it takes to restore a stolen identity. One U.S. insurance provider has found that, on average, identity theft victims spend more than four working weeks undoing the damage to their credit.
“There are lost wages, you need to change locks on your home, change your banking info, your driver’s licence,” says Mr. Sollows. “It’s almost always necessary to seek some form of legal correction.”
Those most vulnerable to identity theft, he notes, are “mature” clients with some built-up wealth, but he’s seen high interest across many demographics. The company has more than 60,000 identity theft policies already in place. “This would be one of the hotter issues that I’ve seen,” he says. In fact, a survey released earlier this year by the Insurance Bureau of Canada found that 72 per cent of respondents have added some form of identity theft protection to their home insurance policies.
While insurers today will help consumers reset their scrambled finances, cover damage or theft of their computer equipment, even help companies pay for data recovery from machines affected by a fire or power outage, they won’t cover the loss of the actual data – arguably the most valuable element in the digital age.
“It’s an unquantifiable loss,” explains ING’s Ross. “And if you can’t quantify it, you can’t price for it.”
Some critics have taken issue with the effectiveness of identity theft policies. In March of this year, the Public Interest Advocacy Centre in Ottawa studied the offerings and deemed them “flawed” because most financial losses are covered by the financial institutions so insurance is superfluous, and the coverage for time off work and legal assistance is usually capped at low levels.
As well, the study notes that most identity theft victims do not actually need full legal defence services. “Corporations may be the real parties in need of identity theft insurance, in the form of data breach insurance,” the writers conclude. “Such insurance might encourage corporations to institute best practices for information handling.”
While growing consumer awareness is translating into greater vigilance against identity theft, the market for identity fraud policies isn’t likely to go away – not only because of crooks’ endless inventiveness but because ignorance about technology’s threats remains high. The AOL poll found, for example, that 15 per cent of respondents in Ontario thought phishing was “a cool way to refer to fishing.”
4 in 5 Ratio of Canadians who think identity theft is a serious problem 17 Percentage of Canadians who’ve bought identity theft insurance or identity theft recovery services $16-MILLION Value of identity theft-related losses reported in 2006 64 Percentage of Canadians surveyed who were unable to accurately define the term “phishing” 70 Percentage of identity theft that results in unauthorized credit-card purchases, the most common type of fraud Sources: Ipsos-Reid; PhoneBusters; AOL Canada/Maritz Research