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A m e r i c a n
A s s o c i a t i o n
o f
I n s u r a n c e
S e r v i c e s
Identity Fraud
Expense Coverage
Kimberley A. Ward
[email protected]
CAS Ratemaking Seminar, March 2004
1745 S. Naperville Road, Wheaton, IL 60187-8132
Phone: 630-681-8347 | Toll free: 800-564-AAIS | Fax: 630-681-8356
E-mail: [email protected] | Web: www.AAISonline.com
A m e r i c a n
A s s o c i a t i o n
o f
I n s u r a n c e
Topics for Discussion
 About AAIS
 Examples of Identity Theft
 Endorsement Coverages
 Pricing the Product
 Availability of Materials
 Your Questions
S e r v i c e s
A m e r i c a n
A s s o c i a t i o n
o f
I n s u r a n c e
S e r v i c e s
About AAIS
 Advisory Organization, formed in 1975
 20 Lines of Business
 Forms, Rules, and Rating Information
 Statistical Reporting
 Technical Support Services
A m e r i c a n
A s s o c i a t i o n
o f
I n s u r a n c e
S e r v i c e s
What is Identity Fraud?
 Use of another person’s personal
identifying information without permission
 Includes
 Purchasing goods and/or services
 Obtaining credit
 Borrowing money
 Obtaining employment
 Committing crimes
 Became a federal crime in 1998
A m e r i c a n
A s s o c i a t i o n
o f
I n s u r a n c e
S e r v i c e s
How does it happen?
 Loss or theft of identifying papers
 Documents in the trash
 Theft of mail
 Employee dishonesty
 Internet shopping or spam email
(“Phishing”)
A m e r i c a n
A s s o c i a t i o n
o f
I n s u r a n c e
S e r v i c e s
How widespread is it?
 Reports to FTC Clearinghouse almost double
every year since 1998.
 FTC Identity Theft Survey released in September,
2003, found that 27.3 million victims over the last
5 years, 9.9 million in the last year alone.
 These numbers include two types of losses

Account theft (17 million; 6.6 million)

ID theft (10 million; 3.3 million)
A m e r i c a n
A s s o c i a t i o n
o f
I n s u r a n c e
S e r v i c e s
What does it cost consumers?
 Damaged credit
 Collection agencies
 Criminal Record/Civil Suits
 Insurance/Utilities/Employment
 CASH $$$

$5 billion in out of pocket expenses in the last year,
according to FTC Survey

Victims of ID theft have more than 3 times the expenses of
victims of account theft

$5 billion does not include time lost at work, etc.
A m e r i c a n
A s s o c i a t i o n
o f
I n s u r a n c e
S e r v i c e s
Identity Fraud Expense Coverage
 Endorsement and manual supplement for
non-AAIS affiliates
 Endorsement will require customization
 Insured selects limit, shown on
endorsement or declarations
A m e r i c a n
A s s o c i a t i o n
o f
I n s u r a n c e
S e r v i c e s
New Definitions
 “Identity Fraud” is the use of personal identifying
information of an insured without permission, in a
manner that violates federal, state, or local law
 “Expenses” means

Costs to obtain, reproduce, or notarize required documents

Costs to send required documents

Costs for telephone calls

Research fees

Loss of earnings (no more than $250 per day per insured
and total of $5,000 for all insureds.)

Loan application fees

Attorney fees with company’s prior consent
A m e r i c a n
A s s o c i a t i o n
o f
I n s u r a n c e
S e r v i c e s
Coverage Period
 Coverage provided for expenses incurred as a
result of identity fraud:


Occurring any time prior to the policy period, and
Discovered during the policy period or up to one year after.
 Coverage applies even if perpetrator(s) are not
identified
 No coverage for expenses

Business related

Insured committing fraud

Fraud discovered prior to policy

Fraud discovered after one year after end of policy
A m e r i c a n
A s s o c i a t i o n
o f
I n s u r a n c e
S e r v i c e s
A few more things
 Insured selects per occurrence limit
 Deductible of $100 applies
 Series of acts committed by one person is considered one
occurrence
 Limit does not accumulate from policy period to policy period
 Coverage is excess over other insurance or types of redress
 Policy conditions are modified to allow for “Discovery” basis
 Supplement provides rating information for limits of $5,000,
$10,000, $15,000, $20,000, $25,000, and $30,000, plus rating for
each addl $5,000.
A m e r i c a n
A s s o c i a t i o n
o f
I n s u r a n c e
S e r v i c e s
Pricing
 Pricing based upon GAO 3/2002 report:
Identity Theft: Prevalence and Cost
Appear to be growing
 Includes monetary loss information as
reported to the FTC Clearinghouse


Early reporters may not know extent of monetary
damages
Monetary damages include long distance calls,
document copies, fees, postage, attorney fees
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A m e r i c a n
A s s o c i a t i o n
o f
I n s u r a n c e
S e r v i c e s
Pricing
 Further…non-monetary damages are
reported to the FTC Clearinghouse

include time lost from work, that is considered a
monetary loss under the new endorsement
 Price should reflect that coverage is
provided on a discovery basis, which is
broader coverage
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A m e r i c a n
A s s o c i a t i o n
o f
I n s u r a n c e
S e r v i c e s
Pricing - Adjustments to data
 Trend and ALAE: to reflect that these costs are
increasing over time and the cost of ALAE

adjustment is 20%
 Development: since the majority of the reported
incidents do not reflect the final cost to the victim


assumed 80% would be in the next cost range up, special
treatment for “no cost” fraud claims
80% of the reports to FTC indicating no monetary losses
were distributed to the other categories proportionally
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A m e r i c a n
A s s o c i a t i o n
o f
I n s u r a n c e
S e r v i c e s
Pricing - Final Selections
 Assumed frequency is 500,000 fraud reports per
year from approximately 150 million adults
(0.0033)
 Projected severity for 15,000 limit is $5,857 per
claim
 Selected loss cost = $25
 Additional loss costs for other limits
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A m e r i c a n
A s s o c i a t i o n
o f
I n s u r a n c e
S e r v i c e s
Availability
 AAIS will make endorsement and
supplement available to non-affiliated
companies
 Contact Rick Anderer, at
800-564-AAIS
or
[email protected]
 Additional questions can be answered by
me at [email protected].