How to manage decentralized identity to fight fraud

February 12, 2024 6:37 AM

ATB Ventures headquarters building — ATB Ventures headquarters, 3699 63 Ave NE, Calgary, Alberta, Canada.

The insurance industry has seen fraud surge in recent years. In the U.S. during 2022, $308.6 billion was lost to fraud, according to ValuePenguin. Insurance fraud, in turn, affects the healthcare industry and the security of personal data. Insurers are a bigger target for fraudsters seeking sensitive data to exploit. ATB Ventures, the research and development division of ATB Financial, backs innovative technologies, including products that address digital security issues.

Digital Insurance spoke with Azim Esmail, head of growth at the firm, about the insurance industry's technological efforts to address decentralized identity and its related risks for fraud.

Given the growing challenges with identity fraud surrounding insurance, what role does digital identity technology play in helping to mitigate risks?

Azim Esmail of ATB Ventures — Azim Esmail, head of growth, ATB Ventures.

Digital identity technology is a powerful tool in the fight against fraud. This is true for any industry, and certainly offers insurance vendors new ways of tackling fraud specifically. At the core, digital identity verification technology is about putting control of personal data back into the hands of citizens. For example, when you go to open a bank account, you have to verify everything from your birth date, to home address, employer, and other data points. Currently, this involves presenting documents from disparate sources, and many of them paper-based, leaving points of vulnerability for fraudsters to intentionally take advantage of weak points in the verification process.

On the other hand, the promise of digital ID verification is that all of these personal data points can be captured and processed using verifiable credentials. So rather than handing over five different documents from different issuing providers, people can open an app on their phone, and provide a set of credentials to verify these data points. With this approach, citizens select what data they share with whom, and the data itself is hosted on a secure system backed by blockchain technology.

How can insurance businesses balance the demand for a streamlined customer experience, with the imperative to enhance fraud prevention measures?

Striking a balance between customer experience and implementing measures for fraud reduction, is certainly a challenge. Particularly for insurance companies, speed to quote is often a key competitive advantage in the market to win customers. But over-optimizing for customer experience and speed is sometimes done at the cost of removing safety checks, and this opens the door for more potential fraud. Ultimately, if the baseline of fraud-associated costs continues to increase, this drives the industry towards an unsustainable cost-basis. And the solution to pass these costs off in the form of premiums to customers will only be effective up until a point.

A better way to approach this balance is by looking for technology that can help you accomplish both. Digital identity verification technology works this way, offering a solution that works in the back end to perform robust checks, without adding the burden on the customer to verify all their data points from scratch.

What type of digital identity technology should insurance vendors be considering, to help prevent fraud? What attributes should they look for in selecting a technology partner?

For organizations looking into digital identity technology for the first time, it's important to go in with eyes wide open about integration and interoperability. I recommend exploring digital identity solutions that are built on open-source standards, which will make sure you're signing your team up for a path where set-up isn't overly onerous, and there's an element of future-proofing built into the technology. With open-source standards, you can plug technology components into your current system, while getting the benefits of decentralized verification methods that would be difficult to assemble on your own.

Looking ahead, what should insurance companies think about to prioritize digital identity technology in their plans for growth and fraud reduction?

The power of digital identity technology goes beyond fraud detection and prevention – it's a lifeline for an industry at a crossroads. By making digital identity verification a priority in an insurance policy application process, insurers can maintain a streamlined onboarding flow and also maintain data security.

Organizations that take a proactive stance to implement digital identity technology now, are setting themselves up for immense competitive advantage in the future. As federal governments both in Canada and the U.S. move towards unifying policy and technology around a more secure and supported environment for identity data, the ones who begin this process early will have a distinct advantage in the market when it comes to the additional value they're able to provide customers.