About 33 million of us in the UK have a driving licence – over 70% of the entire adult population. It’s a heavily regulated space. As any of us who’ve passed our driving test (or even taken a lesson) will know, there are countless rules to be followed in order to keep everyone safe. That’s why you need a licence to drive, and to prove your identity to rent a car. But there’s one significant loophole. You don’t need to prove your identity to get motor insurance, and that’s putting all of us at risk.
Earlier this year, we held a roundtable with thought leaders to find out why the lack of identity verification in insurance is so dangerous, and what can be done about it.
How fraudsters exploit the lack of Identity verification in motor insurance
To get motor insurance in the UK you’ll be asked for a driving licence number – but you don’t have to prove it’s your licence. That means there’s a disconnect between the vehicle being insured, the person driving it and the person applying for insurance. Aside from putting road users at risk, that disconnect also creates two opportunities for fraudsters.
- Using a stolen identity to insure a vehicle in someone else’s name
Fraudsters can use stolen driving licences to insure their vehicle in the name of someone with a clean criminal record. They can even use the DVLA’s lost document process to do this, by using stolen identity details to falsely apply for a replacement driving licence. Fraudsters do this because it makes it easier for them to transport illicit goods, like drugs. If the vehicle is spotted by an automatic number plate recognition (ANPR) camera, it will be recognised as being legally insured, and fly under the radar of the police.
- Doctoring a valid insurance policy for another vehicle and driver
‘Ghost Brokers’ are fraudsters who pretend to be genuine insurance brokers in order to sell fraudulent motor insurance. Typically, ghost brokers will buy insurance policies, usually for lower-powered cars in quiet areas, from legitimate brokers. Then, they’ll sell the policy on to unsuspecting victims, doctoring it to match their details. It’s a lucrative scam: fraudsters can doctor the same policy and sell it on several times.
High-risk drivers, like young people are migrants, are at particular risk from ghost brokers. They might find it difficult to find affordable insurance elsewhere, and fall foul of ghost brokers offering them a deal that’s too good to be true. The drivers think they’ve bought legitimate insurance – until they have an accident, or are stopped by an ANPR camera, and find out otherwise. Unfortunately, they’re still left to foot the bill: a £300 fixed penalty notice, with the potential for their vehicle to be impounded or points on their licence, too. That, in turn, makes insurance even less affordable, and increases the risk of ghost broking. It’s a vicious cycle.
Why driver identity is hard to prove in motor insurance
Driver identity is hard to prove because it’s standard practice to buy insurance on behalf of someone else.
Historically, people bought insurance through brokers who knew the market and would deal with the insurers on their behalf. The majority of motor insurance in the UK is now bought online, directly with the insurer, but there’s no legal requirement to do the application personally. Elsewhere (the US in particular), the broker model is still commonplace. It makes a lot of people more susceptible to fraud like ghost broking, as the fraudster is replicating the expected process. There’s no reason for them to question the presence of a middle man.
Plus, there are legitimate reasons you might need to insure a vehicle on somebody else’s behalf. It’s common for parents to insure a vehicle for other family members, and for businesses to insure a vehicle for multiple employees. But the lack of rigorous identity verification for all drivers can cause problems. One speaker at our roundtable shared the story of a husband who’d insured his wife on her provisional licence. She never passed her driving test, but continued to drive the kids to school for fifteen years unsupervised, and therefore uninsured.
How to balance identity verification and a friction appriopriate user experience
Clearly, the absence of identity verification from the insurance application process creates risk. But adding it in would introduce friction for legitimate users.
Currently, a parent can add all the drivers in their family to an insurance policy using just their licence numbers. The drivers themselves don’t need to be present during the application, and changing that would ruin the user experience. One potential workaround would be to send identity verification prompts by email or text to the named individuals, so they could verify their identities in their own time.
Those extra steps still add friction, though. That could put applicants off – especially if there are other providers that don’t require identity verification. Insurance is a price-driven industry, and comparison sites give customers a lot of choice. No insurer wants to slow down the process for applicants, or create internal admin which would inevitably push prices up. Instead, product owners within the industry have tried to streamline the application process as much as possible. They’ve gone the opposite direction to banks, removing as many security steps and questions as possible. It’s not in their interests to do the complex work that changing their application flows would require.
There are ways to introduce identity verification without disrupting the UX, however. OCR document recognition technology extracts all the details from a driver’s licence much quicker than an applicant can type it in. Those details can then be automatically cross-checked against trusted databases, while the licence is analysed for any signs of fraudulent activity. Though the application process would have to be re-engineered to enable identity verification, the verification process itself would be seamless and secure.
What’s next for identity verification in the insurance industry
What’s stopping the adoption of identity verification in the insurance industry is the need to act collectively. If only one supplier introduces it, they risk losing business. Instead, we need industry-wide adoption of identity verification to prevent fraud risk without individual suppliers being disadvantaged.
That change should be centrally-led, by organisations like the Association of British Insurers (ABI) and the Insurance Fraud Bureau (IFB). Currently the ABI publishes data on claims fraud, but none on application fraud, showing the lack of engagement with this critical area. Alternatively, insurers could move the needle themselves by creating disruptor brands in niche demographics.They could then fine tune identity verification within the application flow and grow new markets, without threatening their primary customer base.
Connecting the verified identity of each driver with their licence, vehicle and insurance policy would put an end to ghost broking, and dramatically reduce fraud. It would also cut the number of uninsured drivers on our roads, and the headache of disputed claims for both businesses and drivers. With identity verification as a standard part of the insurance application process, insurers could confidently issue more policies and insure more users – reducing risk for all of us.
To find out more about how we can help your company implement identity verification technology that benefits both users and fraud departments please reach out to us at firstname.lastname@example.org or request a demo.
We’re more than happy to chat about the state of the industry and if it's a good fit, show you how our technology could overcome the challenges you are facing. All tests welcome :)