Online Marketplace Fraud with 6 Examples & How to Prevent It

by Tamas Kadar
Insurers are pretty familiar with fraudulent claims. But offering insurance online? That makes you even more of a target.
Let’s see what can be done to avoid insurance fraud.
Insurance fraud includes any kind of deceitful activity related to the process of insuring an individual, asset or business. The fraudster may be the holder of the insurance policy, a person making a claim, or the insurance company itself.
Insurance fraud may be committed by opportunists, such as people who stumble upon a chance to make a false claim and get away with it. At the other end of the spectrum, you may find sophisticated organized fraudsters who operate like crime syndicates.
Online insurance fraud is increasingly popular thanks in part to the rise of insurance-as-a-service companies. Fraudsters can create multiple accounts and insure gadgets or electronics, then find ways to exploit their policies.
A notable distinction is made in the world of insurance fraud between hard and soft crimes.
Hard insurance fraud occurs when an accident, theft or injury is planned and premeditated to exploit insurance companies.
Soft insurance fraud, on the other hand, happens when a legitimate claim is made but is exaggerated. For instance, a policyholder may legitimately state that their phone was stolen, but also add the cost of nonexistent accessories on their claim.
Insurance fraud is a serious issue and a punishable offense. Aside from legal repercussions for the fraudsters, it also impacts the general public at large. Some of these consequences include:
Insurance fraud is a broad topic. But here are key examples to look out for:
By far the biggest challenge for insurers is in verifying claims. However, this is baked into the process of providing insurance to the general public. Each insurance company has its own processes for checking claims and ensuring that only the right amount is paid back based on the cover’s policy.
The second biggest challenge is to verify the cause of the claim. Insurers are well versed in the art of uncovering claims made after the policyholder intentionally damaged or lost an item.
This type of fraud is extremely common in the world of Insurance-as-a-service, or digital insurance. Fraudsters purchase a couple of identical items (such as the same model phone) and insure just one. They then damage the second and use it for their claim.
A specific case of fake user registration happens in the world of car insurance. It is called “fronting”, and it happens when someone uses a more mature driver to get a more favorable insurance quote, though the insured vehicle is actually driven by someone else.
This type of fraud hinges on the way you can define a “main driver”. It is very hard to prove who drives a vehicle the most, which is why fronting is so prevalent in the car insurance world.
Another type of fraud specific to car insurance is crash for cash. Put simply. It’s a scheme that sees fraudsters engineer car crashes either through fake papers or real, planned collisions. There are three key scenarios:
A ghost broker is essentially a fraudster pretending to be an insurance company. It is a scam that spreads on social media and targets vulnerable, less tech-savvy users. They may also be found offline, spreading through word-of-mouth or shady local businesses.
As more insurance companies operate fully online, they become increasing targets for fraudsters.
Aside from the usual challenges of verifying claims, these companies must also answer the question, “Am I dealing with a real person or not?”
If the answer is no, you are probably dealing with a multi-accounting fraudster. It is increasingly easy to create dozens of online accounts by using stolen IDs. Fraudsters just find batches of stolen or leaked IDs and use them to register to online insurance accounts and make claims.
This is how it works:
The fraudster will use a variety of faked documents and pictures to submit their claim. While it’s hard to prove that damage is voluntary, what is much easier to establish is that they used a fake identity to register, as we’ll see below.
Online insurance fraud prevention starts by checking two key points:
The latter can be broken down into two subcategories: stolen credit cards and high-risk payment methods, such as prepaid cards.
Let’s see how you can detect the right data points to answer these two questions.
Bad customers of your insurance companies are likely to hide their identities. They are also likely to open multiple accounts to put the odds in their favor. This is called multi accounting and a good way to stop this kind of fraud is to identify similarities between accounts.
In the world of fraud prevention, this is checked by looking at device and IP data. The chances are that fraudsters don’t have the time or resources to use a new device and connection type every time they access your site.
Here are examples of data points that could point to multi accounting or suspicious device and IP data:
A BIN lookup will give you more information about the payment method used to purchase the insurance policy. While it’s not enough to stop fraudsters in and of itself, it’s a great way to flag high-risk users.
Some of these details can be checked at the signup or payment stage. You can automatically block a payment, or at least get it reviewed manually to determine how risky a policyholder will be for your insurance business.
You can try SEON’s BIN lookup below. Just enter the first six digits of a card number.
Free BIN lookup!
Enter the first 6 or 8 digits of a card number (BIN/IIN)
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Last but not least, you need ways to know if you’re dealing with legitimate people. In the online world, there are a few ways to go about it. You could ask for IDs, which is time-consuming, adds friction to the customer journey, and also an easy check to bypass.
A better solution? Looking at alternative data enrichment. The idea is to leverage fewer data points (which you will already have) and to derive as much information as possible from them.
For instance, with an email address, you could find out:
The more information you can score, the more you can get an idea of how risky it is to accept a new customer. Note that you can also perform data enrichment based on a phone number or IP address for more precise results.
At SEON, we specialize in helping companies know who their online users are. We allow your insurance company to deploy powerful data enrichment, with zero extra friction for your users.
It’s the fastest way to gauge how risky it is to accept a new policy, so you can filter out obvious fraudsters as soon as they start registering on your site.
Best of all, you can deploy this extra layer of risk protection fast, in a variety of ways, and with a completely free 30-day trial.
Partner with SEON to reduce fraud rates in your business with real time data enrichment and advanced APIs
Ask an Expert
Insurance fraud is a broad topic, which tends to be divided into two main types. Hard insurance fraud includes premeditated fraud. Soft insurance fraud includes exaggerated claims. Both are illegal.
Insurance fraud is legal and a punishable offense. You may be prosecuted and charged with a crime.
Insurance companies have their own methods to investigate fraud. However, online companies can also focus on catching fraudsters before they take out policies with them. This is a form of identity verification that filters out fake users and synthetic IDs.
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Tamás Kádár is the Chief Executive Officer and co-founder of SEON. His mission to create a fraud-free world began after he founded the CEE’s first crypto exchange in 2017 and found it under constant attack. The solution he built now reduces fraud for 5,000+ companies worldwide, including global leaders such as KLM, Avis, and Patreon. In his spare time, he’s devouring data visualizations and injuring himself while doing basic DIY around his London pad.
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