Financial fraud is getting worse and it’s costing banks and insurers billions

By: Lisa Coxon on November 21, 2018

Financial services firms are increasingly becoming the targets of sophisticated fraud schemes — and it’s costing them billions of dollars every year.

The findings are from a study commissioned by TransUnion Canada, which tapped market research company Forrester Research earlier this year to survey 465 executives that work in the financial services, insurance and property management sectors across Canada, the United States, and India.

Roughly half of the financial services companies surveyed said they don’t have access to real-time or actionable insights on fraud, and 66% of insurers agreed that fraudsters are always one step ahead.

Financial services companies reported a 64% annual increase in the past year in identity theft or new account fraud. And insurers reported a 62% increase in the past year in soft insurance fraud, which can include consumers altering or omitting information in order to get a lower premium.

“The constant evolution of patterns, tools and evasion methods from fraudsters have resulted in an ongoing vulnerability for these industries,” Anne-Marie Kelly, executive director of identity management and fraud solutions for TransUnion Canada, told the Toronto Star.

The study also points to the fact that financial institutions are being forced to serve customers online, which has resulted in an increase in the amount of fraud, as well as firms lacking the right tools to detect and prevent fraud.

CIBC was singled out last week by email security firm Vade Secure as being particularly vulnerable to phishing attacks. The CIBC responded to this with a statement to CBC News, saying, calling cyber security “an evolving space that we monitor closely.”

While organizations in both the financial services and insurance sectors are aware of the loss fraud is causing, they don’t want to worsen the customer experience by introducing enhanced identity verification procedures.

In fact, 71% of financial firms said that customer expectations have significant influence on their fraud detection methods. And 65% of insurers said their current tactics to remove fraudsters can negatively impact good customers.

“Consumers struggle to remember an ever-growing number of user names and passwords and organizations struggle to manage them,” Kelly told the Star. “The result is a constant tug of war between organizations and consumer needs, which provides criminals with a playground of information to use to perpetrate identity crimes.”

The study suggested that financial institutions find a way to “identify ‘good’ customers and fast-track them through transactions without hurting their experience.”

But until, or unless, such a system is introduced, consumers will need to exercise common sense and caution while conducting any financial activities online.