Combating Insurance Fraud in Canada: The Digital Identity Solution

Canada’s insurance landscape is facing a significant challenge with a rising rate of fraud, particularly in the wake of the pandemic. This uptick in fraudulent activities has been more pronounced in the insurance sector compared to other industries, largely due to the existing customer experience standards in insurance. While sectors like gaming and finance have accepted certain levels of friction in customer onboarding to combat fraud, the insurance industry’s emphasis on speed and ease of enrollment has made it more vulnerable to fraudulent activities.

In the U.S., while digital fraud across all industries decreased by nearly 19% from Q2 2021 to Q2 2022, the insurance sector saw a 22% increase. This trend is partly attributed to the insurance market’s competitive nature, which prioritizes rapid quoting and enrolling of customers, often at the expense of thorough fraud prevention measures.

However, insurers are recognizing the need to address this challenge by embracing advanced technologies like digital identity verification. This technology strikes a balance between rigorous fraud prevention and an excellent customer experience. The advancements in digital identity technology not only enhance security but also ensure the ownership of personal data remains with the user, fostering trust and safety.

The cost implications of unchecked fraud are significant, with rising insurance premiums being passed on to policyholders. The U.S. health insurance market, for example, is experiencing the steepest rate increase in years, projected to jump by 6.5% in 2024. Insurers must now look beyond the traditional metric of speed to quote, focusing also on robust measures to reduce fraud and keep premiums in check.

In Canada, the Digital ID & Authentication Council of Canada (DIACC) is advocating for a secure, interoperable digital identity, while provincial policymakers support the adoption of digital credentials across government and industry levels. Insurers who adopt digital ID technology early will have a first-mover advantage, leading the way in streamlining customer experiences, reducing fraud risks, and cutting operating costs.

For insurers new to digital ID technology, starting with open standards-based technology is recommended. This approach aligns with the DIACC’s Pan-Canadian Trust Framework, ensuring interoperability and future-proofing investments.

The increasing prevalence of fraud in the insurance sector necessitates a paradigm shift towards digital identity technology. It’s not just a nice-to-have feature anymore; it’s becoming essential for the industry’s survival and affordability, driving innovation and ensuring a more secure and sustainable future.