Identity fraud in the US is on the rise, with 16.7 million consumers affected in 2017, according to the Javelin Strategy & Research report, “2018 Identity Fraud: Fraud Enters a New Era of Complexity.” In the same year, 30% of US consumers were notified about an exposure to a data breach, which was a 12% increase from 2016, and losses as a result of identity fraud cost consumers $16.8 billion. For those people whose accounts were taken over by cyber criminals, the average cost of out-of-pocket expenses was $290, in addition to the 15 hours it took, on average, to resolve the situation.
For high net worth individuals who are impacted by fraud, those costs can be even higher. According to PURE Insurance, which is a member-owned insurer for high net worth families, typical scenarios that their members have faced include unauthorized wire transfers that, for one individual, resulted in the loss of $240,000 after the money was fraudulently transferred from their bank account. In the midst of purchasing a new property, yet another PURE member was targeted by a cyber criminal who had sent an email from what looked like the sellers attorney with fraudulent wire instructions, which the member had followed. In the end, close to $1 million was sent to an account in Hong Kong that had already been closed.
The PURE team first realized that members were becoming victims of this type of criminal activity back in 2015, and has since seen instances of fraud occur at an increasing rate.
“We started hearing from our members that they were concerned about cyber risk, [but] we didn’t really understand what was happening to them,” said PURE Insurance COO Martin Hartley. “We set up a helpline with Rubica, a firm that has a focus on cybersecurity and serves high net worth people, and we drew up a whitepaper to help people understand the risks they faced in the cyber world, and what they could do about it – steps that they could take to strengthen passwords, use multifactor authentication, how they could strengthen their home networks – simple things to raise awareness of self-management.”
PURE discovered that all manner of criminal activity falling under the broad guise of cyber was impacting its members, but the most common occurrence was fraudulent theft of funds.
“These individuals would have somebody who was an authorized bank user, maybe a personal assistant or some other individual who could write checks on their behalf or wire money on their behalf, and a hacker would get into the email system of our client and impersonate them to make a wire transfer request,” explained Hartley. “The assistant would send a request to the bank, the bank would make the payment, and then only later would it become obvious to the member that the personal assistant had wired it.”
Because that assistant would be an authorized bank user, banks would say that they weren’t liable for the fraudulent transfer, leaving the member out $100,000 or more, said Hartley.
To address the losses, the insurer launched PURE Starling, which is fraud and cyber fraud coverage aimed at high net worth families. Features include reimbursement for financial losses related to fraud committed online or offline, coverage for cyber extortion, and coverage for system attacks, if a professional has to come in, for example, and reinstall damaged software or remove malicious code.
Since rolling out the product in October 2017, PURE has seen members’ awareness of their exposure to cyber incidents grow – and just in time, as some experts are seeing a sharp uptick in cyber crime in 2018.
“We have a take-up rate of 47% and just under half of our new members joining us will buy the Starling coverage as part of their insurance package,” said Hartley. “To us, that signals a high interest in the category. For a totally new product in the space to have a take-up rate of close to 50% is remarkable.”