Insurance companies say the rise in identity theft has helped them sign up banks to sell insurance products that protect consumers against it.
Some of these products have been around for some time; others have been developed in response to the recent increase in the crime and consumer awareness.
Marsh Inc., the New York insurance brokerage firm, has offered identity theft insurance for six to eight months, and banks are just beginning to take the product, said Peter Foster, a senior vice president. Some banks offer it at no cost to all customers, he said, as "security blanket" protection for their reputation - and the banks'. Others are looking to sell the coverage.
Banks that buy through the Marsh & McLennan Cos. Inc. unit often cover their customers with a $500 yearly policy and offer a $1,000 version for 50 cents. The total cost to the bank is $1.50 per customer per year, Mr. Foster said, and the policy kicks in even if the cards or funds stolen were not from the bank. Some banks also offer further protection, often up to $25,000 of coverage, for an extra fee, Mr. Foster said.
The average cost of undoing the damage from identity theft is $1,000, Mr. Foster said. That includes legal fees, phone calls, faxes, income lost through taking off from work, and other costs. The job can take as long as 120 days, experts said.
The German-owned Arag Group of Des Moines, which specializes in legal insurance, has been selling a form of identity theft insurance since 1974, said James Kraynik, a vice president of product development. It has just begun to market to the banking, insurance, and investment industries, he said; customers include Microsoft Corp., Oracle Corp., and Wachovia Corp.
Though Arag has been helping people with credit-related problems for a long time, Mr. Kraynik said, no one called it ID theft until recently.
At Arag, most of the legwork is done by case managers. When a customer calls in to report what may be an incident, Arag assigns a case manager who "stays with you from day one all the way until you feel the matter is sufficiently cleared," Mr. Kraynik said. A customer can ask that the case manager listen in on telephone calls to creditors or credit bureaus.
As a last resort, Arag also works with more than 7,000 lawyers around the country whom customers can consult as they work to restore their identities. "The attorney gets involved when a creditor is supposed to get back but they don't get back and you're supposed to have your credit report cleaned up but it doesn't get cleaned up," Mr. Kraynik said.
Generally, identity theft insurance does not cover the actual money stolen from a consumer, whose liability the Federal Reserve's Regulation E limits to $50 if the financial institution is notified promptly. (Most banks, responding to the zero-liability policies at Visa International and MasterCard International, now waive the $50.) Identity theft insurance covers the other costs.
Marsh's Mr. Foster said it makes sense for banks to offer basic protection. A hacker who gained access to customer records could create a public relations problem as well as stealing money, he said; banks would "lose customers because someone hacked their system."
Marsh works with three insurance giants: American International Group, Citigroup Inc.'s Travelers, and Chubb. These companies also sell their products various ways: Chubb pitches consumers through telemarketing, while AIG and Travelers sell through financial institutions and directly to the public. Marsh also has a relationship with a consumer protection company called Trilegiant Corp., which works with the credit bureaus to offer credit reports and credit monitoring.
In the last two months a private company in Clayton, Calif., Identity Fraud Inc., has announced deals to sell insurance to three California credit unions: Golden Valley Federal Credit Union of Manteca; San Francisco-based Patelco Credit Union, the 10th largest in the country, with $2.6 billion of assets; and Redwood Credit Union of Santa Rosa.
Identity Fraud offers a variety of insurance policies, ranging from basic ($69.95 a year for up to $10,000 of coverage) to "plus" ($139.95 a year for up to $25,000).
Basic coverage includes educational literature and videos plus an Equifax Inc. credit report. At the higher levels consumers get credit reports from all three credit bureaus. (They "maintain similar but different information about you," said Thomas Widman, Identity Fraud's president. "One bureau can have inaccuracies about you, so it's a good idea that you look at all three.")
Higher-cost policies also enroll the consumer in Equifax's Credit Watch, a monitoring system that alerts consumers to changes in their credit profiles within 24 hours. Identity thieves often open accounts under a assumed names but at a new addresses. "You and I wouldn't have a clue until … a creditor starts chasing you down," Mr. Widman said.
His inspiration for forming Identity Fraud, he said, was that "I was a victim." He did not realize it, he said, until authorities came knocking at his door - because the thief had missed a court date.
This fall Equifax began offering AIG's Personal Internet Identity Coverage as part of Credit Watch. Identity Fraud said it has partnerships with Equifax and with AIG.
Redwood Credit Union will make Identity Fraud's insurance policies available to its members in January at a discount, said Renee Guerin, the president and chief executive officer of the credit union's RCU Services Group.
"We want to be on the forefront, making sure the members are educated and protected," Ms. Guerin said.
