Library: Shift – Busting ghost brokers with underwriting fraud detection

Executive summary:

Getting insurance is supposed to have got easier over the years. Online insurance brokerages and price comparison tools have made it easier to get the best prices, which means that the traditional role of insurance agents and brokers has evolved. In Germany, for example there are 33% fewer insurance agents than there were 10 years ago.

Ghostbrokers: who you gonna call?

Insurance industry haunted by criminals

The prevalence of online channels means that it’s easier for insurers to reach customers directly — and it’s easy to get insurance without seeing anyone face-to-face. This convenience has been co-opted, however, by bad actors known as ghost brokers.

Ghost brokers prey on individuals who seek low-cost insurance, and who are familiar with the internet, but may be unfamiliar with how insurance works overall. Their targets are young people (34% of victims are between 17 and 29) who the ghost brokers draw in through social media ads offering irresistibly low insurance rates. Using this lure, victims end up purchasing fake policies. The ghost broker collects premiums and steals personal information — then vanishes, often once an insured event occurs.

The anatomy of a ghost brokerage

Ghost brokers claim that they work with insurance agencies to get much lower costs than normal, but these individuals aren’t licensed. Instead of working honestly with insurers, they operate in the following ways:

• Setting up completely fake insurance accounts;
• Setting up real insurance accounts—then cancelling them as soon as ID cards are delivered;
• Signing up multiple people for the same policy; and
• Signing up victims using false information to get artificially lower rates.

The result is that victims end up paying premiums to the ghost broker every month—until an incident occurs. Then, the victim discovers that they’ve been uninsured, or that they’ve been covered by a policy that the insurance company can’t honor. In many jurisdictions, this has the potential to lead to fines and criminal convictions for the individual

An abusive relationship

Much of the available information on ghost brokers puts the onus on policyholders to be aware of potential fraud. And surely customers should always check whether the broker they use is licensed before buying a policy. With that said, insurers also have a vested interest in limiting the damage that ghost brokers present.

Insurance carriers can face financial risk when their policyholders are co-opted by ghost brokers. They also need to spend time and effort unwinding fraudulent policies that are uncovered in the aftermath of a claim.

Finally, ghost brokers make insurers look bad—poisoning relationships with younger customers that carriers would like to serve for life.

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