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A personal response: homeowners insurers are adding identity theft coverage to policies.

Identity theft is a rapidly growing problem. The incidents and news stories are scary--what's a person to do in a world where using online computers, credit cards and Social Security numbers is unavoidable but can result in considerable loss? In addition to the actual amount directly attributable to the ID theft, expenses involved in "clearing" the situation can include lost wages, costs of reapplying for mortgages and credit accounts, and numerous miscellaneous fees. Estimates of the expense on an individual basis range from $500 to almost $1,500.

One answer to the problem is insure the exposure. Several varieties of identity theft insurance have emerged and are being refined continually. American International Group and St. Paul Travelers have developed group insurance products that can be used as employee benefits or for the use/protection of customers (or both).

Home Base

In personal lines, homeowners insurers also have responded to the situation. Relatively inexpensive endorsements (coverage built into the homeowners insurance form) for ID theft exposure are now available from many homeowners insurers. Insurance benefits available are in the form of incurred expense reimbursement, but no liability insurance, or coverage for any actual financial loss sustained by covered persons, is provided.

Almost all insurers providing some form of "identity fraud expense" insurance include coverage for lost wages (or lost earnings). For example, Chubb Corp.'s limit is $250 per day, to a total of $10,000; Cincinnati Financial Corp. covers $250 per day for a maximum period of 40 working days, whether incurred individually or consecutively and Encompass Insurance offers a limit of $500 per week for a maximum of four weeks.

The use of per-claim deductible amounts varies also. Some insurers use some type of "per event" deductible amount (Atlantic Mutual, $500; Cincinnati, $250), while others, such as Fireman's Fund, do not use a per claim or aggregate deductible.

The total limits for II) theft also vary. Grange Insurance Cos. offers limits ranging from $2,500 to $10,000; Atlantic Mutual offers limits of $25,000 as a single option, as do Chubb and Hanover Insurance Co.

Some insurers, such as Atlantic Mutual and Chubb, offer the coverage with no additional charge, while others require an additional premium: Cincinnati, $25: Montgomery Insurance, $25; State Auto, $40 and Travelers, $25.

A Good Defense

The following risk management steps may be helpful to clients and insurers in deterring identity theft.

* Check personal credit reports regularly. A federal law effective in December 2004 mandates free credit reports sooner or later in 2005, depending upon the state of residence;

* Shred all documents that contain credit card numbers, banking account information or any other personally identifying data or information as soon as possible alter verifying the accuracy of the information;

* Make sure your mail is secure. Post office boxes offer more security than single family residence mailboxes;

* Guard your Social Security number jealously. Its sole purpose is to secure individual benefits under the Social Security Administration. Question any request to use it other wise by merchants, educational institutions, etc;

* Destroy any receipts from ATMs, gas station purchases, restaurants or related transactions;

* Never reveal financial information related to you or your family over the telephone, or in response to computer requests (called "phishing").

* Destroy any solicitations for credit cards or bank cards arriving through the mail which contain personally identifying information; and

* Quickly review credit card statements when received for accuracy, and if incorrect, notify the sender in writing to preserve individual credit reporting rights.

ID theft is growing, and insurers are responding with several types of coverage. The easiest to access for most individuals may well be under a homeowners policy, although some employers are considering offering "group" ID theft insurance as an additional employee benefit. In reality, the best course of action is likely to be a combination of insurance and individual loss control measures.
Identity Theft Coverage by Selected Homeowners Insurers

Insurer Expense Reimb. Limit

American International Group $15,000-$100,000 per occurrence
Atlantic Mutual Insurance Co. $25,000 per occurrence
Allstate Insurance Co. $25,000 per occurrence
Chubb Corp. $25,000 per occurrence
Cincinnati Financial Corp. $25,000 per occurrence
Encompass Insurance $20,000 per occurrence
Fireman's Fund Insurance Co. $15,000
Fireman's Fund Insurance Co. $15,000
Grange Insurance Cos. $2,500 to $10,000 per occurrence
Hanover Insurance Co. $25,000 per occurrence
Hartford Financial Services Group $15,000 per occurrence
Lexington Insurance Co. $15,000 per occurrence
MetLife Auto & Home $25,000 per occurrence
Montgomery Insurance $15,000 per occurrence
Southern Guaranty $15,000 per occurrence
State Auto Insurance Co. $15,000 per occurrence
Travelers Property Casualty $15,000 per occurrence
USAA $5,000 per occurrence

Insurer Deductible

American International Group Policy Ded.
Atlantic Mutual Insurance Co. $500
Allstate Insurance Co. $0
Chubb Corp. $500
Cincinnati Financial Corp. $250
Encompass Insurance $100
Fireman's Fund Insurance Co. $0
Fireman's Fund Insurance Co. $0
Grange Insurance Cos. $250
Hanover Insurance Co. $250
Hartford Financial Services Group $250
Lexington Insurance Co. $100
MetLife Auto & Home $0
Montgomery Insurance $250
Southern Guaranty $250
State Auto Insurance Co. $250
Travelers Property Casualty $100
USAA $100

Insurer Premium Charge

American International Group $25 per $10,000 limit
Atlantic Mutual Insurance Co. Included in Atlantic Master Plan
Allstate Insurance Co. $30
Chubb Corp. Included in Masterpiece
Cincinnati Financial Corp. $25
Encompass Insurance $25
Fireman's Fund Insurance Co. Included in Prestige Premier
Fireman's Fund Insurance Co. $15 for HO-3, HO-4 and HO-6
Grange Insurance Cos. $10 to $16 dependent upon limit
Hanover Insurance Co. $35
Hartford Financial Services Group $24
Lexington Insurance Co. $25
MetLife Auto & Home Included
Montgomery Insurance $25
Southern Guaranty $28
State Auto Insurance Co. $40
Travelers Property Casualty $25
USAA $25

Note: There may be some states in which ID theft coverage is not
offered by an insurer from which it is otherwise shown to be available,
due to statutory form approvals, or for underwriting reasons. This
information is as of May 6, 2005.

Source: Dawn Long

Potential ID Theft Incidents in 2005

Personal information marketer ChoicePoint said it accidentally sold information on approximately 145,000 U.S. residents to illegitimate business operations in California.

Leading discount shoe seller DSW said that customer names/correlated credit information from 108 stores had apparently been removed from a company database.

Lexis Nexis databases apparently were compromised for more than 30,000 individual customers.

Boston College announced that it had notified almost 120,000 alumni that individual Social Security numbers and addresses had been potentially compromised by an intruder.

Bank of America said that it had lost tapes containing the financial records of about 1.2 million federal employees.

Contributors: Dick Clarke is a senior vice president and Dawn Long is a personal lines supervisor at insurance broker J. Smith Lanier.

Identity Theft By the Numbers *

1 in 10 The number of identity theft victims in the United States

$50 Billion The cost of identity theft to businesses and victims

635,000 The number of consumer fraud/ID theft complaints made to the Federal Trade Commission

26% The amount that credit card fraud accounted for of all ID thefts

* In 2004 Source: Federal Trade Commission

Key Points

* Insurers are responding to identity theft by offering both group products and coverage via homeowners policies.

* Some insurers offer the coverage at no extra charge.

* Identity theft policies typically cover only incurred expenses.
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Article Details
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Comment:A personal response: homeowners insurers are adding identity theft coverage to policies.
Author:Long, Dawn
Publication:Best's Review
Geographic Code:1USA
Date:Jul 1, 2005
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