Mark St. Pierre, who runs a financial-consulting firm, received an unexpected but welcome surprise from his insurer this January. Hartford Financial Services Group (HIG) told St. Pierre that he would get identity-theft insurance at no extra charge when he renews his small-business policy this time. Benefits include advice and coverage of as much as $15,000 for costs associated with ID theft.
No one wants their identity stolen, but ID theft would be especially bad for St. Pierre, who manages Swingbridge Capital, a consultant for small and midsize businesses. St. Pierre says his personal-credit history is intertwined with his ability to raise debt to expand his business. If "someone stole my ID, it could prohibit me from adding an employee," he says, adding he "was pleased that this benefit was added."
Consumers and small-business managers such as St. Pierre are being offered a growing number of financial products aimed at safeguarding against ID theft -- a crime that, according to Javelin Strategy & Research, affected about 9.3 million people in 2004, causing $52.6 billion in losses in the U.S. alone (see BW Online, 12/5/05, "Phishing: Beware the Internal Revenue Scam"). On average, ID-theft victims rack up $500 in costs and take 30 hours to solve a case, according to the U.S. Federal Trade Commission.
"The whole ID-theft insurance industry has developed significantly in the last two years," says Beth Givens, director of the Privacy Rights Clearinghouse, a San Diego-based consumer-advocacy group. "Companies see the epidemic of ID theft as a business opportunity." ID-theft protection is being tucked into a host of products, from homeowners' insurance to company benefits to credit-monitoring services.
Customers say the protection is welcome. In a 2005 Javelin survey of 2,200 consumers, 34% of respondents chose identity-fraud insurance as one of three additional security measures they would most like financial-services companies to provide, and 45% prioritized a full guarantee against identity fraud. By contrast, only 7% said they would prefer tutorials on how to protect themselves against ID theft.
Insurers are happy to oblige. American International Group (AIG) says it covers about 7 million people against ID theft, compared with about 5 million a year ago. St. Paul Travelers Companies (STA) has 3.5 million to 4 million insured for ID theft, says Joseph Lester, an ID-fraud product manager at St. Paul Travelers. The number covered "has probably doubled over the past 18 months," he says, noting that St. Paul Travelers expects a similar increase in the near future. He declined to discuss revenue or the cost or number of claims that policyholders have made on ID-theft fraud cases.
St. Paul Travelers charges about $25 a year for ID-theft protection for homeowners' insurance policy holders. Coverage includes a credit report and access to advice on how to cope with the fraud. The policy reimburses as much as $5,000 in lost wages for victims who spend time away from work cleaning up credit. They can also get as much as $25,000 for other expenses, such as attorney or loan reapplication fees. St. Paul Travelers also sell similar policies to businesses, which in turn provide the insurance to employees as a benefit.
Insurers aren't the only ones providing ID-theft protection. Credit-monitoring companies now include it in products designed to help monitor credit. The Triple Alert plan for $4.95 per month from Experian includes ID-theft insurance from Virginia Surety for up to $10,000, with a maximum lost-wage benefit of $2,000. The plan includes other services such as daily monitoring of credit reports from Experian and rival credit bureaus Equifax and TransUnion.
In 2004, Experian added ID-theft insurance and other options to its Credit Manager Plan, which previously provided daily monitoring of Experian's reports for $9.95 a month.
For all the would-be benefits, some cyberfraud experts and consumer advocates question the value of ID-theft protection products. According to Consumer Reports, part of the nonprofit testing and product-information group Consumers Union, ID-theft insurance generally costs $25 to $50 a year and carries a maximum benefit of $15,000 to $25,000, with deductibles of $100 to $250. Consumer Reports doesn't recommend buying ID-theft insurance but instead offers tips on preventing it.
In some cases, it's not always clear how much one is paying for ID-theft insurance, which often appears rolled into other items as part of a general package of insurance coverage, banking, or credit-monitoring services. Linda Foley, executive director of the nonprofit Identity Theft Resource Center, says you should buy the insurance only if you have extra money. And in that situation, she recommends a low-cost plan that's "somewhere around $25 a year."
Givens of the Privacy Rights Clearinghouse has a higher threshold: "ID-theft policies that cost upward of $120 a year, in my estimation, are not worth the money," she says.
The number of people victimized by ID theft amounts to about 4% of the 215 million adults who have active credit tracked by credit-scoring company Experian. Almost a third of the victims don't lose any money at all.
Foley says she hasn't encountered a single victim yet who has used ID-theft insurance to solve a case. After posting a survey on her Web site last year soliciting customer feedback on experiences claiming ID-theft insurance, she took down the survey after several months because she never received any responses. Normally, her surveys will draw a couple hundred participants from among the more than a million to visit the Identity Theft Resource Center in 2005.
"ID-theft insurance is a buyer-beware situation," Foley says. "Unfortunately, some companies really do try to use scare tactics to get you to buy the insurance."
John Spagnuolo, spokesman for the Insurance Information Institute, a trade association, says you can't put a price tag on the peace of mind that insurance provides. "Many people don't know where to start," he says. Coping with stolen identity "can be frustrating."
WEIGHING THE ODDS
Jerry Silva, a research director at research and advisory firm TowerGroup in Needham, Mass., says this is a frustration he's willing to risk. He received word that his credit-card company has lost data that includes his Social Security number and account number. He says the snafu by the company, which he declines to name, puts him at risk for ID theft.
Still, he's unwilling to shell out cash for extra safeguards. "If I'm going to get hit, I'll get hit," Silva says. If it happens, he plans to rely on his knowledge about ID theft to help him cope. He'd start by calling an organization like the Identity Theft Resource Center.
For the millions who are less self-reliant, there's always an insurance policy.