VeracityID_Prevent Fraud at Point of Sale and Transform Your Business_July 2015

© 2015 VeracityID, Inc. All rights reserved.

PREVENT FRAUD AT POINT OF SALE AND TRANSFORM YOUR BUSINESS

A 3-5%+ LOSS RATIO IMPROVEMENT OPPORTUNITY FOR P&C INSURERS

July 2015

AM I DOING

BUSINESS WITH

FRAUDSTERS? 2

FRAUDSTERS WIN WHEN

THEY CAN HIDE IN YOUR

DATA ................................ 2

2 < Prevent Fraud at Point of Sale and Transform Your Business www.veracityid.com

AM I DOING BUSINESS WITH FRAUDSTERS?

Of course you are. That isn’t news. But the extent of fraud in your book may be.

Fraud in applications. Fraud in the channel. Padded claims. Collusion between

providers, agents, employees and customers. Organized fraud rings. And all of them

are growing in an online world where you increasingly rely on data you cannot

confirm and representations you cannot see or touch – other than through data.

Multiple industry studies suggest that underwriting fraud – mispricing resulting from

misrepresentation on new applications – together with applicant errors can drive as

much as a 10% hit to the loss ratio of the typical personal lines insurer. This means

most carriers are significantly underpricing risks – and either do not understand or

cannot fix the problem. Moreover, the Insurance Information Institute estimates that

as much as 10% of claims paid involved some type of fraud – and that most of those

frauds remain undiscovered or are found only after claims are paid. Taken together,

this suggests that underwriting and claims fraud costs the US auto insurance industry

over $30-billion annually – with twice amount that globally.

For consumers, this means that the typical auto policyholder is paying a $100 annual

“fraud and misrepresentation tax” to insurers who cannot control fraud. And for the

average carrier, it means their bottom line is half (or less) of what it could be if fraud

were squeezed out of their books.

But how can you put an end to fraudsters? Aren’t criminals always with us?

FRAUDSTERS WIN WHEN THEY CAN HIDE IN YOUR DATA

The insurance sector is in the midst of a dramatic transition from a relatively low

margin, data-intensive industry that relies on a well-understood but costly agent-

driven sales model to a complex online, low-cost, multi-national and multi-channel

marketplace where customers may never actually meet any representative of the

carrier – ever. In this new setting, sales and service decisions must be nearly

instantaneous to satisfy an increasingly demanding and sophisticated customer base –

and yet risk still needs to be priced correctly to achieve sustainable and economic

returns. Unfortunately, many carriers are learning the hard way that in the rush to

meet these new challenges, fraud risks are easily overlooked in a fog of criminal

concealment, limited budgets, fragmented and costly carrier legacy systems, and a

globalizing data environment that often seems to add complexity without offering

insight.

We believe that these changes pose a profound threat to P&C carrier profitability

because this exciting new medium enables - indeed its very anonymity encourages -

misrepresentation and fraud. In this new world of ‘instant decisioning’, it makes little

sense to sell to a suspicious customer, await the inevitable shady claim, and then rush

SOMETIMES TROUBLE FINDS YOU BEFORE YOU FIND IT

Imagine you're responsible for security at a sold out concert in a big urban venue. You know that a few of the 40,000 ticket holders – up to 5% - are inclined to stir up trouble at an event like this. But you don’t know who they are or which of them will actually cause a ruckus until it happens.

You’ve always managed ‘problem customers’ by putting up barriers, installing cameras all around the darkened arena, and hiring an army of off-duty police, bouncers and plain-clothes security to watch everyone in attendance. You know something is going to happen – it always does – but you have no idea when it will happen or who will do it. So you watch everyone.

You are also sure you will miss as many incidents as you find. And you will be blamed for the ones you miss. So you watch, you wait, and you hope the bad guys went somewhere else tonight.

If you get lucky you'll see something happen early in the show and you can make a big show of stopping it. Congratulations! Only 1,999 potential "problems" and just four hours left before you can breathe again. But what if you could identify the 2,000 potential miscreants before they get inside? What if you could identify them before you sold them a ticket, before you let them inside? Could you change the status quo by not selling them a seat at all or by putting them in a closely monitored section of the arena?

How much money could you save on security? Would your ‘good customers’ have a better experience – and come back - if they were both safer and no longer treated like they were the problem?

www.veracityid.com Prevent Fraud at Point of Sale and Transform Your Business > 3

a pay/no-pay decision when someone is hurt or a car is stuck in the shop - when you

have the opportunity to assess your customers at Point of Sale before you take on a new

risk. VeracityID’s position is that the Point of Sale should present the first and most

important line of defense against fraud in an insurance company by highlighting both

deliberate and “white lie” misrepresentation and by identifying those individuals most

likely to commit a claims fraud at a later date.

It is time for insurers to move away from a ‘pay and chase claims’ fraud mentality and

towards a real-time, prevention and continuous monitoring model that stops fraud

before it starts – by making sure every policy is priced correctly and that fraudsters

find it difficult or impossible to get policies at all.

It is time to stop fraud before it starts.

CAN YOU REALLY STOP FRAUD BEFORE IT STARTS?

Yes, you can. And we can show you how to leverage our tools to build a deep and

powerful line of defense against fraud beginning at the Point of Sale – whether it be

online, in a call center or in an agent’s office.

The key is to catch fraudsters before they can hurt you. Before underwriting a policy.

Before a change is allowed. Before a claim is made. Early detection during the sales

process of those individuals who are, or are likely to commit fraud is critical –

detection while you are engaged with customers collecting information and at every

point prior to a policy change being approved or a claim being filed. And then you

monitor their behavior to identify changes that might impact fraud risk levels.

At VeracityID, we have identified two types of fraud that can be identified and

neutralized with our toolkit:

Opportunistic Misrepresentation

Applicants, of course, are prone to making genuine errors in their application

for insurance. But, they are also capable of telling ‘White Lies’ to insurers

about the scale and scope of their riskiness so they can get products and

pricing for which they are not otherwise eligible. This type of fraud is

commonly seen in financial services when people apply for insurance or

credit – but it is also found in the acquisition of almost any online service

where the seller is assuming customer risk. It frequently involves people who

consider themselves to be otherwise honest – and certainly do not see

themselves as liars or criminals.

Independent research suggests that many - even most – otherwise honest

people will shade the truth to get a lower price from a financial institution so


long as they perceive the consequences will be limited – and they are because

carriers are generally tied to the quote at binding even the quote was based

on incomplete or inaccurate information. Worse, their agents often abet in

the deceit by ‘working the numbers’ out of the customer’s sight in order to

get a better rate – further alleviating the customer’s guilt or sense of

responsibility for their application’s truthfulness. And Carriers don’t help

themselves in this process because they often find it too difficult and

expensive to identify and/or pursue these ‘soft’ frauds, Instead, they simply

price deceit into policies as a cost of doing business – even though this type

of ‘premium leakage’ may constitute as much as 10% of premium.

Professional Fraud

Professional Fraud – fraud committed by individuals acquiring products with

the prior intention of engaging in a crime - involves far fewer individuals

than Opportunistic Misrepresentation, but generally yields much higher

losses per incident. Research suggests that less than 5% of the population is

composed of habitual liars and cheats – people who comfortably and serially

deceive and defraud others to make money and/or avoid negative

consequences. Unlike those who are willing to shade the truth for a small

benefit, these types of individuals tend to conceal themselves and their

activities in ways that will minimize suspicion and offer maximum

opportunity for unjust rewards.

Traditional fraud detection methods struggle to discern these types of fraud after they

have occurred, let alone reveal which applicants are likely to fall in either category at

Point-of-Sale. Why? Because fraudsters look and sound just like everyone else. They

hold jobs, they have friends and families – they look ‘normal’ by all outward

appearances. And they work hard to keep it that way – because remaining

undiscovered is how they do what they do. And in the increasingly emerging digital

world, it’s proving easier than ever before for them to do their work. As we move

from personal to a host of different types of online interactions – in applications, in

ordering products or services, in filing claims – it is how they represent themselves in

data that reveals who they are, whether they are telling the (all of) truth, and what

their intentions may be.

VeracityID enables clients to attack both types of fraud by enabling you to organize

current and prospective customer data from diverse internal and external sources and

thereby create a complete digital picture of those anyone who is seeking to do

business with you. By applying our analytical took kit to your data, you can assess

who is telling (all of) the truth and who is attempting to deceive you, and quantify the

risk of taking on a new customer, offering a product renewal or authorizing a change

in terms.

You can stop fraud before it starts.


VERACITYID CRACKS THE FRAUD PROBLEM AT POINT OF SALE

VeracityID has solved one of the oldest and most vexing problems facing decision

makers at insurers, banks and other financial institutions: “How do I identify fraud

and fraud and fraudsters during the application process – before making an offer and

before closing a transaction – and then track changes in fraud risk over the life of the

customer relationship?”

VeracityID’s cloud-based fraud platform -

idFusion - offers insurers a cutting edge fraud

prevention, detection and prediction solution

that enables customers to pro-actively identify

misrepresentation, measure and score fraud risk,

and then mitigate both during the application

process and beyond through a sophisticated and

comprehensive approach to “Big Data”

aggregation, point-of-sale workflow and risk analysis.

idFusion is a SaaS offering that leverages a vast array of company and external data to

measure, analyze and report fraud risk in a customer, channel or service provider

network, continuously and in real-time. It uses the insights gathered to drive key

client decisions at the moment they matter most … at point of sale.

idFusion is the fraud solution for a networked world.

Cutting-edge detection methodologies. idFusion is built with world-class

database design, entity resolution, real-time data validation, sophisticated

rules testing, social network analysis, predictive analytics and continuous

monitoring tools to identify, anticipate and mitigate fraud risk from the first

moment of the customer relationship to the last.

Channel, technology infrastructure and line of business agnostic. idFusion

can provide real or near-real time insight in both online and offline

environments for any financial or risk-based product.

See your data in a new way. idFusion includes highly sophisticated analytical

and decision support tools that enable business decision makers and analysts

to quickly customize and view transactional information, risk status alerts and

production data in real-time or on a periodic/customizable reporting basis –

with no programming or database skills required.

Low deployment and maintenance costs. idFusion requires a light customer

technology footprint and limited customer integration with core systems.

Our focus is on helping customers make better decisions that drive

idFusion is a break-out solution

that delivers the next generation

of fraud prevention capabilities

to insurers – and drives

dramatic financial performance

improvement in the process.


significant financial performance improvements at point-of-sale, not on

costly or large enterprise IT transformation.

Dramatic and rapid payback. A typical auto insurer should expect to see at

least a 3-5% improvement in their loss ratio within 1-2 years of adopting

idFusion – and potentially more in out years. Payback should be 10-20 times

the typical annual idFusion subscription cost.

HOW DOES IDFUSION WORK?

Carrier data is typically organized across multiple legacy environments – new policy

systems, policy administration systems, claims systems, investigation systems and

more – and then bundled with externally purchased data to help inform decisions.

This legacy environment has been crafted to originate and service policies – but it was

not designed to fully leverage data for business insights, to identify fraud or to provide

a lifecycle view of customer, channel or provider information.

idFusion overcomes this problem by gathering selected (production-related) source

data from these disparate environments, resolving inaccuracies and inconsistencies

among them, and then normalizing this information into a consistent and highly

efficient schema from which our customers can draw insight, test and validate data,

measure and monitor fraud activity and risk levels, and take action to prevent fraud

before it starts at point of sale, at renewal, during a change request process, or in

assessing a claim.

idFusion’s SaaS solution for Property & Casualty insurance consists of six key

services:

DataFusion

VeracityID’s DataFusion process gathers information from internal and external

sources and organizes them into a common schema architected to detect fraud in a

type or line of business. Data is regularly refreshed and renewed through data

feeds/updates from company origination and source systems, as well as updates from

third party data services.

Integrates customer, product, channel, geographic and other production-

related lifecycle data into a common schema validated entities and attributes

Includes pre-built data quality tests contextualized to end-user requirements

and resolves/removes/remediates data duplicates, omissions and

inconsistencies common across corporate data environments.

Provides a single, multi-dimensional and query-able view of enterprise data.


idTruth Entity Resolution

Most people have several dozen internet ‘identities’ – birth records, school records,

financial records, marital records, etc. – which often contain gaps or inconsistencies.

Perhaps an applicant has a formal name (James) in one record and an informal name

(Jim) in another. Perhaps a date or address number is transposed, or someone else’s

records are mistakenly included, or a business name is incomplete – any of which can

happen without the customer’s knowledge or consent.

idTruth is VeracityID’s answer for resolving these entity-level conflicts and gaps in

personal and commercial data through its own version of a process called Entity

Resolution. idTruth has multiple powerful features, including it:

Identifies, matches and links similar individuals, locations, businesses and

other entities using similarity search technology that is superior to commonly

used exact match, pattern-based matching and Soundex matching solutions

applied in typical identity fraud tools.

Ensures that misspellings or intentional information misrepresentations are

detected to reduce false negatives.

Searches across multiple attributes to disregard irrelevant matches and

thereby reduce false positives that impair effectiveness and the customer’s

online experience.

AppTruth™ Data Validation

AppTruth is one of two key analysis tools idFusion employs to identify and prevent

fraud – primarily underwriting fraud in this case. AppTruth assesses the completeness

and truthfulness of customer/agent-provided application data using pre-validated

internal and third party data to affirm pricing and eligibility at POS. It employs a

complex Boolean logic system in which responses are tested against known fact sets

and applied against decision rules. Based on findings, decision codes are fed back to

point-of-sale for action. These decision codes may signal such actions as approval of

information, request additional data, refer the customer to another channel or

program, decline the policy – or simply flag the applicant information as ‘unknown’ or

‘at risk’ and thus worthy of review or monitoring, or both. And all of this happens in

near-real time (micro-second response, normally) and completely in the background

of the customer online experience. Specifically, AppTruth:

Tests verity, accuracy and completeness of key pricing and risk information

provided at point-of-sale in real-time

Accordingly, it enables clients to identify and correct pricing errors before

completing a transaction


Leverages VeracityID rules engine to measure compound risk factors and

take mitigation steps when customer representations are incorrect or cannot

be confirmed

TrustMark™ Social Network and Fraud Risk Scoring

TrustMark is VeracityID’s application of social analysis tools such as those used in

national defense settings to identify espionage and terror risks in large populations.

TrustMark organizes validated information in a large scale social network that includes

a wide range of identifying information that highlights and measures the strength of

connections to known fraud persons, entities, locations and digital footprints. With

the social network in place, each applicant and policyholder is then provided with a

TrustMark - a risk score that assesses the potential for that person or business to

engage in fraud. Specifically, our TrustMark scores allow companies to:

Apply fraud risk measures much like other companies use credit risk to

manage financial decisions – in this case by measuring customer

trustworthiness before accepting new risks

Identify and monitor connections to known fraudsters and fraud patterns

throughout the policy lifecycle

Establish fraud risk thresholds to alert carriers to changes in customer status

via continuous monitoring of each entity’s social network

Visualize and measure risks at entity, book, channel and geographic levels

Establish and manage fraud exposure to company-specific risk appetite

Figure 1: Network visualization tools allow network risk patterns to be

analyzed easily and intuitively


idWorkbench™

idWorkbench is idFusion’s analytical workbench. Built on top of our Hadoop and

social network databases and leveraging Apache Trafodion capabilities to ensure near

real-time data extraction and reporting, it allows decision makers to develop and

deliver highly customized reporting, monitoring and decisioning to the desktop of

underwriters, actuaries, analysts, claims adjuster and executives at every level – subject

to user defined access and permissioning in our highly secure environment.

idWorkbench enables customers to:

Easily customize and view analytics for an executive needing summary

reports or analysts needing detailed portfolio analytical resources

Customize dashboards, reports and graphics using customer-determined

fraud management KPIs, alerts, maps and other graphics for in-depth insight,

communication and decisioning

Deliver dynamic fraud network visualizations that enable decision makers to

‘see’ emerging patterns of criminal activity as they develop.

Leverage our predictive analytics and customizable P&C insurance rules

libraries to detect fraud patterns and optimize detection in response to

changing fraudster tactics

Figure 2: idFusion provides user-customizable alerts and status dashboards for

executives and risk managers


Figure 3: idFusion provides user-customizable alerts and status dashboards

for executives and risk managers

idFusion Workflow

Finally, idFusion provides customers with a rich, roles-based workflow model that

enables it to be configured to individual, departmental and company needs and

requirements. Key elements include:

User-defined workflow engine that can be customized to company-specific

risk tolerances and escalation processes

Real-time/online processing and overnight/periodic batch processing

options

Meets or exceeds statutory and industry standard information and application

security requirements for data management, access and application controls,

and monitoring logs of usage (with alerts for unusual/unexpected usage).


Figure 4: idFusion automates complex alerts and investigation management

with configurable and flexible workflow

IDFUSION CAN INCREASE CARRIER LOSS RATIOS 3-5% - OR MORE

By applying idFusion at point-of-sale, we can improve the typical personal lines

carrier’s loss ratio by 3-5% - or more – within 1-2 renewal cycles. We can help

customers identify errors and lies on applications, highlight applicants whose history,

associations and behavior portend future fraud, and identify which applicants need to

be monitored more closely when a change occurs or a claim is filed.

For a billion dollar premium carrier, this translates to a $30-50 million annual

improvement opportunity. It means being more competitive in a market where

carrier selection can ride on a $20 difference in premium. It means growing market

share online when comparative rating dominates the consumer landscape.

DEPLOYING IDFUSION

As a SaaS application, idFusion requires relatively little IT integration support from

enterprise IT deployment teams. This support is largely limited to access to secure

data feeds from origination and other customer/third party data sources, to ensuring

configuration compliance with enterprise data, access and application controls and

standards; and in provisioning of help desk support for internal users. Additional IT

support may be required if a private cloud or on-premises implementation is required.

VeracityID is committed to providing the support necessary to ensure that idFusion

delivers significant financial benefits to customers in short order. Specifically,

Veracity assists customers through the initial configuration effort including the


roles/assignments, application fine-tuning and training/communication activities.

VeracityID also actively provides ongoing advice and consultation about how to get

the most value from its Services across user teams and executive groups.

Post-implementation efforts, including but not limited to responsibility for all key

provisioning, decisioning, training and management processes reside with the

customer – with VeracityID providing Level II/advisory support as needed.

VeracityID also publishes and provides ongoing enhancements to the platform, adds

additional rules and fraud pattern libraries, enhances and deepens fraud scoring

capabilities, incorporates additional data types and sources into the network, and

develops/publishes its product roadmap in close consultation with its users.

FLEXIBLE DELIVERY OPTIONS

VeracityID’s idFusion is currently offered as a Software as a Service (SaaS) solution

delivered by Amazon Web Services (AWS). It can also be configured to respond to a

variety of customer needs and environments, including rapid integration into real-time

processing systems and as a batch/periodic processor. A variety of commercial

arrangements are available to enable carriers to minimize capital expenditures while

maximizing return on investment.

GETTING STARTED WITH IDFUSION

Is idFusion for your company? Can we really identify an ongoing 3-5% loss ratio

improvement in one or two renewal cycles? Let us show you how through a brief

Opportunity Assessment during which we will assess the scope size of the value

capture opportunity in your organization.

It all starts by going to our website and signing up for a demo at

www.VeracityID.com or emailing us at [email protected]. We will get back

to you within 24 hours to start the conversation.

http://www.veracityid.com/

mailto:[email protected]


From its roots in National Security, VeracityID is a true big data, real-time

fraud analytics and investigation platform that brings together advanced

fraud risk analysis, social network fraud analysis, and real -time scoring into a

unique enterprise-scalable product for global financial institutions. Criminals

have become more sophisticated, unpredictable and persistent in their

techniques, and are increasingly exploiting digital channels. Our proven

enterprise platform enables global organizations to identify fraud and likely

fraudsters among new and existing customers - in real-time – before making

a product offer and then continuously monitor changes in risk level

thereafter. VeracityID is headquartered in Reno, NV and has offices in

California, Washington DC and London. For more information, please visit

www.veracityid.com.

NOTICE

INFORMATION IN THIS DOCUMENT: (I) IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY WITH RESPECT TO PRODUCTS OF VERACITYID OR ITS SUBSIDIARIES (“PRODUCTS”), (II) REPRESENTS VERACITYID ’ VIEWS AS OF THE DATE OF PUBLICATION OF THIS DOCUMENT, (III) IS SUBJECT TO CHA NGE WITHOUT NOTICE, AND (IV) SHOULD NOT BE CONSTRUED AS ANY COMMITMENT BY VERACITYID. EXCEPT AS PROVIDED IN VERACITYID ’ LICENSE AGREEMENT GOVERNING ANY PRODUCTS OF VERACITYID OR ITS SUBSIDIARIES (“PRODUCTS”), VERACITYID ASSUMES NO LIABILITY WHATSOEVER, AND DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTIES RELATING TO THE USE OF ANY PRODUCTS, INCLUDING WITHOUT LIMITATION, WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, OR INFRINGEMENT OF ANY THIRD PARTY INTELLECTUAL PROPERTY RIGHTS. VERACITYID ASSUMES NO RESPONSIBILITY FOR ANY ERRORS OR OMISSIONS CONTAINED IN THIS DOCUMENT AND VERACITYID SPECIFICALLY DISCLAIMS ANY AND ALL LIABILITIES AND/OR OBLIGATIONS FOR ANY CLAIMS, SUITS OR DAMAGES ARISING FROM OR IN CONNECTION WITH THE USE OF, RELIANCE UPON OR DISSEMINATION OFTHIS DOCUMENT AND/OR THE INFORMATION CONTAINED HEREIN.

VeracityID may have patents or pending patent applicat ions, trademarks, copyrights, or other intellectual property r ights that relate to the Products referenced herein. The furnishing of this document and other materials and information does not provide any license, express or implied, by estoppel or otherwise, to any foregoing intellectual property r ights.

No part of this document may be reproduced, stored in a retr ieval system, or transmitted in any form or by any means without the express written consent of VeracityID, Inc.

Customers are solely responsib le for assess ing the suitabil ity of the Products for use in part icular appl icat ions. Products are not intended for use in medical, li fesaving, li fe susta ining, cr it ica l control or safety systems, or in nuclear faci lity applicat ions.

Copyright © 2015, VeracityID, Inc. All r ights reserved.

VeracityID, Inc.

4861 Grousecreek Ct.

Reno, NV 89519

Phone: (775) 527-7467

Fax: (615) 676-6910

*Other company names or products mentioned are or may be trademarks of their respective owners.

Information in this document is subject to change without notice. For the latest documentat ion, visit www.verac ityid .com

ABOUT VERACITYID



VeracityID_Prevent Fraud at Point of Sale and Transform Your Business_July 2015

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