Identity verification: Knowing your customer, digitally

Insurers face a growing challenge in their efforts to detect fraud, prevent money laundering and meet compliance requirements when onboarding customers and establishing business relationships. While digitalisation has made it easier to connect with insurers and apply for policies, it has also facilitated fraud and other criminal activities. In the digital age, operational security has never been more important – and the crucial first step in any insurance relationship is to know your customer (KYC). 

“Digital identity is increasingly needed with the rise of online transactions,” says Mykola Mashkovskyi, CEO and co-founder of Kycaid, an identification verification specialist supporting insurance and other industries. “A key development is the adoption of document-free verification, which means identities can be confirmed without the need to provide physical documents.”

Instead of using paper trails and time-consuming and error-prone manual processing, insurers can use document-free techniques to vet customers securely and conveniently. It’s a method now used by many financial organisations to enhance and accelerate essential security checks, and it is continually evolving thanks to advances in artificial intelligence, machine learning, blockchain, data analytics and other technologies. 

As Mashkovskyi explains, it is important to take a holistic approach to verification. The changing regulatory environment and new threats mean insurers should see KYC compliance as an end-to-end requirement, starting with onboarding and continuing through the customer lifecycle. At the same time, verification should continually evolve to match the threat environment and the ingenuity of fraudsters.

“Fraud is widespread and there are many vulnerabilities,” says Mashkovskyi. “For example, in life and health, insurers must guard against fraudsters creating fake identities and making false claims. Identify theft is always a risk, with criminals taking out life or health policies and filing claims in someone else’s name. Spotting application fraud, whether for life and health cover or property and casualty, is a constant challenge across all insurance lines.”

Verification using AI algorithms

Requesting and then manually processing physical copies of ID documents such as passports and driving licences is time consuming, and documents are not proof that the applicant is the same person as the one shown on the ID. As Mashkovskyi says, with the help of AI algorithms, identity documents can be verified in a matter of seconds. An AI-enabled system can recognise and accurately validate all the relevant details, detect forgeries and provide thorough risk reports.

Liveness checks (also known as anti-spoofing checks) are another form of verification, and Kycaid employs the technology as part of its approach. A liveness check uses motion detection, biometric faceprints and face-matching algorithms to confirm that a person actually is who they claim to be. With biometric liveness detection, the technology can tell if it is scanning a true biometric source, such as a real eye, thumbprint or face, and not a false one created to deceive.

As fraudsters become more resourceful, insurers must fight technology with technology, so liveness detection is certain to play a bigger role. Mashkovskyi warns that deepfake technology can defeat some liveness checks, underlining the need for insurers to keep pace with change and strengthen digital verification techniques. 

Mashkovskyi adds that more traditional screening techniques must remain part of the overall defence, but with the benefit of automation. For instance, automated database screening can check potential customers across multiple databases to ensure they are not sanctioned or on a wanted list or a politically exposed person list.

“Strength in combination is the foundation for successful identity verification,” says Mashkovskyi. “You need to combine traditional methods with advanced screening techniques, such as liveness checks, and digitise the KYC process as much as possible.”