Because the cost to repair one’s credit after identity theft is often greater than the amount of actual money taken, consumers are beginning to turn to the insurance industry for protection.
Identity theft insurance, unlike most other types of insurance, does not offer a claim payout.
Instead, it pays for the repair of the policy holder’s identity, most often by hiring a specialized identity restoration firm.
Buying a policy with full restoration services is essentially paying to avoid the headache of contacting credit bureaus and consumer agencies. Theft resolution firms also offer knowledge and experience for a more thorough credit cleansing.
But some question the value of the plans.
“I don’t think that any identity theft insurance plan that I’ve seen is going to provide you with something you can’t do yourself,’ said Janet Jenkins, an administrator in the state Department of Agriculture, Trade and Consumer Protection.
Necessity?
Claudia Bourne Farrell, spokesperson for the Federal Trade Commission, said reports of identity theft have increased each year, along with reports of other fraud.
“I think 10 years ago the term ‘identity theft’ was not in general use,” Bourne Farrell said. “Now almost every one has heard of it and understands what it is.”
According to the FTC’s ID Theft Clearinghouse, Wisconsin had 2,782 reported cases of identity theft in 2005, or 0.05 percent of all the people in the state.
Several said victims of identity theft do not suffer out-of-pocket costs. The true costs of identity theft are in restoring personal reputations, they said.
In its latest estimate, the FTC found victims spend an average of $500 and 30 hours repairing their identity.
Numerous government and consumer advocacy groups offer checklists and instructions for fixing broken status.
Jenkins said for those who do not feel comfortable or simply do not want to spend the time sifting through credit reports, these policies could be a good choice.
“What you need to do if you’re thinking about it, no matter what you’re spending, is look into exactly what you’re getting,’ Jenkins said. “What help are they providing? Are they simply telling you what you need to do, or are they going to actually do it for you?”
West Bend Mutual Insurance began offering identity theft coverage in 2003, and now 19,105 of its policy holders carry the endorsement on their homeowners’ insurance.
In July, it partnered with Identity 911 of Scottsdale, Ariz., to offer their customers identity theft resolution services.
In West Bend Mutual’s version of the insurance, once a claim is filed, a personal advocate handles the legwork of repairing the theft damage.
The advocate handles restoring a client’s credit and filing a fraud report. Typically the victim’s time involved is cut down to phone calls with the advocate and signing papers.
“I look at it, as with any type of insurance, it’s there if something happens. Then if my identity is stolen, I don’t have to worry about returning my good name to where it was,” said Scott Wittliff, West Bend Mutual property specialist.
The endorsement is relatively inexpensive - West Bend Mutual’s policy is $15 for a year of coverage and national averages are in the $25 to $60 ballpark.
Dan Wolfgram, personal lines manager for R&R insurance, said the low price was an indication few claims had been filed. Still, he said that five to seven policyholders add the endorsement each week.
Not in it for the money
Jenkins said some identity thieves can take out credit cards and loans in someone else’s name. Others can use the information to get insurance benefits for which they cannot or do not wish to pay, she said.
Jenkins also said as the federal government begins to bear down on illegal immigrants, more and more people may become desperate for documents to prove they are allowed to live and work in the U.S.
“You can get about $60 on the black market for a social security number with a date-of-birth,” said Lance Gordon, executive director of Prepaid Legal Services in Waukesha. “A photo ID that can pass for the buyer can fetch around $200, a price that could rise with demand from those fearing deportation.
“There are a lot of laws cracking down on them and there are a lot of people desperately trying to prepare themselves,” he said.
Sophisticated thieves target large databases.
In May, the U.S. Department of Veterans Affairs announced a duplicate database was stolen from an employee’s home. Inside were the names, social security numbers and dates-of-birth for as many as 26.5 million people, including tens of thousands of personnel currently deployed or on active duty.
As a veteran, Gordon received a letter warning him of the information loss.
Law enforcement recovered the database in August, and the VA has enlisted a fraud analysis company to search out misuse of the personal information.
Information can also be culled from deep inside the memory of trashed technology like computers and cell phones.
Besty Wilcox runs a computer recycling program as director of the Washington County Volunteer Center. She encourages a complete memory erase when donating a computer for reuse.
She said trashing the computer, opening the PC’s cabinet and physically putting the hard drive through a drill press is not overkill.
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