The Booming Biz of ID Protection

Insurers, credit agencies, and others are pushing a plethora of safeguards. But consumer advocates question whether many are worth the cost

by Sonja Ryst

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.

WELCOME PRODUCT

"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.

SUPER MONITORING

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.