Synthetic Fraud Is Surging: What This Type of Identity Theft Means for Insurance Claims

Identity theft is one of the fastest-growing risks facing the insurance industry.

While identity theft has existed for centuries, the modern concept began in the mid-20th century. In this article, we’ll share a quick background on what insurance professionals should know about how identity fraud has evolved, current examples, red flags to look for, and what you can do about it.

Identity Theft: The Fastest-Growing Risk in Insurance Fraud

Identity theft today goes far beyond stolen credit cards. The fastest-growing financial crime—synthetic identity fraud—uses advanced technology to steal fragments of personally identifiable information (PII). These fragments are combined to enable crimes ranging from life insurance fraud to cargo theft.

Identity fraud is the use of stolen or fabricated personal information to deceive others for financial gain. In insurance, this deception can occur at any stage of the customer journey.

Fraudsters may:

• Create policies using fake or stolen identities
• File claims under someone else’s name
• Impersonate agents to steal sensitive policyholder data

This activity costs the insurance industry billions of dollars and ultimately drives up premiums for everyone if left unchecked.

Synthetic Identity Fraud Explained

Unlike traditional fraud involving real people or assets, synthetic fraud relies on entirely fabricated identities. Criminals blend real data—such as a valid Social Security number—with fake names, addresses, emails or phone numbers.

AI has made this process faster and more convincing. Using readily available tools, a fraudster can create a believable synthetic identity in minutes.

Synthetic identity fraud is estimated to account for up to 80% of new account fraud in insurance.

These “Frankenstein IDs” are difficult to detect because:

• Real PII passes validation checks
• Credit histories are slowly built over time
• Fraud may remain dormant until a major payout (“bust-out” fraud)

Types of Synthetic Fraud in Insurance

1. Identity-Based Synthetic Fraud
Fraudsters create a fictitious person using a mix of real and fake data, then:
Purchase insurance policies
Pay premiums to establish legitimacy
File fraudulent claims

Example: A synthetic identity is used to purchase a life insurance policy. After years of premium payments, the fraudster files a false death claim supported by forged documents. Because the identity appears legitimate, the claim may be paid unless the fraud is uncovered during investigation.

2. Entity-Based Synthetic Fraud

Criminals create fake businesses that exist only on paper, then are able to:

• Register shell companies
• Obtain commercial insurance policies
• Insure fake employees
• File staged claims

Example: A fraudster insures a fictitious business and submits workers’ compensation claims for synthetic employees using falsified medical records. Once claims are paid, the fake entity disappears.

These schemes are particularly damaging due to their high-dollar value.

More Traditional Identity-Driven Insurance Fraud Schemes

Although synthetic fraud is on the rise, more common types of fraud haven’t stopped.

Fraudsters use stolen or synthetic identities across multiple insurance lines, including:

• Account Takeover (ATO): Accessing policyholder accounts to change details and submit rapid claims.
• Medical Identity Theft: Using health insurance or Medicare information to obtain care or file fake claims.
• Rental Property Fraud: Purchasing renters’ policies for properties never occupied and filing fictitious loss claims.
• Cargo & Logistics Theft: Impersonating trucking companies or drivers to steal and resell cargo.

Identity Theft Red Flags:

Insurance professionals need to be alert for indicators such as:

• Altered or forged IDs
• Mismatched details (photos, names, addresses)
• Invalid SSNs (ex: numbers from the Death Master File or starting with 000, 800, or 900)
• Unusual claim behavior (quick claims on new policies, excessive treatments, contradictory statements)
• Unreachable claimants or immediate legal representation for minor issues

How Identity Theft Impacts Insurance

Insurance professionals need to be vigilant in all service areas, as identity theft can enable scammers to:

• Submit fraudulent claims for losses that never occurred
• Open or alter policies open without the real customer’s knowledge
• Commit vehicle finance fraud and theft, including VIN switching and title washing
• Steal cargo through impersonation of legitimate logistics businesses
• Commit medical fraud disguised as continuation of existing care

What You Can Do

• Verify identities of claimants, witnesses and businesses involved in claims.
• Scrutinize documentation and inconsistencies.
• Refer suspicious cases for further review by experts, such as our Special Investigations Unit.

Identity theft and synthetic fraud continue to evolve—but awareness and vigilance remain our strongest defenses.

If you’re an insurance professional who needs help identifying or establishing processes to combat ever-evolving identity theft schemes, let’s talk—contact our SIU team.