LifeLock-type Services are a Natural for Insurers

Chances are you have seen or heard about the advertising from LifeLock, a service that claims to protect individuals against identity theft. In an effort to demonstrate his confidence in the service, LifeLock CEO Todd Davis publicly disclosed his own Social Security number by, among other things, posting it on a mobile advertising unit that drove around a big city and announcing it on the air.

A recent interview with Davis in Computerworld, however, revealed that he was a victim of identity theft 13 times, and the Federal Trade Commission has slammed his company with a $12 million fine for deceptive advertising practices. Davis countered that his company had never promised to “prevent” such theft completely, only to “protect” subscribers by making it more difficult to swipe their information and by offering remediation should a theft occur.

One or both parties may be splitting hairs here, but the more interesting question for the insurance industry lies in the whole idea of prevention. It is no exaggeration to say that information theft is among the fastest-growing crimes of the 21^st century. According to online information from Javelin Strategy and Research, there were 10 million victims of identity theft in 2008 in the United States, and a 2009 study found that one in every 10 U.S. consumers has already been victimized by identity theft.

Insurers, seeing a ripe opportunity, are offering coverage for people whose identities are stolen and misused. But with cyber-crooks devoting more and more time and energy to the purloining of personal information, it would be reasonable to assume that the costs for such insurance will rise with the incidence of these crimes—perhaps to the point where many will not be able to afford the premiums.

For that reason alone, insurers would be wise to put themselves in the data theft prevention business. I’m not just talking about the usual security tips and suggestions. Instead, carriers need to provide the same kind of credit monitoring and proactive security alert services that LifeLock advertises. Of course, most of us know that such theft is not 100% preventable, but there can also be little doubt that such services will cut down on the volume of thefts. After all, an unlocked car with the keys in the ignition is much more likely to be stolen than a locked vehicle.

The business case for insurers offering preventive services is a compelling one, even in this rotten economy—or perhaps especially in this rotten economy. The fewer the individuals who experience identity theft, the fewer the claims insurers must pay. An alternative approach might require insureds to purchase their own identity theft protection, but why leave that choice to the consumer?

As the problem grows, the insurance response to it will be the key to profitability. It should be very interesting to see how this plays out over the next several years.

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