Briefing: Digital ID is no panacea for fraud – and implementation challenges lay ahead

At the end of September, the UK government announced that it was introducing its own digital ID scheme for UK citizens and legal residents – with plans to roll out the new system of identity for free by the end of this Parliament, which is in 2029.

Currently, the UK does not operate a compulsory national identity system, with everyday verification for processes like purchasing an insurance policy, accessing government services or proving your right to work relying on a mix of documents, such as driving licenses and passports. 

The proposed digital system would simplify the process of verifying your identity in an increasingly digital age, with the government providing the free digital ID to everyone entitled to one.

While a public consultation on the proposed system has yet to be launched, the current suggestions are that it would be voluntary for most purposes – such as when accessing healthcare – but would be mandatory for completing right to work checks. 

Current proposals also suggest that any digital ID would be stored on a personal device in a government wallet, containing only information such as name, date of birth and a photo. 

So, while many details around implementation, deployment and use are still to be confirmed – how could this new technology impact the insurance sector? 

Fraud benefits

One of the more obvious use cases for an updated ID system is fraud prevention.

Indeed, in his launch speech for the scheme on 26 September, prime minister Keir Starmer said: ”This will save taxpayers billions by cutting fraud in public services – we will stop the fraudsters who exploit weak identity checks.” 

And technology secretary Liz Kendall added: “This is not surveillance – it’s smart government. Every year, fake IDs cost businesses £2.4bn in onboarding fraud alone. A single, trusted digital proof stops that at source.” 

In these comments, we can take confirmation that the government intends for businesses to make use of digital IDs in their own ID verification processes, which would have clear benefits for countering insurance fraud. Insurers could require or ask for a new policy holder’s digital ID when incepting policies, for example.

Speaking to Insurance Times, Shift Technology’s senior customer success manager Marc Yeates said: ”When it comes to application fraud on the underwriting side, having a government issued digital ID will give insurers a way of quickly validating an identity, which will have massive benefits for both genuine policyholders and the insurers. 

”It’s a bit of a double-edged sword though, as it’s certainly not a silver bullet for all fraud. On the claim side, for example, I don’t think it will have much of an impact. In cases of opportunistic fraud, for example, those fraudsters have genuine policies and are using their own identities, so it wouldn’t have much of an impact.”

Outside of all this, anyone working in the insurance counter fraud sector is only too familiar with the organised, adaptable nature of the professional fraudsters they are up against. 

While digital IDs may seem like a panacea for identity verification, what would happen if one was stolen in a potential future scenario where too much reliance was placed on this one form of information?

Yeates added: ”When it does come into place, there would need to be seriousness around security, as well as defences against cyber attacks. If we are going to place all this reliance on digital ID and it’s secured on a smartphone, then those smartphones are going to become a lot more attractive to fraudsters and criminals, whether that’s phone thefts or phishing scams.” 

Concerns and challenges

There is also a large degree of public suspicion around the concept of digital ID in the UK.

At the time of writing, almost three million people have signed a petition to Parliament asking the government not to introduce digital ID, citing concerns around “mass surveillance and digital control”. 

Whether we are personally sympathetic to these concerns or not, the insurance industry must ensure that it does not create barriers to accessing its products by enforcing only one form of identity checks. 

Further clarity on some of the nuances of the system in terms of deployment and security are also required before any commitments are made. 

Freddy Knight, former cyber insurance consultant and divisional director at sspecialist digital assets insurance broker Native, told Insurance Times: ”From a security and cyber perspective, I wouldn’t trust the government to create an online store of the entire country’s data, because everything the government creates from an IT perspective breaks. 

“And if that isn’t going to be the government, then which third party are we all going to trust to keep that information? Companies in the insurance sector that require these digitial IDs would also then need to be super careful about how that information is stored.

“But my biggest concern would be centralisation of data. One centralised system of the entire country’s data is not a cyber risk I’d underwrite in a million years – it would have to be decentralised so there was no single point of failure.” 

Digital IDs would certainly improve a small part of the insurance sector’s processes but, if they ever do become standard, the sector will have to tackle the question of how it interfaces with the new system – and whether, on balance, the rewards are worth the risks.