Providers push insurance covering theft of identity

Ed Bloom considered himself a very educated consumer when he made the decision last year to purchase identity theft insurance.

"I'm a victim," said the retiree from Ayer. "Having been through this before, I saw it as a great benefit."

Bloom discovered his identity had been stolen in September 1999 when he was contacted by a collection agency demanding payment of more than $800 he allegedly owed on a phone account in Brooklyn, N.Y.

Bloom had never been to Brooklyn, but someone using his Social Security number had purchased a phone line there. Correcting the situation caused him a lot of anxiety and effort. He estimates it took him nearly 30 hours over three months to get the charges canceled and to make sure nothing else was amiss with his finances.

More than 9 million Americans were victims of identity fraud last year. Thanks to almost daily headlines about the problem, millions more are afraid they could become victims. As a whole, they represent a tempting target for insurance companies and banks hawking various forms of identity theft protection.

Some companies are selling overpriced credit protection services that offer little more than what consumers could obtain on their own for free. Others are offering monitoring services that can alert consumers to an unusual change in their accounts.

But the hot new product is identity theft insurance, which is designed to cover the costs incurred in rehabilitating an identity. To recover the actual dollars stolen from a savings account or avoid paying bills or credit card charges rung up by a thief, consumers are mostly on their own.

The cost of identity theft insurance is minimal, at least for now. For $15,000 to $25,000 of coverage, many companies charge an annual premium of $25, while others include the cost in their standard homeowners policy.

Many insurance industry officials predict it won't be long before identity theft insurance becomes a mainstream product, as common as a jewelry rider on a homeowners policy.

But skeptics wonder whether insurers are capitalizing more on fear than facts. The odds of becoming an identity theft victim are small. The estimated 9.3 million victims last year represented only 4.25 percent of the country's adult population, and fewer than 1 percent of those victims had new accounts set up in their names, the type of theft that is the most expensive to remedy.

Joanna Crane, identity theft program manager at the Federal Trade Commission, said the type of expenses covered by identity theft insurance policies -- attorney bills, lost wages, loan reapplication fees, and notary, phone, and mailing costs -- rarely add up to much.

According to a study released last month by Javelin Strategy & Research, over two-thirds of all identity theft victims last year incurred no out-of-pocket expenses. The average cost for all victims was $652, indicating the cost can be substantial in some instances. The average amount of time to deal with identity theft was 28 hours, according to the study.

Crane said identity theft insurance makes sense for someone who travels internationally, has a lot of money in a savings or checking account, and doesn't check his accounts often.

"Insurance only begins to become worth it if you're in the high-risk category," she said. "Someone like that may want to get insurance because they have a lot at stake."

But insurers and banks say the product has universal appeal. They say the odds of having your identity stolen may not be great, but it can be a major headache if it happens. It's just the sort of problem insurance is meant to cover, they say.

Daniel McCabe, vice president of marketing at Chubb Insurance, said there is no average claim when it comes to identity theft because each case is so different. He declined to say how many claims the company has paid out. "We have had a fair amount," he said.

For those considering identity theft insurance, put less stock in stratospheric coverage amounts and more in low deductibles. Read the fine print closely to find out whether there are any onerous exclusions, particularly for identity theft committed by relatives. The Javelin report indicated family members and relatives are the most common identity thieves and the most likely to open new accounts, which are the costliest to rectify.

Several major insurers, including Chubb and Fireman's Fund, include identity theft insurance as part of some or all of their homeowners policies. Other companies tend to offer coverage as a rider to their homeowners policies.

Liberty Mutual Insurance of Boston began offering identity theft coverage last year for an annual premium of $25, but last week it added an interesting new benefit at no extra cost -- the services of a personal counselor to help the identity theft victim put his life back in order.

Liberty retained Identity Theft 911, of San Francisco, to offer the counseling services. A spokesman for the privately held company, whose motto is "We take you from panic to peace of mind," said the firm is offering its services on a retainer basis to insurers as well as companies and universities. The Stanford Federal Credit Union, for example, offers the counseling service to all its members.

Mark Durham, a spokesman for Identity Theft 911, said the key in dealing with identity theft is speed. The quicker a consumer acts, contacting law-enforcement officials, creditors, credit card companies, and credit bureaus, the less the damage, he said.

"There are cases that are real train wrecks, but most are not," Durham said. "If you're not experienced in this area, it can be a vast time sink. You're constantly wondering what else I need to do. You need someone on your side who actually knows the ropes."

Bloom, a Liberty Mutual customer, couldn't agree more. When he learned his identity had been stolen, he said he wasted a lot of time calling agencies that were of no help. He said he was lucky the extra time didn't cost him in terms of other accounts being opened in his name.

"I've been through this so I know better what to do now, but for other folks who haven't had this happen to them, this service could be a godsend," he said.

Bruce Mohl can be reached at mohl@globe.com.