By Laura Bruce
Bankrate.com
August 5, 2004

Mind-boggling identity theft statistics have nervous consumers looking for protection, and financial institutions scrambling for ways to provide it. But not all protection plans are created equal, and some consumer watchdogs say you should save your money.

The Federal Trade Commission says there were nearly 10 million identity theft victims in the United States in 2002. The losses cost businesses and financial institutions $48 billion and individual victims paid $5 billion in out-of-pocket expenses to correct the damage and prove they were victims, not culprits.

Most of the identity theft plans being offered by a growing number of financial institutions will reimburse customers for out-of-pocket expenses up to a certain dollar amount and help them through the process of contacting creditors, writing affidavits and filing reports.

Some companies, such as Washington Mutual, offer customers a basic plan for free and a souped-up version for a monthly fee. Spokeswoman Mary Kelley says company research showed that most customers were "extremely concerned" about identity theft.

"We asked if they'd be interested in free ID theft services and a large majority said yes. But there was a smaller but significant number that said they'd be willing to pay for additional benefits."

Washington Mutual's free plan is offered to all customers who have a deposit account, but they must sign up. Included in the package is toll-free access to the bank's Identity Theft Resource Center if the customer becomes a victim of identity theft, free access to credit education specialists and $5,000 in insurance (no deductible) to offset recovery costs, including legal fees and lost wages.

The bank's paid plan costs $10 per month. It increases the insurance to $15,000 (no deductible), gives customers a copy of their credit report with information compiled from the three main credit-monitoring bureaus, monitors the customer's credit files at the three bureaus five days a week and notifies the customer daily of any changes.

Pittsburgh-based PNC Bank also offers two plans. One is free to customers who have multiple accounts with the bank; the second, called True Credit, is available to customers for $3.65 per month. Both plans provide insurance to cover expenses associated with identity theft, but there are deductibles. True Credit offers credit monitoring, but with only one of the bureaus.

"It's been very well received," says Laila Batz-Krause, executive vice president. "It covers the individual wherever the identity theft occurs. If I have an identity theft involving the motor vehicle department, this will cover my costs. It isn't just about our account -- we have a lot of safeguards -- it protects customers anywhere, which is where we think (identity theft) is more likely to happen."

Officials at National City, headquartered in Cleveland, are reviewing identity theft insurance plans and hope to offer a program to customers by the end of the year.

"Identity theft insurance isn't the only thing we're looking for," says Darla Mathy, a senior vice president.

"We want preventative-type measures. Insurance is a component but it's after the fact. We want to assist our customers in preventing identity theft. There are products out there that for relatively minimal fees allow customers to monitor their credit reports, and the companies can scan the reports. You're alerted on a daily basis if there's been any activity."

Some consumer activists view the insurance with a wary eye.

Gail Hillebrand, senior attorney at Consumers Union, the publisher of Consumer Reports, says it's usually not a good idea to purchase any single-purpose insurance policy.

"For instance, people should buy a health insurance policy, not one that just covers cancer."

Hillebrand cautions consumers that if the insurance is free, make sure it's permanently free and that you're not signing up for an automatic renewal where you'll pay a fee down the road.

"There's also the risk of a false sense of security. You still need to monitor your credit reports and your bank statements. Debit card problems only show up on bank statements. Not credit reports.

"There's an irony that banks, on the credit side, aren't terribly good at checking that it's you when they extend credit, and then they provide this insurance. We need creditors to take more care on the front end to prevent thieves from stealing accounts. We need more than insurance."

Linda Foley, of the nonprofit Identity Theft Resource Center, says the credit monitoring is pretty much a waste of money, but if you do pay for it, make sure the service is checking all three credit reporting agencies.

"Not just the first time, but on a daily basis. Some check all three the first time and then monitor just one or two. If they're checking all three bureaus five days a week, it has some merit. But it should be free. It's not the consumer that has allowed identity theft to grow so explosively."

Avivah Litan of Gartner, a research company, says consumer groups have a valid point but that the insurance is a step in the right direction.

"Banks need to be more proactive about closing security holes, but a lot of this is happening outside the bank's domain. One of the best things consumers can do is catch the theft right when it happens and that's what the Washington Mutual program does. It's not the end all and be all, but it's helpful, not harmful. It's the cost of being an American consumer."

U.S. Bank may have one of the most diverse identity theft insurance plans. For $9.99 per month, Privacy Guard monitors daily all three credit bureaus and notifies customers of any changes to their credit report. Customers also receive access to their Social Security records and their data on file with MIB, the medical information bureau, a clearinghouse that supplies records to insurance companies.

"We did a lot of due diligence on a number of different companies," says Teressa Sund, of U.S. Bancorp investments and insurance. "There are a lot of components that other providers offer, but we wanted something at the best price point, the best value for customers."

Is paying for identity theft insurance only for the nervous Nellies? How can you assess your risk? Even if you follow all the rules for preventing identity theft, there's no guarantee. The Federal Trade Commission says most identity theft is done by people who have a legitimate reason to see your personal information -- health insurance processors, car rental companies, employers.

It's important to keep in mind that this insurance only covers identity theft involving credit fraud. These polices won't help if someone uses your name when they're getting a traffic ticket or has taken over your identity and owes taxes in your name.

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