Experian has published its latest Insight Report, detailing how frauds attempted against UK financial institutions and their customers is on the increase and the changing nature of the threat.

Trends identified in the report include an increase in identity fraud as organised criminals move into the mass-market, and a surge in first-party fraud as consumers hit hardest by the recession attempted to obtain credit and other financial services they were not entitled to. Furthermore, the report suggests that mortgage and insurance providers could be hit to the tune of £1.2 billion and £2.5 billion worth of fraud respectively in 2010.

Over 5,000 identity fraud victims sought help from Experian reclaiming their identities during 2009, nearly a 20% increase on 2008. Information collated through the National Hunter fraud data sharing scheme, operated by Experian, indicates that even greater numbers will seek assistance during 2010. 72% of identity fraud attempts in 2009 occurred during the second half of the year.

Experian's analysis of fraud data using its Financial Strategy Segments classification reveals that while the wealthiest sections of society continue to be at high risk of identity fraud, fraudsters are increasingly looking to the mass-market for victims.

Company directors and business owners are at greatest risk of identity fraud than any other group. Their Risk Index Score of 306 was the highest of any single demographic seeking help from Experian in 2009.

Young couples, singles and rented home sharers were increasingly seeking help during the same period as fraudsters sought to commit high-volumes of low value frauds using the identities of more easily impersonated victims. Those in the category ‘Looking to the Future' (RIS 268, young singles living in shared rented accommodation) and ‘Getting by Alone' (RIS 162, young singles and single parents living in low value properties) are now also amongst the highest risk groups. Experian expects that the fraudsters' move into the mass-market will accelerate during 2010.

With high concentrations of the most targeted groups, London's Knightsbridge (RIS 401), Brompton Road (RIS 398) and Blackwall (RIS 393) areas are prime locations for identity fraud activity. Outside of the capital, new-build locations with a large rental sector, including Salford's Quays development (RIS 390), Manchester's Liverpool Street (RIS 352) and Cardiff's dockside regeneration area (RIS 334), are also vulnerable.

First-party fraud levels on the rise, fuelled by financial stress

Experian's report reveals that first-party fraud, which occurs when individuals manipulate their own information attempting to obtain financial services they are not entitled to, surged from around 28% of all fraud cases in the first three quarters of 2009 to 46% in the fourth quarter, at a time when identity fraud levels also grew. Experian's fraud experts believe that unemployment and lower levels of lending will result in further growth in first-party fraud rates throughout 2010.

Analysis of data collected through the National Hunter fraud data sharing scheme reveals a cluster of first-party fraud hotspots around the East End of London. Shadwell, Stepney, East Ham, Walthamstow, Woolwich, Peckham and Barking saw far higher than average instances of first-party fraud attempts, as did other London districts such as Streatham and Willesden. Outside of London, there were hotspots in the less affluent parts of Chatham, Leicester, Birmingham and Bolton.

According to Experian's analysis, those living close to the poverty line, as well as young people in the early stages of setting up home, are most likely to attempt this kind of fraud.  The ‘Child-raising Challenge' demographic group - single parents often relying solely on benefits and struggling with debt repayments - makes up less than 4% of the UK population, but is responsible for almost 11% of attempted first-party frauds in 2009. Likewise, ‘Looking to the Future' - young singles living in shared rented accommodation - accounts for less than three percent of the population, but more than 8% of attempts.

Mortgage and insurance providers to be key targets for fraudsters in 2010

Experian's report predicts that mortgage and insurance providers are likely to bear the brunt of fraud attacks during 2010.

Mortgage fraud rates have remained fairly steady at 20 frauds in every 10,000 applications since early-2008, rising in line with new applications. Experian's fraud experts believe that mortgage providers will see fraud rates increase in 2010 due to the continued shortage of sub-prime and self-certification mortgages and increasing demands to re-mortgage emanating from the last batch of pre-crunch mortgage holders coming off three-year fixed-term interest deals. Fraud losses in the mortgage sector could reach £1.2 billion in 2010.

Experian's report shows that insurance fraud rates almost doubled in the final quarter of 2009, from nine detected frauds in every 10,000 applications in quarter three, to 16 in quarter four. Insurance fraud rises in difficult economic times as financially stressed consumers increasingly claim on home insurance to gain goods which they can no longer afford to replace. With uncertainties over the economy likely to result in unemployment remaining higher for longer, Experian estimates that general insurance fraud losses could reach £2.5 billion during 2010.

Nick Mothershaw, director of fraud and identity solutions at Experian, comments: "Attempted fraud is on the increase and the nature of the threat is changing. Organised criminal fraudsters are moving into the mass-market, looking beyond those with obvious wealth towards lower-value but more vulnerable targets. At the same time, financial stress brought about by the recession is driving increasing numbers of people to commit fraud to maintain their lifestyles.

"As a result, financial institutions could be faced with sustained fraud attacks during 2010.  The volume and intensity of attempts will continue to grow and organisations must be prepared to ensure that they can most effectively manage the risk this exposes them to."

"Our report shows that fraud threat is continually evolving and the associated losses have a direct impact on profitability. Consumers can help protect themselves against the devastating effects of identity fraud by monitoring their credit reports. Financial institutions need to take a more holistic approach to fraud, including sharing fraud data with other firms and ensuring that robust controls are in place across the business."