As discussions of cybersecurity and wire and title fraud risks continue to increase, so does the cost of cyber insurance.
Per Insurance Insider’s examination of Beazley’s Cyber book, “U.S. cyber pricing increased 79% in Q2 [2022], compared to 110% in the prior quarter and 133% in December 2021.” And much of that coverage doesn’t even capture the wire and title fraud risks faced by stakeholders in the real estate industry.
Generally speaking, organizational cybersecurity readiness has improved. Managements are adding focus around securing an entity’s internal data, systems and processes to the strategy discussion.
However, the dynamic nature of the external risk environment makes it challenging to be truly cyber secure. According to a recent Bloomberg Law article, “Cyberattacks are happening so frequently that underwriting standards sometimes can’t match the fast development and sophistication of the hacks. Insurers are raising rates to levels that make it hard for businesses to find affordable coverage.”
Wire and title fraud risks
Concerns about cybersecurity risks and insurance coverage are timely, as the risks of wire and title fraud are only increasing.
According to a Q4 analysis by MISMO-certified wire fraud prevention fintech FundingShield, 50.5% of transactions had issues leading to wire and title fraud risk. Additionally, 5.25% of transactions were not registered or valid in title insurer systems at the time of closing.
“Wire and title fraud reached another new record in the fourth quarter of 2022,” FundingShield CEO Ike Suri said. “With this all-time high percentage of issues, the impact of a single wire or title fraud event could be catastrophic.”
External data and digitization
Lenders rely upon data from external parties, such as digital communication with third-party service providers, clients or other fourth-party relationships that are hard to monitor and control in real-time. The insurance market has not yet found an efficient way of managing these risks, meaning lenders must proactively protect themselves, Suri said.
“This has extended into the eClosing space, where we have delivered top 10 lenders’ requests to vet closing agents’ permission to issue title, settle funds, and provide eClosing, RON and other digital closing solutions in real-time,” he said. “FundingShield is being integrated to ensure the digital products’ speed and ease improvements do not result in an increased risk of fraud.”
How FundingShield can help
With many lenders and real estate market stakeholders prioritizing the prevention of wire fraud, many vendors are offering confirmation of unverified data as a solution. However, the use of static, unverified data does not prevent fraud from taking place. As a result, the process, data source and verification procedures of a risk management solution need to be fully understood to make an informed risk management process and procedure.
FundingShield has procedures and controls to ensure the verification of real-time source data to prevent these attacks from being successful. These methods have been used on more than $2.5 trillion in closing transactions.
Additionally, FundingShield helps prevent, identify and resolve efficiencies, threats and exposures in a timely manner so lenders can run their businesses without interruption, reputational nightmares or losses by working with only valid, verified and vetted closing agents across the country.
“We saw client growth of 63% during 2022 as lenders managed resized organizations, saw an increase in fraud risk and had a desire to convert to variable cost structures due to dynamic transaction volumes,” Suri said. “Our $5 million per transaction coverage — the only offering of its type in the market — is a key driver to growth, as this is incredibly valuable in the current high-risk environment.”
To read FundingShield’s full Wire and Title Fraud Index for Q4 2022 or other news, click here. For historical quarterly reports or more information, reach [email protected].
