Identity Theft Insurance? What is it and Do We Need it?

Have you ever heard of of identity theft? Do you know what it is and what the risks are?   If so, are you concerned enough to spend your hard-earned cash on ID theft insurance? Has anyone ever tried to sell this product to you when you have phoned up to activate a new card?

Well, this is exactly what Barclaycard used to do, in association with identity theft insurance company CPP. Now, due to customer complaints over the  way it is being sold, they are to stop the practice. The consumer watchdog organisation Which? has been worried about the sale of identity theft insurance for a long time.  In 2010 it made it onto their list of the ‘top 10 useless financial products'.

According to Peter Vicary Smith, Chief Executive of Which?:

‘ID theft insurance is a product that most people will never use yet hundreds of thousands of policies have been sold, which raises serious questions about the sales practices being employed. We wrote to the FSA last year asking it to investigate ID theft insurance sales after several of our members contacted us with concerns about how it was sold to them.'

Following the revelation that CPP are being investigated by the Financial Services Authority (FSA), share prices in the company have nose-dived.

CPP are down-playing Barclaycard’s decision, saying that it is unrelated to the FSA probe, and Barclaycard are continuing to sell id theft insurance by other methods. A spokesman for CPP pointed out that the move by Barclaycard would have only a limited effect:

‘Sales to Barclaycard customers in the ‘Call to Confirm Channel’ are currently less than 2% of group revenue. The impact on underlying operating profit in 2011 and 2012 will be immaterial ‘

Nevertheless, since the announcements CPP shares have plummeted by  nearly 50% in recent weeks. Shaun Parker, Chief Financial Officer at CPP denies that their sales pitch exaggerates the risks, pointing out that there is a Home Office website identitytheft.org.uk dedicated to the subject of identity theft, and which, he claims, is ‘downright alarmist’ about it.

There is no doubt that your identity and personal information are valuable commodities.  If criminals get hold of them they can use them to open bank accounts and get credit cards, loans, state benefits, passports and driving licenses in your name.

I have just visited the Home Office site and found this advice on the subject of card security:

‘If your plastic cards are lost or stolen, cancel them immediately. Keep a note of the emergency numbers you should call. Further details can be found at the Card Watch website.

When giving your card details or personal information over the phone, Internet or in a shop, make sure other people cannot hear or see your personal information.

Never carry documents or plastic cards unnecessarily. When not in use keep them in a safe place. ‘

That sounds like sensible, straightforward advice, and nothing there about the need for an insurance product as far as I can see.