Deepfakes Fuel Synthetic ID Fraud
A new wave of synthetic identity fraud is targeting insurance onboarding processes, supercharged by AI and deepfake technology. Criminals are using these tools to bypass KYC checks, prompting a new national strategy to combat digital scams with AI-driven detection and biometrics.
Synthetic identity fraud, where criminals combine real and fabricated data to create new identities, is the fastest-growing financial crime in the U.S. This type of fraud is projected to cause losses of $23 billion by 2030. The life insurance sector alone attributes $30 billion in annual losses to synthetic fraud. Fraudsters often use a "bust-out" strategy: they establish credit with a synthetic identity, act like a reliable customer for months or years to increase their credit limit, and then max out the account before disappearing. The average charge-off for these schemes is about $15,000 per incident. This accounts for up to 80% of all new account fraud. The insurance industry is a prime target, with a fraud exposure 20 times higher than the banking sector. In 2024, synthetic voice fraud attacks against insurance companies surged by 475%, contributing to a 19% year-over-year increase in overall insurance fraud. This is compounded by deepfake videos and AI-generated avatars being used to cheat virtual claims inspections. Deepfake technology is rapidly escalating the threat. The number of files created with deepfake tech grew from around 500,000 in 2023 to an estimated 8 million in 2025. Fraud attempts using deepfakes have climbed by over 2,000% in the last three years, now accounting for about 1 in every 15 fraud attacks. In response, Know Your Customer (KYC) processes are shifting from manual document checks to technology-driven solutions. Insurers are adopting AI-powered tools for biometric verification, including facial recognition and liveness detection, to automate and secure remote onboarding and claims processing. These systems can verify digital identities in seconds by cross-referencing selfies with ID photos and checking for spoofs. Despite these advancements, many financial institutions are behind in adopting adequate defenses. Only 22% of financial institutions have implemented AI-based fraud prevention tools, and just a quarter feel confident in addressing the threat posed by synthetic identity fraud. This highlights a critical gap between the sophistication of fraud attacks and the industry's current defensive capabilities.
