Estimates suggest that insurance fraud costs U.S. households an extra $300 per year in higher insurance premiums. This staggering number equates to roughly 20-to-30 cents of each premium dollar collected by insurers.

One might expect the culprit to be losses resulting from "hard" fraud--the deliberate attempt to stage a loss. The reality, however, is that "soft" fraud--misrepresenting oneself on an application, or exaggerating otherwise legitimate claims by individuals--actually occurs more often and results in even greater claims costs.

With that in mind, insurance companies should examine how closely they monitor the accuracy of information provided by prospects and customers on policy applications.

They also should analyze the potential "little white lies" consumers might make on applications and determine how much that undercuts premium payments--and, subsequently, their profits.

In fact, insurance providers can take control of their fraud losses and prevent premium "leakage" by identifying erroneous and/or potentially fraudulent information before policies are bound.

Although insurance carriers realize the serious challenge fraud presents to their companies, most have found it difficult to address the issue head on, or even measure the exact dollar amount it is costing their company.

Despite the inherent challenges in tackling fraud, most insurers realize the importance of managing it but tend to address it reactively.

For many carriers, fraud is most commonly addressed after the fact by the claims and/or special investigative units. In fact, many insurance providers account for a certain percentage of lost revenue to fraudulent activities up front.

As operations become leaner and underwriting strategies more sophisticated, the epidemic is becoming both quantifiable and manageable. In fact, wouldn't it be nice to verify key components of an application that could save the company thousands, even millions of dollars per year before the underwriting team picks up a pen?

A positive answer to that question isn't wishful thinking. There are rating verification tools available that can be incorporated into the application process and deployed at the point of quote to verify an applicant's information and subsequently help insurance carriers in making more-informed decisions about prospects.

Having verification technology at the point of quote is an enormous advantage. Agents and call center representatives can identify discrepancies in the information applicant's provide and receive simple, actionable messages.

Those messages would highlight what measures, if any, agents should take before underwriting a policy--such as confirming an applicant's address, verifying an applicant's Social Security number, or performing a vehicle inspection.

This enhances profitability by confirming events prior to the underwriting process and well before a claim, when carriers are less likely to collect lost premiums.

Moreover, by underwriting at the point of quote and eliminating many of the potential fraudulent claims, insurers can redirect the work of claims and SIU departments to areas of greater fiscal concern.

Because identity verification technology is relatively new, many insurers are hesitant to invest in it. Some cite a lack of information technology resources or budget, while others suggest it is difficult to measure return on investment. In some cases, they are using other tools that offer similar benefits or using them to predict claims.

Forward-looking insurers, however, recognize that by identifying fraudulent activity at the point of quote, verification tools pay for themselves.

Consider that a large percentage of the revenue originally set aside as a result of fraud loss may be retained. Moreover, verification tools can help insurers uncover policy misrepresentations, thereby increasing profits.

On the back end, such technology can identify and prioritize the likelihood of fraud, allowing the SIU to focus attention on the most probable fraud and collect accordingly.

Although there are several tools in the marketplace, insurers must be savvy about the solutions they implement. The success of any identity verification technology hinges on the quality of its data.

Therefore, it must be capable of accessing multiple, autonomous data sources and algorithms while combining analytics, business intelligence and decision-making so it can quickly confirm information and flag data inaccuracies.

Unfortunately, fraud continues to persist in the insurance industry. Although consumers may adopt a "little white lie never hurt anyone" mentality, the reality is that it's keeping dollars out of insurance companies' pockets and raising the rates of honest consumers.

Verification tools, however, can help insurers curb fraudulent activity at the point of quote and subsequently boost profits.

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