Most Stolen Identities Never Used

This is something I’ve been saying for a while, and it’s nice to see some independent confirmation:

A new study suggests consumers whose credit cards are lost or stolen or whose personal information is accidentally compromised face little risk of becoming victims of identity theft. The analysis, released on Wednesday, also found that even in the most dangerous data breaches–where thieves access social security numbers and other sensitive information on consumers they have deliberately targeted–only about 1 in 1,000 victims had their identities stolen.

The reason is that thieves are stealing far more identities than they need. Two years ago, if someone asked me about protecting against identity theft, I would tell them to shred their trash and be careful giving information over the Internet. Today, that advice is obsolete. Criminals are not stealing identity information in ones and twos; they’re stealing identity information in blocks of hundreds of thousands and even millions.

If a criminal ring wants a dozen identities for some fraud scam, and they steal a database with 500,000 identities, then — as a percentage — almost none of those identities will ever be the victims of fraud.

Some other findings from their press release:

A significant finding from the research is that different breaches pose different degrees of risk. In the research, ID Analytics distinguishes between “identity-level” breaches, where names and Social Security numbers were stolen and “account-level” breaches, where only account numbers — sometimes associated with names — were stolen. ID Analytics also discovered that the degree of risk varies based on the nature of the data breach, for example, whether the breach was the result of a deliberate hacking into a database or a seemingly unintentional loss of data, such as tapes or disks being lost in transit.

And:

ID Analytics’ fraud experts believe the reason for the minimal use of stolen identities is based on the amount of time it takes to actually perpetrate identity theft against a consumer. As an example, it takes approximately five minutes to fill out a credit application. At this rate, it would take a fraudster working full-time ­ averaging 6.5 hours day, five days a week, 50 weeks a year ­ over 50 years to fully utilize a breached file consisting of one million consumer identities. If the criminal outsourced the work at a rate of $10 an hour in an effort to use a breached file of the same size in one year, it would cost that criminal about $830,000. Another key finding indicates that in certain targeted data breaches, notices may have a deterrent effect. In one large-scale identity-level breach, thieves slowed their use of the data to commit identity theft after public notification. The research also showed how the criminals who stole the data in the breaches used identity data manipulation, or “tumbling” to avoid detection and to prolong the scam.

That last bit is interesting, and it makes this recommendation even more surprising:

The company suggests, for instance, that companies shouldn’t always notify consumers of data breaches because they may be unnecessarily alarming people who stand little chance of being victimized.

I agree with them that all this notification is having a “boy who cried wolf” effect on people. I know people living in California who get disclosure notifications in the mail regularly, and who have stopped paying attention to them.

But remember, the main security value of notification requirements is the cost. By increasing the cost to companies of data thefts, the goal is for them to increase their security. (The main security value used to be the public shaming, but these breaches are now so common that the press no longer writes about them.) Direct fines would be a better way of dealing with the economic externality, but the notification law is all we’ve got right now. I don’t support eliminating it until there’s something else in its place.

Posted on December 12, 2005 at 9:50 AM • 33 Comments