Summary: The content discusses the role of insurance companies in dealing with insurance fraud claims. It notes that insurance fraud has increased, particularly in rural and semi-urban areas, and cites definitions of insurance fraud used by the Insurance Regulatory and Development Authority and the Federation of Indian Chambers of Commerce & Industry, while stating that the Insurance Act, 1938 does not define insurance fraud. It describes policyholder, intermediary and internal fraud, along with forgery and phony policy fraud, and identifies factors contributing to fraud, including poor due diligence, forged documents, fake certificates and inadequate infrastructure. According to the content, insurers are collaborating to create fraud databases, investing in fraud detection and identifying districts with significant fraudulent claims. It highlights examples involving ICICI Lombard’s investigation into disproportionate road accident claims, Bajaj Allianz’s investigation of multiple health insurance claims, and HDFC Ergo’s action against a fake call centre selling policies, including the establishment of a Risk & Loss Mitigation department. The content concludes by referring to the IRDA’s 1999 suggestion for a Fraud Monitoring Framework and discusses the need for measures to address insurance fraud.
INTRODUCTION:
Insurance is an arrangement of protection from financial loss. An Insurer or Insurance Company provide insurance to a policy-holder or Insured and within the exchange of terms & policies the insurer promise to compensate the insured. Nowadays the insurance policies are much in demand, people are relying on them. But on the other hand, many insurance fraud cases are coming to the knowledge making the people took backstep from having insurance. Insurance Companies are having trouble too as finding suspicious factor as criminal minds are playing violent role in getting money benefits from showing false statements, fake policy-holder identities and many more. But as with time the insurance firms are much alert and taking different steps in detecting the fraud. The paper is hence to highlight the dealing of insurance firms with the fraud claims.
The Insurance Regulatory and Development Authority (IRDA) uses the International Association of Insurance Supervisor’s (IAIS) definition to define Insurance Fraud as “An Act or omission intended to gain dishonest or unlawful advantage for a party committing the fraud or for other related parties.”
And on the other hand, the Federation of Indian Chambers of Commerce & Industry stated Insurance Fraud as “The Act of making a statement known to be false and used to induce another party to issue a contract or pay a claim. This act must be wilful & deliberate, involve financial gain, is illegal.”
The Indian Insurance Act, 1938, does not showcase the definition for Insurance Fraud.
Rather than the urban areas, the Insurance Fraud are at a huge rise in the rural and semi urban areas.
TYPES OF FRAUD
The Insurance Regulatory and Development Authority of India categorised Fraud in 3 types –
1. Policyholder Fraud :- Fraud against the company while purchasing and while claiming for the benefits.
2. Intermediary Fraud :- Fraud occurred by an insurance agent against the company or policyholder or both.
3. Internal Fraud :- Fraud against the company by the director, manager or any other employee.
Along with these there are few more types of Fraud that came into light as follows –
1. Forgery :- As only the policyholder has the authority to change the policy so there are cases where someone either forge the documents or misrepresent the identity in order to change the policy of someone else.
2. Phony Policy Fraud :- The fraudsters sell fake policies in the name of recognised companies to gain customer trust and made them buy the policies.
HOW FRAUDSTERS ARE MAKING THE FRAUD
The factors that are helping the fraudsters to make fraud are –
- Insurance Companies are writing policies with poor due diligence.
- The fraudsters have connections with doctors, lawyers, village and rural area administrators.
- The fraudster’s efficiency in identifying patients in death bed or very much ill so that to buy insurance on their name.
- Respective professionals like doctors helping in producing fake certificates.
- In many regions of the country like villages, rural areas there is lack of infrastructure and investigation in these section.
HOW INSURERS ARE DEALING WITH THE FRAUD
Visiting the past histories & noticing the present situation the Insurance Industries are collaborating together to form a data centre of fraudster & how they are functioning. This will work as a credit bureau so that Bank can be familiar with the customer’s financial history. Insurer are also investing a lot money and human resources so that they can enhance the quality in detecting the fraud related with the insurance. Insurers have also identified 80 districts across the country which have major fraudulent claims over the past decade.
So to handle the fraud claims many insurance firms have taken some steps that are shown here-
ICICI Lombard and Road Accident claims:
As disproportionate road accident claims from Uttar Pradesh jostled on the desk ICICI Lombard launched an investigation. As the Lucknow High Court ordered special investigation into the cases ICICI Lombard filed 30 complaints. As a result Lokanath kaur, Chief Legal & Compliance Officer, ICICI Lombard declared that they came to the conclusion that manipulation was apparent when the claims were not in proportion to distribution.
Bajaj Allianz General Insurance and Nilesh Kumar Case:
Mira Road resident Nilesh Kumar applied for a claim of Rs 55,000 for treating fever to the Bajaj Alliance that made the company suspicious as it was a high demand. Bajaj Allianz take the matter seriously and investigate.
As a result, Nilesh Kumar admitted to have claiming such a demand to the 11 other insurers for aggregating Rs 10 Lakh and due to investigation at his office in Bhayander it found the organisation behind these with ream of letterheads, various stationary items from different hospitals along with 7 pan cards of different names and 11 credit cards.
HDFC Ergo and the Fraud Control Department:
HDFC Ergo is a joint venture between HDFC & German Insurer Ergo. The joint venture unitedly with the help of Delhi police let 13 people arrested in Delhi, Meerut & Noida. As a bunch of criminals set up a call centre and were selling policies on behalf of HDFC Ergo. So the HDFC Ergo approach to the cyber police branch and exposed the fraud as soon as they gathered prominent proof through the field.
Mukesh Kumar, Executive Director, HDFC Ergo General Insurance also added that they have set up a department named Risk & Loss Mitigation, dedicated to handle fraud cases.
CONCLUSION
So as we look to the previous cases we found that the insurance firms are creating department for fraud control and how are they getting success in detecting fraud. The Insurance Regulatory and Development Authority (IRDA) 1999, suggested that every insurance company must set up a Fraud Monitoring Framework that must play a significant role in protecting, preventing, detecting, and mitigating the risk of fraud from policy-holders, employees of insurance companies. They must be responsible for educating the employees as well as the policy-holders holders. They must regularly update on fraud incidents. But along with the Fraud Monitoring framework & function a law is majorly needed to control the fraud and punish the criminals. Insurance fraud activity is a criminal activity but unfortunately neither the Indian Penal Code, 1860 (IPC) nor the Indian Contract Act, 1872 (ICA) have any specific law pertaining to Insurance Fraud. The General Insurance Council & all the insurance firms are creating database of proven fraud cases and suspected frauds and are taking actions respectively but the criminals are relocating to different regions as no legal actions are taken. So to stop these by strict hands punishment through legal laws mostly needed.
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