Page 20 - Risk Management in current scenario

= Rs.500,000 while the rest will be paid by the reinsurance company. By
effecting the reinsurance arrangement, the insurance company has
limited their payout to Rs.500, 000. For the actual profit calculation for
the insurance company, they have to take into the account the
reinsurance premium paid by them.

Negative Location identification
In order to deal with fraud, insurance companies analyze their claim
pattern, location, agents responsible for sourcing policies, medical centers
where medical have been done. Based on the analysis, it is possible to
observe the pattern with particular locations from where such fraud
claims are coming, which agents are involved in such exercise of fraud,
which medical centers are giving false medical reports. Such negative
locations, agents, and medical centers are either put under observation
or do more stringent underwriting and at times may debar such locations.

Now looking at the fraud from insurance company point of view, if a
question is asked: "Does the insurance company need to worry about the
fraud if the premium includes the cost of fraud?"

The answer would obviously be no because the insurance company is
charging the cost of the fraud.

However, the next question will be "What is compromised in the above
situation?" The response will be fairness is compromised particularly to
those policyholders who are standard lives, declaring all information as
per the principle of utmost good faith, should pay the lower premium
than loaded with the cost of fraud.

Next question, which will be paying the cost of this compromise, of
course, the standard lives for no fault of theirs.

Thus fraud is a menace for the insurance company, which cannot be
priced and only risk management can help in managing the situation.

18 | Risk Management in Current Scenario