Page 4 - MODULE1_Insurance Introduction_CHA

Thus, insurance is a contract between insurer and insured for

compensating the losses. It is a simple contract based on good

faith.

2. Why insurance is prone to fraud?

Insurance is a risk management system that works by

distribution of risk over larger numbers. It is a system that

requires the accumulation of liquid assets in the form of reserve

funds that are, in turn, available to pay losses in form of claims.

Insurance companies generate a large steady flow of cash

through insurance premiums. Steady cash flow is an important

economic resource that is very attractive and easily diverted to

finance nefarious ventures. Large accumulations of liquid assets

make insurance companies attractive for fraud and abuse

schemes. Insurance companies are under great pressure to

maximize the return on reserve funds, thus making them

vulnerable to high yielding investment schemes.

3. Why do we need to learn about fraud in the
insurance industry?

For purpose of ease insurance industry is clubbed under the

umbrella of finance institutions as they have to manage huge

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