Page 59 - The Insurance Times November 2024

ing fraud within distribution channels is crucial, as ducting thorough investigations, and working with
these intermediaries serve as direct points of con- regulatory bodies and law enforcement as needed.
tact with customers. 4. Risk Identification and Mitigation
3. Policyholder Fraud and Claims Fraud: This includes To effectively counter fraud risks, insurers must
activities by policyholders or others involved in ac- conduct annual risk assessments and identify po-
quiring coverage or during claims processes. Such tential vulnerabilities across all business lines. The
fraud might involve falsifying claim information, framework encourages identifying Red Flag Indi-
concealing relevant details, or presenting false cators (RFIs) for suspicious activities and setting up
identities. advanced technological systems for ongoing fraud
4. External Fraud: External entities, such as vendors, detection.
service providers, or other third parties, can also Cybersecurity and New Age Fraud
target insurers. Fraud here could involve creating As digital threats evolve, so do the IRDAI’s guidelines
fake support documents for claims, inflating repair on Cyber Fraud. Insurers must establish robust
costs, or impersonating customers to access policy cybersecurity frameworks to counteract these modern
benefits fraudulently. risks, safeguarding customer data, digital transactions,

Key Components of the Framework and the organization’s reputation. The guidelines ad-
The Fraud Monitoring Framework includes several piv- vocate for a dedicated team specializing in cyber risk
otal elements that collectively strengthen an insurer’s management, ensuring that insurers are prepared to
fraud prevention, detection, and response mecha- counter these new-age threats proactively.
nisms: The Role of the Insurance Information Bureau (IIB)
1. Fraud Risk Governance Framework The Insurance Information Bureau (IIB) plays a critical role
The IRDAI mandates insurers to establish a Fraud by providing an industry-wide platform for data analytics,
Risk Governance Framework overseen by senior enabling insurers to detect patterns and prevent fraudu-
management and key board committees, such as lent activities more effectively. The IIB’s database allows
the Audit and Risk Management Committees. This for information-sharing on suspicious activities and can
ensures accountability at the highest levels. Insur- help insurers pinpoint fraudsters across the industry
ers must create an Anti-Fraud Policy with a zero- through a shared identification system.
tolerance stance, establish early-warning systems
for fraud detection, and maintain collaboration Training and Awareness
with law enforcement agencies to ensure timely A key aspect of the IRDAI’s approach is building aware-
legal action against fraudsters. ness and capacity within the insurance ecosystem. In-
surers are required to conduct regular fraud-awareness
2. Fraud Monitoring Committee (FMC) programs, not just for employees but also for custom-
Each insurer is required to form a Fraud Monitor-
ing Committee (FMC) to handle fraud deterrence, ers, to educate them about fraud risks and preventive
measures. Additionally, insurers must provide tar-
detection, investigation, and reporting. The FMC’s
primary responsibilities include making recom- geted training for board members, management, and
mendations on fraud management, investigating frontline staff, ensuring that all stakeholders are
suspicious cases, and ensuring compliance with equipped to recognize and respond to potential fraud.
anti-fraud policies across all operational areas. The Looking Forward: A Stronger, More Transparent
FMC must also submit quarterly and annual reports Insurance Sector
to the board on fraud-related activities, including IRDAI’s Insurance Fraud Monitoring Framework repre-
the financial impact on the organization. sents a landmark effort to fortify India’s insurance sec-
3. Fraud Monitoring Unit (FMU) tor. By aligning regulatory oversight, fraud manage-
An independent Fraud Monitoring Unit (FMU) sup- ment, and technological advancements, IRDAI aims to
ports the FMC by performing regular checks, gath- instill a culture of integrity and transparency. These
ering evidence, and collaborating with other de- measures will contribute to preserving public trust and
partments on investigations. The FMU’s tasks in- fostering a stable financial environment for policyhold-
clude assessing transactions for signs of fraud, con- ers, insurers, and stakeholders alike.

52 November 2024 The Insurance Times