Page 16 - Insurance Times July 2016

committed by the policyholder or by a third party claiming
against an insurance policy. It can range from providing
untruthful or incomplete information in applications,
submitting a claim for a loss based on misleading or
untruthful circumstances, exaggerating a genuine claim and
misleading /being untruthful in dealings with an insurer with
the intention of gaining a benefit under the insurance
contract.
Similarly, an Abuse can be defined as a practice that is
inconsistent with the business ethics, which results in
unnecessary cost to claims and in turn to the company and
is illegal. For example – hospitals charging fees from
insurance companies for procedures and diagnostics which
are not required.
What is the scale and extent of Fraud?
With the exponential growth in the insurance industry; the
industry is also witnessing an increase in the number of
frauds and abuse in the business. Detected and undetected
fraud are estimated to represent up to 10% - 20% of all
claims expenditure. The significant role fraud and abuse
plays in negatively affecting the insurance sector are often
under-reported or discounted.
Since the advent of privatization in the Life, Health & Non-
Life Industry, the number of incidences of fraud & abuse
have been observed/noticed, traced and proved but still in
large number of incidences, the fraudsters go scotch free
due to non-availability of credible documentary evidence,
which can stand in the Court of Law and the indecisiveness/
hesitancy of the companies to file Police Complaints against
the fraudsters/abusers.
The worst hit policies are Motor (Own Damage, Theft &
Third Party), Employers Liability, Personal Accident, Fire,
Marine, etc. in the Non-Life Industry and in the Life & Health
Industry, fraud and abuse is rampantly observed/noticed in
claims related to Death, Hospitalization and Accidents.
It has been observed that the fraudsters follow a pattern
in the incidences of fraud and abuse and it is not restricted
to certain areas but is spread across the country. The
fraudsters are well equipped and abreast with the Terms
& Conditions of the various policies, Rights of the Insured,
Latest trends in the Insurance Industry, Investigative
measures adopted by the Insurance companies, Limitations
& Constraints of the Insurance Companies, Actions taken
by the Insurance Companies in fraudulent claims, Court
proceedings and formalities, etc.
16 The Insurance Times, July 2016
The fraudsters are well informed about the entire insurance
‘value chain’ (Refer to Figure 1) and are in continuous look-
out for potential weakness. The moment they are able to
identify the weakest link they strategize and attack. For
example – if the sales force is not vigilant and does not act
as primary underwriters, the fraudsters are going to target
the sales force to achieve their plan to deceive the
insurance companies.
In many cases it is observed and found that the fraudsters
are supported and guided by a “Consultant”, who
unfortunately, would be someone from the Insurance
Industry, either a person from the Sales Team or an Agent
or an ex-employee or a Surveyor or an Investigator working
for some insurance companies or someone who has worked
or had been related/known to them or an Advocate. These
consultants aid in preparation of documents and creating
situations fertile for putting up a fictitious & fraudulent claim
with the concerned Insurance Company.
For e.g. in Health Insurance, unfortunately, it is observed
that the treating doctor/family doctor or the Hospital/
Nursing Home is fully aware of the condition of the health
of the Insured person but they would aid in preparing
hospitalization related fictitious documents for submission
to the concerned Insurance Company, in connivance with
the Insured & the Consultant. There are also instances
wherein the fraudsters are the people who were ex-
investigator.
Figure 1: Insurance Value Chain
Source: “A Core Competency – Delivered on Time, Every
Time”, IRDAI Journal, Volume XIII, No.10, pp.4-9, October
2015.
What is the Cost of fraud?
Insurance fraud seems on the surface like a crime that