Page 17 - Insurance Times July 2016
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doesn’t really hurt anyone. A few extra rupees squeezed The 1st step is to build a ‘zero tolerance’ culture. This could
out of an insurance company doesn’t seem like it would be initiated by institutionalizing a full proof “Zero
make much of an impact on a large and successful company. Tolerance” Fraud & Abuse Control Policy. The policy should
However, fraud impacts an organization financially, be promoted within the organization so as to develop a
operationally and psychologically. While the monetary loss vibrant non-tolerant culture towards fraud & abuse, with
due to fraud is significant yet in real terms it is still the tip active participation & involvement of all the stake holders
of the iceberg. The hidden loss that accompanies due to viz. all the employees irrespective of their functions, job
frauds is worth introspecting and includes loss of reputation, profile, locations, etc. including the Surveyors & Brokers/
brand image, goodwill, customer relations, opting out by Agents associated with them and all their Vendors including
reinsurers etc. their TPA’s conducting Pre Insurance Medical Tests & Claims
and Investigators.
The ‘visible loss’ due to insurance fraud comprises of
increased premium to customers, financial loss to company, The Risk Framework for Fraud & Abuse Policy should clearly
high re-insurance cost, and the investigation/litigation costs. list the “Do’s & Don’ts” and Actions to be initiated in the
The ‘invisible loss’ due to insurance fraud would include event of any breach or irregularity done by all the
things like – productivity loss, long claim settlement cycle, concerned stakeholders. All the stakeholders should be
lost sales, negative claim experience, loss of customer made well aware of the “Zero Tolerance” policy of the
loyalty, low employee morale, high employee attrition and organization towards Fraud & Abuse, by regularly publishing
high cost of underwriting and process management. Both the “Do’s & Don’ts” vis-à-vis the Fraud & Abuse Control
the visible and invisible loss can lead to competitive Policy & updating the same on regular intervals, arranging
disadvantage for the insurance company. training programmes for the above mentioned
stakeholders, since the time of their induction, & also
What can insurance companies do to conducting training programmes for them at regular
combat Fraud and Abuse? intervals.
Fraud and Abuse risk in insurance is complex in itself, add They should be encouraged to highlight any wrong doings
to it the sophistication of fraudsters and it becomes all the or illegal or unethical practices, by bringing it to the notice
more difficult for organizations to detect and control fraud of the management (of course with the assurance of
in time. Fraud and abuse can be perpetrated by any maintaining the confidentiality of their identity & the
employee within an organization or by those outside it and source).
hence it is important for companies to have an effective
fraud management program in place to safeguard their The second step is to build organization capacity that
assets and reputation. To address fraud and abuse, we enhance key processes like investigation, claims processing,
suggest a four step framework to building a successful fraud management of intermediaries, etc. It is generally observed
management program (Refer to Figure 2). that the Insurers in their urge to increase their bottom line,
set targets for their Investigative units for
savings to be made out of the claims
being investigated. These Investigative
Units in the pressure to perform and
achieving the desired savings target,
tend to investigate more claims,
presuming that it might give them a
chance to repudiate more claims and
thus, in turn provide more savings for the
company.
Figure 2: Fraud management program framework A word of caution for the Insurance
Companies falling prey to such practices.
In doing so, they might go overboard and
repudiate claims on the basis of
insufficient documentary evidences to
The Insurance Times, July 2016 17
