Rising Insurance Frauds in India and its remedies

This article is written by K.Lasya Charitha pursuing BALLB in Damodaram Sanjivayya National Law University, Visakhapatnam. In this article, the researcher discusses Insurance frauds in India and the dire need for stricter laws to mitigate Insurance frauds.

India is one of the largest insurance company markets in the world. However, it should also be understood that India’s insurance business is at risk because Indian insurance companies face an unusually high rate of fraud. It is estimated that the Indian insurance industry has lost approximately US$6 billion due to insurance fraud in India, accounting for approximately 8.5% of all premiums collected each year. 

All sorts of insurance rules are susceptible to fraudulent claims. However, a faux declare on life insurance rules are six instances much more likely compared to different sorts of rules.

What is Insurance fraud?

Insurance fraud is an act or omission designed to provide a dishonest or illegal benefit to a fraudulent party or other related parties. Similarly, when abused, people engage in activities that contradict business ethics and medical practices, leading to an unnecessary increase in reimbursement expenses.

Insurance fraud can take any form and can be implemented in many different ways. It is willful and deliberate and done for illegal financial gain. Anyone in the insurance business can do this. Fraud is becoming more serious as the insurance business depends on trusts and promises to be kept. The purpose of insurance is to protect everyone. In the event of fraud, both the insurance company and the policyholders bear the losses. Fraud will go against the basic principles of insurance such as insurable interest, maximum good faith, immediate cause, and compensation. Fraud, therefore, affects customers who are unable to pay premiums and consequently affects their level of protection.

People who commit insurance fraud include:

  • Organized criminals who steal large amounts of money through fraud,
  • professionals and technicians who charge a lot of service costs or charge for unused services, and 
  • Common people want to cover up their franchise rights or file a lawsuit as an opportunity to make money. 

Certain types of insurance are more susceptible to fraud than others. The worst-hit sectors are usually healthcare, workers’ compensation, and auto insurance.

Claims Related Fraud: Policyholders may generally commit these kinds of frauds

  • Hide existing conditions: most personal health policies provide timeouts for existing diseases. The insured person conceals this fact by falsifying the medical report before issuing the insurance policy. 
  • Insurance terms: Young people and healthy people are obvious choices for insurance companies. People with other characteristics, such as elderly people do not necessarily have to refuse their application, but may need more rewards. In this case, they try to cover up old age or chronic diseases. Fake obstacles are also included. 
  • Double draft: The submission of forged or excessive invoices is also fraudulent, especially if no fees are incurred. Insurance required for medical expenses or surgery will be canceled. Insurance policies should not be profitable. 
  • Withholding information of multiple policies: The insured has the responsibility to inform all other insurers about existing insurance policies, whether they are group insurance or individual insurance, in order to avoid multiple claims on this subject and benefit from them.
  • Participate in fraudulent networks: One person can make false statements with another person (such as an agent, doctor, or provider), such as Change the information he inherited to file a claim. 
  • Orchestrated accident: A person might stage an accident so that they can claim compensation for their medical and hospital expenses.

Insurance Frauds in Recent Times

  • Five arrested on charges of fake life insurance claim in Telangana: In the Nalgonda area, five scammers were arrested on suspicion of committing life insurance fraud by killing people and predicting road deaths. The gang used to deliver forceful blows on the chest of the victims to kill them and then use various vehicles to drive over their bodies. Fraudsters, in consultation with family members of the deceased and others, claimed insurance sums over 1.59 crore from various private insurers after making traffic accident claims in excess of 3.39 crore.
  • Doctor, 3 Others Arrested For COVID-19 Insurance Fraud In Gujarat: The doctor and another person had used bogus medical records of two people to claim insurance to the tune of Rs. 4.5 lakh. Another person would tamper with the sticker of COVID-19 test samples and paste names of policyholders, and when these samples returned negative, he would tamper with the writing to make them positive.
  • Haryana Man Fakes Death For Insurance: According to reports, a Haryana businessman faked his death, so his family can apply for insurance. Three days after the police removed the three cremated bodies from his car, the family informed them that he had been killed in 11 lakh.

Some Policies to Control Insurance Frauds

IRDA Fraud Policy: According to the Insurance Regulatory Authority (IRDA), all insurance companies must establish a fraud monitoring framework that includes measures to protect, prevent, detect and mitigate the risk of fraud affecting policyholders/applicants, intermediaries, and employees of insurance companies.

Anti- Fraud Policies: Insurers are expected to take a holistic approach to properly identify, measure, control and monitor fraud risk and, consequently, establish appropriate risk management policies and procedures. Once a year, and at other intervals deemed necessary, the Insurance company Board of Directors are mandated by the IRDA to review their respective Anti- Fraud policies. such guidelines should provide comprehensive guidance on fraud monitoring procedures, identifying potential fraud avenues, and guidelines for working and coordinating with government and law enforcement agencies for identifying the act of frauds. These policies also guide in building a framework that will allow them to share information with other insurance companies about sharing information about incidents and scenarios of such fraud so that they can be repaired within the insurance ecosystem.

Fraud Monitoring Function: Each insurance company is mandated to have the fraud monitoring function as a separate industry to ensure the effective implementation of anti-fraud policies. They are responsible for establishing procedures for internal reporting to/from various departments in order to train staff and agents on identifying and preventing fraud. In addition, they must keep regulators regularly informed of these incidents and the measures taken to contain these scenarios within a specified period of time. Finally, they must submit regular reviews to their respective councils for review and course correction. Insurers have an obligation to inform both prospective and existing customers about their anti-fraud policies. The insurers include the necessary precautionary measures in insurance contracts and relevant documents and explain the consequences of submitting a false or incomplete declaration in favor of the insured, the applicants, and their beneficiaries.

Insurance Fraud Control Act: India’s Urgent Need 

Although the fraud cases in 2019 left a 45 billion rupees gap in the pockets of the Indian insurance industry, India does not have an effective insurance fraud bill. In percentage terms, most insurers lose 10-15% across all lines of business, while fraudulent health insurance claims can be as high as 35%. 90% of auto insurance fraud is the result of padding claims (which means damage, injury, and fictional passengers to insurance claims). The other 10% of insurance fraud comes from staged accidents. Most frauds in life insurance occur when the insured amount is between 2 lakh and 12 lakh.

In India, there is no specific provision for insurance fraud in the Indian Criminal Code. Some sections that have some relevance are Section 205: Impersonation of a false identity for acting or proceeding in a lawsuit or law enforcement; Section 420: Fraud and dishonest induction of the transfer of property; Section 464: preparation of a false document containing characters, stamps, and forgeries, and Section 405: criminal breach of trust. However, these provisions are insufficient to prosecute a fraudster in today’s organized insurance fraud scenario. It is not customary to take legal action against insurance fraud in legal proceedings in our courts, and fraud on amounts that is not large enough is acceptable, as opposed to the time and energy invested in prosecuting it. Risk management will be a major concern of insurers and business executives who need to continually reassess their processes and policies in order to manage and mitigate the risk of fraud.

Business leaders recognize the need to address this risk, but the lack of a comprehensive and integrated approach to fraud risk management remains a concern. Insurance fraud is a huge problem, affecting the lives of innocent people, both directly through accidents and willful injury or damage, and indirectly as these crimes cause insurance premiums to rise every year. Honest customers shouldn’t have to pay the price of scammers through higher premiums. Compared to other crimes, insurance fraud judgments are milder and lower. If the Indian insurance industry is currently working to reduce costs, one of its main focuses in controlling or reducing costs is on proactively ending fraud, this can be achieved through an effective fraud risk assessment program and with dedicated investigation units in each organization.

Before reporting a case, awareness of the proper functioning of the law should be raised. Central and state governments should also give serious thought to enacting specific laws to combat insurance fraud and establish insurance fraud bureaus. Academicians around the world and anti-fraud professionals working in the insurance industry believe that India should consider the Insurance Fraud Control Act, in accordance with the laws of various US states, as a starting point for discussion and bringing the discussion about the bill in the parliament as soon as possible.

Conclusion

Although there are various policies and institutions in India that deal with insurance fraud, we are still seeing a lot of fraud and losses to businesses and firms. As we can see, our country has a lot of insurance fraud that is losing businesses. This translates into around 40,000 rupees annually or 8.5 percent of the industry’s turnover. Individuals and insurance companies should also take more precautions about false insurance claims as they need to ensure that the claims insurance companies are paying for are real or not. So, there is a very serious need for the Insurance Frauds Control Act in India to control all kinds of Insurance Fraud occurring in and around the country.

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