Fraudsters Blow A Hole In Insurance Companies
In the first week of March, a report published by India Forensic took by surprise the entire insurance industry. The news was about Indian insurance companies collectively losing a whopping Rs.30,401 crores in March 2011 due to various frauds which took place in the life and general insurance segments during the year. The losses worked out to about nine per cent of the total estimated size of the insurance industry in 2011. Though this news may sound shocking but the ground reality is that this labyrinth was prevalent in the past and will continue to embarrass the insurance industry.
With the opening of insurance sector, various life and general insurance companies flooded the Indian market in joint venture with reputed Indian companies. This not only provided impetus to the insurance business but also provided opportunity to malicious individuals to aggravate losses due to fraudulent claims. Today there are 48 such companies where many of them are bearing the brunt of lacunae prevalent in the insurance industry. India Forensic, which has already assisted CBI in solving complicated cases, aptly brought to the fore ongoing malpractices in the insurance industry.
Loss of insurance companies due to frauds has doubled in last five years as in 2007 total loss on account of frauds stood at Rs 15,288 crore where losses due to frauds from life insurance segment stood at Rs 13,148 crore while for general insurance it stood at Rs 2,140 crore. In 2011 where total premium income of insurance industry including life, non-life and health insurance companies is around Rs 3.5 lakh crore, the fraud has increased to Rs 30401 Crores. As per the study about 86% frauds took place in life insurance industry while remaining 14% frauds were in general insurance industry (which includes risk to loss assets like car, house, accident etc).
IRDA Chairman, Mr J. Harinarayan brushed aside the aforesaid study and said insurance firms are capable enough to protect their interests and that Insurance companies have not reported about such frauds. LIFE Insurance Council secretary general S.B. Mathur said, "I think the figures of fraud as claimed are unrealistic. The fraud committed could be higher in non-life insurance compared to life insurance companies. However, the total figure for fraud cannot be as high as Rs.30,000 crore.”
The important question that arises in front of us is that if insurance companies are capable enough to secure their interests then how come such frauds are prevalent and how can it tune to Rs 30000 Crores. There is certainly some lax in the law which is being taken advantage of. We cannot just shrug away the findings of India Forensic; the concerned authority will definitely have to resort to concrete steps so that such fraudulent activities can be dispensed away with.
We have spoken a lot about fraud but now let us know how it emanates. The base for taking insurance is to cover risk which may or may not occur i.e insurance is meant for insuring uncertainty. Where the risk is certain insurance cover is not provided and this is where the fraud comes into play. As per the study, reasons for these frauds includes collusion between employee’s of insurers and private persons, document falsification and manipulation in citing cause of death to claim insurance benefits.
In life insurance following type of frauds could be noticed:
• Insuring the deceased and then lodging the claim after a certain period so that the fraud can go unnoticed.
• Insured may not disclose certain diseases like AIDS, Cancer etc at the time of taking insurance which makes the insured event inevitable. After death manipulation is done in citing the cause of death in order to settle the claim.
• Insuring an individual of higher age by incorrect declaration of age for eg a person aged 70 may not come into the ambit of insurance but the documents are forged to present him as an individual of lesser age so that he / she can be insured.
• Insuring females to take unlawful advantages particularly dowry related cases.
In health insurance following type of frauds could be noticed:
• Presenting the claim for an individual who is not covered under the scheme.
• Exaggerating the claim amount spent on the treatment.
• Patient and doctor nexus in forging the hospitalization bill and thereby claiming unwarranted amount.
In automobile & property insurance following type of frauds could be noticed:
• Deliberate tampering with the vehicle or contents of the house for claims.
• Lodging fake FIRs relating to theft of vehicles for claim recovery.
• Showing fake accidental damages such as fire, burglary etc for claims recovery.
Though the Regulator, Life Council & Insurance companies may not take a serious note of the report published by India Forensic but the stark reality is that such types of fraud is highly rampant and unscrupulous persons are taking undue advantages of the laxity on part of the concerned bodies. This cannot stop until the development authorities & insurance companies take a giant step forward to deal with such issues failing which the same may prove to be a curse to the insurance industry.
In a nutshell, insurance sector is susceptible to frauds in India hence to protect the insurance sector and thereby policyholders’ interests, there is an urgent need to have strict measures such as setting up a dedicated unit to detect and check frauds in the companies. This will not only nourish the insurance sector but will also help it to blossom thereby contributing significantly towards the country’s GDP.
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