How to reduce Insurance Frauds

Group 6 Unity

What is Insurance Fraud

Definition
Insurance fraudis any act committed with the intent to obtain
afraudulentoutcome from an insuranceprocess.

Types of Insurance Frauds

Hard fraud vs Soft fraud

Hard fraud occurs when someone deliberately plans or invents a loss, such
as a collision, auto theft, or fire that is covered by their insurance policy
in order to receive payment for damages.
Soft fraud, which is far more common than hard fraud, is sometimes also
referred to as opportunistic fraud.This type of fraud consists of
policyholders exaggerating otherwise legitimate claims. Soft fraud can
also occur when, while obtaining a newinsurance policy, an individual
misreports previous or existing conditions in order to obtain a lower
premium on their insurance policy.

Fraud by false representation

Where a person makes any representation as to fact or law which they know to
be untrue or misleading.

Fraud by failing to disclose information

Where a person fails to disclose any information to a third party when they are
under a legal duty to disclose such information.

Fraud by abuse of position

Where a person occupies a position where they are expected to safeguard the
financial interests of another person, and abuses that position; this includes
cases where the abuse consisted of an omission rather than anovert act.

Policy holder and claims fraud

Fraud against insurer by policyholder and/or other parties in the purchase

and/or execution of an insurance product.

Intermediary fraud

Fraud by intermediaries against insurer and/or policyholders.

Internal fraud

Fraud against insurer by employee on his/her own volition or in collusion

with parties that are internal or external to insurer.

Key fraud trends in Insurance

According to a survey conducted by Ernst & Young, key fraud risks faced
Industry
by Insurance Companies are:

Insurance fraud can increase costs for the insurer by at least

1% and can go up by more than 5%

Impact of Insurance Fraud

Higher insurance premiums

Rising cost of goods & services

Jeopardize health, lives and property

Lost personal income and savings

Lost jobs

Diverts government resources

Personal costs

Diverts from essential services

Overall financial cost

Current action against fraud

No Fraud management policy documented
Action limited to:
Rejection of claims for serious fraud all the cases
Cancelation of policy in serious fraud cases and not
abuse or mis-declaration
Most companies do not have an underwriting loop for
cases of mis-declaration and non-declaration
Action against agents limited

Legal action against fraud not very common

Recoveries rare

Legal provisions under IPC

No specific provisions in IPC for insurance fraud
Action at best is limited to:
Section 205. Cheat by personation
Section 420. Cheating and dishonestly inducing delivery of
property
Section 464: making a false document including signs and seals
and forgery
Section 405. Criminal breach of trust suited to life insurance

All these legal provisions are not adequate to

prosecute an individual legally due of time and
cost involved

Fraud management policy

Every

Insurance

company

to

have

comprehensive Fraud and Abuse management

policy, to contain:
Definition of types of fraud and abuse
Policies, procedures and controls to be documented
Companies action to be documented and inline with
severity of fraud
Review mechanism

Fraud and Abuse Management to be a company

wide activity rather than a claims function activity
Claims, UW, HR, Agency team, legal, operations, etc

Sharing of knowledge and data

It was suggested to share:
Fraud patterns and case studies
Fraud customer list
Fraudulent intermediaries (agents)
Fraudulent investigators

Due legal process to be followed before reporting a

case
External reporting to MCI, IRDA, corporate HR,

IRDAI requirements on Fraud

Monitoring

Anti-Fraud Policy: There should be an Anti Fraud Policy containing well defined
procedures to identify, detect, investigate and report insurance frauds.

Fraud Monitoring Function: There should be a Fraud Monitoring Function to

ensure effective implementation of Anti Fraud Policy across all lines of business.

Independence: Function of fraud monitoring should be either an independent

function or merged with existing functions - risk, audit etc.

Risk Management Committee: The Corporate Governance guidelines mandate

insurance companies to set up a Risk Management Committee (RMC). The RMC is
required to lay down the company-wide Risk Management Strategy.

Periodic reporting to IRDAI: Insurance Companies need to put in place as part

of Corporate Governance Structure, Fraud detection and mitigation measures and
submit Periodic reports to Authority . Statistics on fraudulent cases need to
be reported to IRDA within 30 days of the close of financial year.

ANTI FRAUD STRATEGY

ANTI FRAUD STRATEGY

PREVENTION

Fraud risk Assessment

Developing a sound ethical culture

Sound internal control systems

Training and awareness

DETECTION

Detection methods

Offsite fraud control monitoring

RESPONSE
Anti-Fraud Program
Investigation
Consequence Management

Thank You