The ABC’s of Insurance Fraud in India

India is one of the biggest markets for insurance companies across the world. However, it also needs to be understood that operating an insurance business in India is not free from risks. This is because insurance companies in India face an abnormally large number of fraud cases. In fact, it is estimated that the Indian insurance industry loses close to $6 billion to insurance fraud in India. This works out to about 8.5% of all the premiums collected every year.

All types of insurance policies are prone to fraudulent claims. However, a fake claim on life insurance policies is six times more likely as compared to other types of policies.

In this article, we will have a closer look at how insurance frauds happen in India. Then we will also understand the steps that need to be taken in order to prevent these frauds from continuing.

How Do Insurance Frauds Happen?

Fraudsters have become increasingly innovative. Newer ways of cheating the insurance companies are being used almost every day. Some of the most common methods are listed in this article.

• The most common way to defraud a company is to have insurance policy issued to a person who has a terminal illness. This does not happen much in urban India. However, there is not much infrastructure available in rural India. Hence, buying insurance in the name of an ill person is not that difficult. The doctor who comes to check the patient for pre-existing illnesses is either bribed or threatened. Hence, even if a person has Cancer, the doctor will write a report that says that they are fit to provide insurance. Later, when the patient dies of Cancer, insurance money is fraudulently collected.
• Insurance companies in India provide riders wherein if a person dies of accidental death then the payout is double of the sum assured. This provision is also misused in order to make fraudulent claims. If a person having an insurance policy dies even of natural causes, dependents claim that the victim died because of an accident. Once again, doctors and medical professionals are threatened in order to obtain relevant documents which leads to massive losses for insurance companies.
• Health and motor insurance are also prone to fraud. In these cases, document forging is the norm. There are many hospitals in India which exist for the sole purpose of providing fake documents for insurance claims. Insurance companies have to be on the lookout for these hospitals since they create many fraudulent claims from one geographical area. By the time, the insurance companies realize what is going on these fraudsters pack their bags and move to a different location in order to start all over again.

How Can Insurance Fraud Be Prevented?

• The problem with insurance companies in India is that they do not extensively share data as banks do. This is the reason why every insurance company has to rely on its own network to detect fraud. It is extremely important that all insurance companies form a common database and start sharing fraud data extensively. A start has been made as a repository has been formed in 2016. About 43 insurance companies have come together and have appointed credit rating agency Experian in order to use Experian’s big data and analytics capabilities.

  However, in order for Experian’s system to work, insurance companies have to regularly share data with Experian’s systems. To many insurance companies, this is unacceptable given the fact that it entails a lot of costs and also compromises the security of the data. However, it is likely that over time, data sharing becomes the norm and fraudulent policies are discovered more easily.

  At the present moment, most insurers only share a negative list i.e. a list of customer, distributors and medical professionals who have earlier committed fraud. Hence, the system is reactive and not predictive.

• The insurance regulator in India has come down hard upon insurance companies which deny claims. New laws have been formed which state that an insurance company has three years to find out if the data furnished at the time of buying the policy was incorrect. After three years have passed, the data is assumed to be accurate, and insurance companies are forced to pay the claim.

  The problem is that the law punishes insurance companies but does not provide any recourse to them. If insurance companies prove that a person has actually tried to commit fraud, they get away with very light punishment. In order to stop the fraud in the insurance sector, it is important that strict laws are created as well as implemented. These laws will act as a deterrent to professional frauds that are making a career out of cheating insurance companies.

• Lastly, insurance companies have started aggregating data on geographical areas where insurance fraud is rampant. This could be because of the law and order problem in the province, or it could be because of the high number of doctors who are willing to provide fake medical certificates in a given area. Insurance companies have started denying insurance coverage to people from certain neighborhoods. They have also started charging a premium if they do not outright deny issuing this policy. However, this is not sustainable. In the United States, lawsuits have been fought against this discriminatory practice called “redlining.” It is only a matter of time until legal action is taken in India as well.