Call for legislation to be enacted specific to insurance fraud

Efforts made by stakeholders in the Indian insurance industry to promote the growth of the sector are being slowly and steadily eaten away by fraud committed in all kinds of insurance schemes, says Mr Mani Kant, vice president of India Insure Risk Management & Insurance Broking Services.

In a commentary, he says that it is estimated that the life and general insurance sectors together lose approximately 10% of annual revenue to fake insurance claims.

To compensate for this loss, insurers besides adopting other methods are also forced to increase insurance premiums. This increase in insurance premium is being used to fill the gaps created due to fraud, instead of being spent on offering more benefits to customers.

Half-cooked mechanisms

Mr Kant said, “Based on past experience, insurers have put in half-cooked mechanisms to check fraud. The front desk executives in the claims department are trained on the fraud indicators. These front desk executives normally are not fully trained and hardly 10% of such cases are detected well in advance.”

He added, “Insurers understand fraud techniques and devise safeguarding tools. Fraudsters become smarter and devise new techniques. This way, the cycle continues, and the fraudster is always one step ahead of the insurance companies.” He says that insurers are also at fault for not sharing data amongst themselves but relying instead only on their own sources of data validation.

Insurers sometimes when they know about a particular group of fraudsters or the area in which the fraud occurs, place them on a negative list. Mr Kant said, “Such acts may be termed as reactive and not proactive.” He says that the fraudster could be an opportunist, an amateur or may be a hard-core fraud professional. The professional fraudster is the biggest headache for any insurance company. Many such frauds happen in small ticket size claims which are easy to get through without being noticed. He also said, “Unfortunately, India lacks a law on insurance fraud that has ample teeth to punish criminals so that it becomes a deterrent to future fraudsters.”

The Indian penal Code 1860 does not have specific sections covering insurance fraud. However, it has a few sections that cover cheating, impersonation, false documents, and criminal breach of trust that touching the subject a little. If the document is fraudulently created using a computer and stored in computer devices or emailed, the Indian Information Technology Act 2000 also comes into action.

The Indian Insurance Act 1938 and Indian Contract Act 1872 also do not touch on the subject of insurance fraud, Mr Kant says.

Source: Asia Insurance Review