Seven-day claims processing: Insurers seek longer deadline to prevent fraud

The mandate for seven-day claims processing for Jan Suraksha schemes by the finance ministry has sent insurers into a tizzy.

They want the waiting period to be increased to at least three months to prevent frauds, which increases costs, which policy holders will have to pay. To ensure that there isn't a rise in fraudulent cases, insurers are seeking a tweak in rules to increase waiting period for claims to at least three months. On June 5, Finance Minister Nirmala Sitharaman directed insurance companies to process claims under Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) and Pradhan Mantri Suraksha Bima Yojana (PMSBY) in seven days.

"We understand that swift claims settlement is key. However, fraudulent claims cannot be entertained because eventually they impact the books. Policyholders will be impacted if this continues since we would have to pass on high claims cost in form of premium increase," said the chief financial officer of a life insurance company. Until now, insurers had 30 days' time to process these claims. The finance minister also said that there should be end-to-end digitisation of the claim settlement process between banks and insurance companies.

Insurers have sought that the lien period (duration after policy purchase when claims won't be paid) should be doubled to 90 days. "Fraudsters are well aware of the loopholes in the system. Since the policy issuance system is fully online, we want to safeguard the business," said the claims head at a mid-sized life insurer.

The executives mentioned did not want to be quoted since these discussions are confidential. The ministry is yet to take a decision on this. If approved, this will mean that customers will get their claims paid only after completion of three months after policy purchase. On an average, insurers lose about Rs 300 crore every year due to fraudulent claim payments. The highest cases of fraud are seen in life insurance death claims followed by health insurance and personal accident claims.

Here, fraudsters buy policies in the name of very-ill patients or those already dead. Once the policy is issued, a fake death certificate is created and presented to the insurance companies for claims. It is not just life insurers that are facing rise in frauds. In health insurance, fake doctor bills are presented to get reimbursement claims while in personal accident cases, forged doctor certificates citing 'accident' as cause of death is given.

For accident claims, insurers have also dealt with cases where relatives dying of natural cases were crushed by a car to show accidental injuries or bodies smuggled from mortuaries to seek death compensation. The government-led insurance schemes do not have exclusions for fraud since the aim here is to ensure basic risk covers for everyone. Launched in May 2015, the PMJJBY and PMSBY are part of the Jan Suraksha Yojana scheme of the PM Modi-led government.

Here, PMJJBY is a pure term insurance policy, with an annual premium of Rs 330 for a cover of Rs 2 lakh. On the other hand, PMSBY is an Rs 2 lakh cover accident insurance policy with annual premium of Rs 12. "Police cases are filed but is almost impossible to catch the fraudsters because they move to other cities. The only safeguard would be to ensure that there is a longer waiting period for any claim payment," said the claims head at state-owned general insurer.

Moneycontrol had reported earlier that ever since March 2020, insurers said that there has been a rise in cases where there are inaccuracies noticed in proposal form data and allied documents. The common ones include the policyholder not present during the confirmation video call, discrepancies in medical information provided or mismatch in photograph provided with person appearing on the call.