Fraud Awareness



In the previous blogs, we stressed upon the concern of rise in fraudulent claims, wherein involvement of Nexus is at the forefront. Also, tried to put focus on theirkey modus operandi to commit such frauds and various impacts because of that.

Today’s blog focuses majorly on the way forward to handle such fraud claims by Nexus.

  • Need tohave meeting of minds: Insurance companies need to be very proactive in sharing the data as banks do instead of just relying on their network to detect fraud. Although, in recent times they have started sharing the same to agency appointed by the Regulator, however, still much more has to be done, that too consistently and at greater speed. Hopefully, it is likely that over time, data sharing becomes the norm and fraudulent policies are discovered more easily;
  • Data being shared also needs to be more extensive and carry a lot more details as being currently done: For instance, the details of not only the policyholders of the fraudulent policies, which are rejected or repudiated needs to be shared but also should have many other details of the fraudsters, starting from the concerned nominees, members of the nexus, the concerned officials, who were accomplice to the fraudsters, the details of the medical centres, where the fraudulent medicals were conducted and other relevant details. The same would be more effective when analytics are done on these data and shared back to the Industry to be worked further in cracking these fraudsters;
  • Sharing of Attempted Frauds:Presently, most insurers share negative list i.e., list of customers, distributors, and medical professionals, who have earlier committed fraud. Hence, the system is reactive and not predictive. We also need to share the details of attempted frauds as being done in Anti Money Laundering (AML) Policy. This will help other companies to deter these fraudsters from entering their systems and thereby gradually barring them to create such frauds from the ecosystem;
  • Need for Effective Anti-Fraud Strategy:The insurance Regulator has come down hard upon life insurance companies that deny claims after 3 years of Policy Issuance/Renewal as per amended Section 45 of the Insurance Act, 1938. In view of the same, the Insurance Companies needs to build an effective anti-fraud strategy comprising of four main components, which being, Prevent, Detect, Deter and Respond to such fraud being attempted at the initial stage itself at the time of either onboarding of the policies or at the most during the existence of the policies within the 3 years window to weed out such bad business before the claims for such policies are lodged;
  • Time for stricter and robust Legislations:There also exists inadequate law which does not provide effective recourse against frauds and fraudsters. In the recent past, the Insurance Companies have taken many such cases for legal proceedings and successfully, got many of the fraudsters behind bars. However, they get released on bail, and even if insurance companies prove that a person has tried to commit fraud, they get away with very light punishment. To stop fraud in the insurance sector, strict laws must be created as well as implemented. These laws will act as a deterrent to professional frauds that are helping make career by cheating insurance companies. Taking legal action against insurance frauds is not a common occurrence and frauds of amounts not big enough are let off as opposed to the heavy investment of time and energy in pursuing the same;
  • Access to Hospital records:This is mostly denied to Insurance Companies, which have made it difficult to prove the pre-existing diseases as also other related medical facts and, in the end, these claims may end up getting paid. There was a Circular issued by Health Ministry in the early 1980s to all Hospitals for granting access to Life Insurance Corporation (LIC) to have a fair investigation done. Private Insurance Companies did not operate at that time. It is high time that the said Circular are reissued, also incorporating Private Insurance Companies to help them take effective decisions on claims;
  • Need for Insurance Fraud Bureaus:There is also the need to have Insurance Fraud Bureaus like in the United States of America and a few other countries. Another suggestion can be to have a specialized department built-in Special Fraud Investigation Organization (SFIO) to deal specifically with Insurance Frauds;
  • Importance of Effective Tools and comprehensive Processes at different stages:Lot has already been spoken about key changes made in Section 45 of Insurance Act, 1938. This amplifies the role of investigators in detecting frauds before the stipulated three-year period so that such policies can be cancelled. The Life Insurance Companies had been looking for verification/claim investigations primarily at three stages and more so at the first two stages basis, better analytics vide usage of AI Tools, more advanced digital underwriting, claims, and administrative processes to weed out bad policies firstly before it enters the system and if they have to null and void the bad policies at the pre-claim stage. The said three stages are as follows:
  • Pre-Issuance (including Pre-login) stage;
  • Existing Book (Pre claim) Stage; and
  • Claims Stage
  • Interlinkages of various Anti-Fraud Strategies with trained and effective Fraud Prevention Unit:It is clear, therefore, that the various elements of an effective anti-fraud strategy are all closely interlinked and each plays a significant role in combating fraud. Fraud detection acts as a deterrent by sending a message to likely fraudsters that the organization is actively fighting fraud and that procedures are in place to identify any illegal activity that has occurred. The possibility of being caught will often dissuade a potential perpetrator not to commit fraud. Complementary detection controls should also be in place to counter the fact that the prevention controls may be insufficient in some cases. This also calls for having a trained Fraud Prevention Unit within the Insurance Companies, which most of these companies have but need to be also regularly updated as fraud methodologies change very frequently. The said department also needs to be adequately budgeted;
  • Need for pool of Trained Investigators:There is also a need to have good quality trained pool of Investigators. Further, they need to be licensed by the Regulator. This will help them to conduct a more effective investigation and their reports will have legal validity in the Court of Law, which today, does not carry much weight;

It is also reiterated that the Insurance Institute of India (III) in partnership with APDI and IFTG, with support from Industry Experts, has launched a robust online Certified Training module for Investigators and they should take due leverage of the same, i.e., that of Certified Private Insurance Investigators (CPII);

An insurance investigator is also advised to go through their data of past claims, which they may have investigated to look for any red flags. They may also look for patterns to see whether or not specific people have more probability than others to commit fraud using data analysis. A good and successful investigator will always look out for suspicious signals to lead them to the bottom of the case and crack any fraud;

This has been very evident from the cases solved by those successful investigators in the past. A few of such indicators are a significant financial debt of the claimant; going through social media or lack of police reports after the supposed accident. They should be more focused on getting crucial pieces of evidence and focus more on the quality report rather than on focusing on quantity/bulky reports, which may not lead to any conclusion;

Insurance Companies too should consider them more as Partner and instil more confidence in them by addressing these challenges not only in their training and development but also having commensurate incentive/remuneration plans to motivate them to continue giving better quality outputs;

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 neighborhood. 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.

(To be concluded…Look for this space to read more!!!)

Coming up –

b. Conclusion

Disclaimer – This blog material is written and edited based on my experience and also information available across the web, industry, and experts. The intent of this blog is purely for the purpose of education and awareness only and nothing personalized.


Ajay Kumar Kanth, Founder, FACTpace

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