Wednesday, August 7, 2013

Motor Vehicle Insurance: Taking people for a ride…3

Insurance Frauds: Whose fault, who pays?

By Neeraj Mahajan



If the insurance industry is to be believed, a serious issue affecting their operation profitability is fraud. Nearly 6% of all insurance claims in India are
fraudulent accounting for a loss of between Rs.2,500-3,500 Crore to the insurance companies every year. But is that a justification to hang the 94 %  
people who have caused no harm? If the insurance company makes a loss on one count, it covers it up by profits from other business activities. But in the name of loses – does the insurance company have a right to unjustly deny paying compensation to a poor widow – who after losing the sole breadwinner in the family has to beg to bring up her children and still save enough to pay a lawyer 18 long years? Is this justice and fair-play? 

There is a saying you have to know the law to break the law. This holds true for the insurance companies who know the law like the back of their hands and use that knowledge to unjustly deny even genuine claims. Another dimension to this problem is that in most cases no fraud can happen unless an insider is involved and provides all the necessary backend support for committing the offense. Invariably, there is an employee or insider involved who knows the loop-hopes and induces or gets indoctrinated the beneficiary to take part in the crime. Most frauds involve a team-work of agents, brokers, insurance employees, bankers, lawyers, beneficiary and other stakeholders of the general insurance system.

It is not necessary, that the policy holder always bribe surveyors and officials
of insurance company to get false claims passed. Some time insurance employees and or intermediaries or the fraudsters approach the policy holder/beneficiary and suggest ways and means to exaggerate the genuine claim by fabricating documents.

Fraud can occur at time of buying, underwriting stage or later as a post-policy claim. In the pre-policy stage the agent is the main conduit who is interested only in his commission so he may advise the client to suppress information which may lead to extra premium or denial of policy. This is part of his customer service. Post insurance stage involves misrepresentation to pass on a benefit to a person not otherwise eligible to receive it a manipulated or exaggerated claims. One such practice is to have paper accidents in which documents are created in collusion with various authorities to fake an accident and claim compensation.

One of the most common modus operandi of Third Party frauds in India involves conversion of ordinary death or other accidental death into Hit and Run case or replacement of vehicle in a hit and run case with the help of insider and the local police. In some cases it was found that the person making the claim changes but all the other details remain the same. It was found that the same vehicle was involved in 18 different accidents, all in the same city and the same years.

A "dirty secret" that no one talks about openly is that in many case people working for insurance companies, sell information about customers involved in accidents to an advocate who then encourages them to make the claims. The modus operandi is simple – the advocate immediately contacts the relatives of the deceased or injured and offers to complete the necessary documentation to lodge an MACT case on behalf of the victims' relatives. He also settles an amount to be shared after the claim is received. A few years ago the CBI registered a case against an Ambala based Advocate for insurance frauds to the tune of Rs. 200 Crores. A typical fraudulent case may involve say a case of death due to negligence which may be converted to an accident caused by another vehicle or an accident caused under influence of alcohol which may be shown as accident caused by another vehicle, substitution of un-insured vehicle with a insured vehicle or claiming compensation for the treatment to an injury sustained in vehicle accident. Most such claims are only possible with the connivance of insiders in the insurance industry. 

(To be continued)


Also Read:

Motor Vehicle Insurance: Taking people for a ride… Part 1

Motor Vehicle Insurance: Taking people for a ride…2