A case of auto insurance fraud worth crores of rupees using forged documents has come to light in the Kerala state. A detailed investigation conducted by the State Crime Branch revealed the modus operandi of the fraudsters. In two cases a vehicle in eight cases and in 11 cases another vehicle was produced for claiming the sum insured. According to the preliminary assessment of the police, the fraud could be more than 50 crores. Interestingly, this is the first time such a huge fraud has been detected in Kerala. Under the investigation of many cases, the Crime Branch has registered an FIR in eleven cases. It has been found that the agents acted as middlemen to carry out bogus accidents and defraud the insurance companies. The police have hand over evidence which shows that an additional Rs 40 lakh was paid in addition to the actual amount claimed as insurance. Investigators from the New India Assurance Company, the National Insurance Company in Kerala, had conducted their own investigation and submitted evidence including documents to the police. 15 policemen of the above police stations, five advocates and their gumstans (helpers), some doctors working in two private hospitals in the city and agents of advocates acting as middlemen have been accused in these cases, to be introduced as, In some northern districts, cases of insurance company employees being involved in fraud have also been reported.
During the investigation, the police found evidence that indicated that even those involved in minor accidents had to get the documents signed. After obtaining his signature, minor mishaps were blown up and shown as swindling of large sums of money. Vehicle owners are promised half the amount as part of the deal. Though FIRs have been registered in 11 cases, at present only one lawyer of the Vanchiyur court has been presented as an accused. Soon after the matter came out of the air, the said advocate withdrew the applications for fresh claims from the court. It may be recalled that a Division Bench of the Supreme Court had recently directed a Special Investigation Team to submit an urgent report regarding a similar fraud in Uttar Pradesh involving 27 advocates and police. Same gang accused in one case, witness in another and guarantor in another A preliminary inquiry into the fraud was carried out following a letter written by the insurance company to the state police chief last August. During investigation, it was found that fraud was committed by presenting fake treatment certificates and changing the accident site, time and vehicle. It was also found that the gang, including advocates, presented themselves as accused in one case, witnesses in another and guarantors for bail in several other cases. Meanwhile, Deputy Superintendent of Crime Branch submitted a report seeking registration of cases after re-examination of the cases. State Police Chief has warned that a big mafia is active in fraud of auto insurance claims in the state and the police should keep a strict vigil on this front. During investigation of an insurance fraud that took place at Thiruvananthapuram traffic station in 2015, it was found that a particular scooter with registration number KL:-01-1372 was involved in 11 accidents during a period of two years. The police are yet to recover this two-wheeler. This particular registration number was used to execute six claims of National Insurance Company and five claims of New India Assurance Company for committing fraud. In eight cases compensation has been claimed.
Insurance fraud is a deliberate deception
Insurance frauds are typically committed at the time of applications or claims. Nearly 70% of these frauds are committed via falsification of documents. According to industry estimates, insurers lose close to 10% of their overall premium collection to frauds. The last year-and-a-half has brought ground-breaking changes to insurance: unprecedented digitalisation, rapidly evolving customer expectations, and transforming fraudulent behaviours. Insurance fraud is a deliberate deception perpetrated against or by an insurance company or agent for the purpose of financial gain. Fraud may be committed at different points by applicants, policyholders, third-party claimants, or professionals who provide services to claimants. Insurance agents and company employees may also commit insurance fraud. Common frauds include “padding,” or inflating claims; misrepresenting facts on an insurance application; submitting claims for injuries or damage that never occurred; and staging accidents. People who commit insurance fraud include:
- organized criminals who steal large sums through fraudulent business activities,
- professionals and technicians who inflate service costs or charge for services not rendered,
- and ordinary people who want to cover their deductible or view filing a claim as an opportunity to make a little money.
Some insurance lines are more vulnerable to fraud than others. Healthcare, workers’ compensation, and auto insurance are generally considered to be the sectors most affected.
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. Insurance data is dynamic and hence data analytics cannot depend only on past behaviour patterns and so data has to be updated regularly. Predictive analysis can play a significant role in identifying distributor nexus, mis-selling and repeated misrepresentations. Relationship analytics could be used to identify linked sellers and suspected churn among them. A few scenarios of Insurance frauds brought to the notice of companies, regulators and whistleblowers:
- Producing forged documents
- Non-disclosure of critical information
- Buying of policies in the name of a dead person or a person with a terminal illness
- Stating false reasons for claims
- Misappropriating assets
- Inflating expenses
- Manipulating pre-policy health check-up records
- Staged accidents and fake disability claims
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. Continuous evaluation of existing customers is also critical for early fraud detection. For example, one red flag for potential fraud can involve beneficiary or address changes for new customers. Insurers should verify address changes, as many consumers do not know their identity has been stolen until after it has happened.
According to a survey titled ‘Impact Of Covid – 19 Pandemic On Insurance Fraud Risk Mitigation And Investigation’, insurance frauds increased during Covid-19. At least one in four respondents from the insurance industry said insurance frauds increased during the pandemic. Moreover, the insurers had to take a cut in fraud investigation budget. There is an overall increase in insurance fraud investigations after the onset of Covid-19. With 55% of respondents confirming that their professional activities related to fraud-fighting have either increased overall, or increased under a specific area of operation during the pandemic. However, nearly half of the respondents also reported either a budget cut (32%), or zero budget allocation (16%) for investigations. The report also highlighted that insurers are using digital mediums to detect frauds. The survey revealed that the industry’s shift to digital fraud investigations is permanent, with 92% of the respondents affirming that the increased use of technology in investigations would continue in the post-pandemic times. Of these, 71% were specific that more emphasis would be on a digital approach.
IRDA Fraud Policy
According to the Insurance Regulatory and Development Authority (IRDA) of India, every insurance company is required to set up a Fraud Monitoring Framework. The framework shall include measures to protect, prevent, detect and mitigate the risk of fraud from policyholders / claimants, intermediaries and employees of the insurance companies. Insurers are expected to adopt a holistic approach to adequately identify, measure, control and monitor fraud risk and accordingly lay down appropriate risk management policies and procedures. The Insurance Company Board of Directors are mandated by the IRDAI to review their respective Anti-Fraud Policies on an annual basis, and at such other intervals as it may be considered necessary. These policies also guide in building a framework that will allow them to exchange information with other insurance companies with regard to sharing intelligence on the occurrence of incidents and scenarios of such frauds so that these can be red-flagged within the insurance ecosystem.
Fraud Monitoring Function
Every Insurance company is mandated to have the Fraud Monitoring Function as a separate vertical that shall ensure effective implementation of the anti-fraud policies. They shall be responsible for laying down procedures for internal reporting from/and to various departments, to educate employees, intermediaries and policyholders on identification and prevention of frauds. Further, they must regularly update regulatory authorities on such incidents as well as steps taken to contain such scenarios within a stipulated time. Lastly, they must furnish periodic reports to their respective Boards for review and course correction. Insurers are liable to inform both potential and existing clients about their anti-fraud policies. Insurers include necessary cautions in the insurance contracts and relevant documents, duly highlighting the consequences of submitting a false statement and/or incomplete statement, for the benefit of the policyholder, claimants and their beneficiaries.
Control by means of identifying triggers
Fraudsters have become increasingly innovative. Newer ways of cheating the insurance companies are being used almost every day. One of the ways to control fraud is to identify triggers for early detection. The fraud monitoring function needs to be instrumental in identifying vulnerable and susceptible areas in their customer association to identify triggers to detect fraud. According to a FICCI report common triggers observed to detect frauds are:
- Claim from a policy with only one member at minimum sum insured amount.
- Multiple claims with repeated hospitalization and multiple claims towards the end of the policy period, close proximity of claims.
- Any claims made immediately after a policy sum insured enhancement.
- Claims from a member with the history of frequent change of insurer or gap in the previous insurance policy.
- Policy claims with evidence of significant over/under insurance as compared to the insured’s income/lifestyle.
- Claims from a non-traceable person or where courier/cheque have been returned from insured’s documented address
- The second claim in the same year for an acute medical illness/surgical minor illness/orthopedic minor illness in the same policy period for main claim. Young males between 25-35 years getting admitted for acute medical illness
- Claims from members with no claim free years, i.e. regular claim history
It is the need of the hour to have laws that can provide swift recourse against such frauds. In today’s scenario, stringent laws and strict punishment are required for those guilty of having committed these frauds which will also act as a deterrent for others looking to exploit this industry. Insurance entities continue to curtail fraud, yet a lot needs to be done to make the existing framework more robust and comprehensive. Perpetrators have the creativity to identify ways of subverting the system, so staying ahead needs constant software upgradation and monitoring by seasoned professionals!
Combating the digital fraudster:
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. Fraudulent behaviours are rapidly evolving as fraudsters are becoming more intelligent, proficient and adventurous in the digital space. When fraudulent behaviors and technologies are rapidly evolving – optimizing analytics and building an adaptive analytics strategy is key to success.
Life Insurance Frauds
Anurag Joshua (name changed) received an email from his insurer that a good amount of maturity amount on his insurance policy is due. The concerned person in the mail asks Joshua to deposit some TDS amount before the company transfers the maturity amount. Joshua does it only to discover that it was a hoax. Someone had created a fake email ID to dupe him. There are multiple cases when people produce fake death certificates to receive the life insurance amount.
In Gurugram, fake insurance claim unravels racket-The insurance fraud was discovered by chance, after possibly a few hundred claims, because of an insurance policy that was linked to three others. It was a meticulously planned insurance fraud built on a foundation of data stolen from insurance companies, potentially earnings for its perpetrators hundreds of crores in life insurance claims on around 10,000 fake deaths — but it was discovered by chance, after possibly a few hundred claims, because of an insurance policy that was linked to three others. The lady complained to the police, and the fraud came to light. The gang members used to work 14 hours a day, making calls and sending emails for insurance claims. The gang, the police claimed, opened at least 300 bank accounts in different places in Delhi-NCR. They planned to dupe more than 10,000 families of their insurance money, Physical verification is not mandatory for insurance claims less than Rs.40 lakh. The gang was aware of this. However, they were unaware that the policyholder had multiple linked policies with the same company. As per investigation, a gang of six is behind the fraud, built around stolen insurance data, forged death certificates, hundreds of bank accounts, and fake claims. Police have arrested four of the gang. They have so far recovered at least 250 insurance claim documents from their possession. They believe the gang may have actually claimed money against 150 policies.
In life insurance sector, the equation is quite different, there are mainly four types of Schemes of frauds, Mis-selling of Insurance Policy, which mean selling the Term Plan instead of ULIP and vice versa. This scheme costs 36% of the total frauds in Life Insurance Sector followed by the Fake Documentation Scheme with 33%. India’s life insurers suffer from low persistency rates that see more than one in three policies lapse by the end of the second year. This may be attributed to mis-selling, misrepresentation of material facts, premeditated fabrication and in other cases suppression of facts. Life insurers have been facing fraud that is largely data driven and can be curbed with effective use of data analytics. While seeking customer information, insurers should perform checks against public record databases to ensure they have insights into the validity of personal information. This can be achieved through data mining and validation from various sources. For instance, in the US, frauds are committed through stolen social security numbers or driver’s license numbers, or those of deceased individuals. Data accessed from various sources will help identify if the person in question is using multiple identities or multiple people are using the identity presented. The use of public, private and proprietary databases to obtain information not typically found in an individual’s wallet to create knowledge-based authentication questions which are designed to be answered only by the correct individual can also help reduce fraud significantly.
Auto insurance fraud
Motor Insurance is the biggest and most lucrative sector in General Insurance business followed by Health Insurance Sector. Motor Insurance in India has around 40-45% of total general insurance premium. Fraud rings or groups may fake traffic deaths or stage collisions to make false insurance or exaggerated claims and collect insurance money. The ring may involve insurance claims adjusters and other people who create phony police reports to process claims. A real accident may occur, but the dishonest owner may take the opportunity to incorporate a whole range of previous minor damage to the vehicle into the garage bill associated with the real accident. Personal injuries may also be exaggerated, particularly whiplash. Insurance fraud cases of exaggerated claims can also include claiming damage to the car that is not from the accident reported in the claim While a high repudiation rate (claims that have been written back) does make sense for the insurer, it also erodes customer trust considerably. The insurance industry is looking to strike a balance between identifying (and averting) frauds, and paying out genuine claims while weeding out the spurious ones.
Although healthcare insurance is generally outside the purview of property/casualty insurance, healthcare fraud affects all types of property/casualty insurance coverage that include a medical care component, such as medical payments for auto accident victims or workers injured in the workplace. Fraud and abuse take place at many points in the healthcare system. Doctors, hospitals, nursing homes, diagnostic facilities, medical equipment suppliers and attorneys have been cited in scams to defraud the system. The most prevalent types of healthcare fraud are:
- Billing for services not rendered;
- Upcoding services and medical items (the provider submits a bill using a code that yields a higher payment than for the service or item that was actually rendered);
- Filing duplicate claims;
- Unbundling (billing in a fragmented fashion for tests or procedures that are required to be billed together at reduced cost); and
- Performing excessive services; performing unnecessary services; and offering kickbacks.
Claims fraud is a threat to the viability of the health insurance business. Although health insurers regularly crack down on unscrupulous healthcare providers, fraudsters continually exploit any new loopholes with forged documents purporting to be from leading hospitals. Medical ID theft is one of the most common techniques adopted by fraudsters. Due to this, claim funds are paid into their bank accounts, through identity theft. The insurer’s procedures allows for the policyholder to send a scanned image of his/her cheque, with the bank account details for ID purposes, which is then manipulated by the fraudsters. Besides forged documents, other common sources of fraud come from healthcare providers themselves, with cases of ‘upgrading’ (billing for more expensive treatments than those provided), ‘phantom billing’ and ‘ganging’ (billing for services provided to family members or other individuals accompanying the patient, but not delivered).
Employers who misrepresent their payroll or the type of work carried out by their workers to pay lower premiums are committing workers’ compensation fraud. Some employers also apply for coverage under different names to foil attempts to recover monies owed on previous policies or to avoid detection of their poor claim record. Fraud by medical care providers includes upcoding or billing for procedures that were never performed. Examples of claimant fraud include over-utilizing medical care to keep receiving lost income (indemnity) benefits, exaggeration of symptoms, working while allegedly disabled and not reporting income, claiming a job-related injury that never occurred. or claiming a non-work-related injury as a work-related injury.
Catastrophe-related property fraud
When disasters strike some individuals or groups see an opportunity to file claims that are either exaggerated or completely false. Some even intentionally damage property after a disaster to receive a higher payout. Another example of opportunistic fraud following natural catastrophes is contractor fraud. A handful of states have attempted to protect homeowners from contractor fraud by enacting laws that provide for notices and contract termination rights and prohibiting rebating or other compensation to induce homeowners to sign contracts. In recent years, the increase in billion-dollar weather catastrophes and the propensity of claimants to commit opportunistic fraud has resulted in some insurers turning to forensic meteorologists. These experts can accurately verify weather conditions for an exact location and time, allowing claims adjusters to validate claims and determine whether more than one type of weather element is responsible for damage. Since they use certifiable weather records, their findings are admissible in court.
How Insurers fight frauds
The legal options of an insurance company that suspects fraud are limited. An insurer can inform law enforcement agencies of suspicious claims, withhold payment, and collect evidence for use in a court. Insurers are turning their attention towards big data and analytics solutions to help check fraud, recognize misrepresentation and prevent identity theft. With the government’s recent push to adopt digitization, the Aadhaar card plays a crucial role, linking income tax permanent account numbers (PANs), banks, credit bureaus, telecoms and utilities and providing a unified and centralized data registry that profiles an individual’s economic behaviour. The e-commerce boom provides additional data on financial behaviour. The success of the battle against insurance fraud therefore depends on two elements:
- The level of priority assigned by legislators, regulators, law enforcement agencies and society
- The resources devoted by the insurance industry itself
Most insurers have established special investigation units (SIUs) to help identify and investigate suspicious claims. These units range from small teams, whose primary role is to train claim representatives to deal with the more routine kinds of fraud cases, to teams of trained investigators, including former law enforcement officers, attorneys, accountants and claim experts. More complex cases involving large-scale criminal operations or individuals that repeatedly stage accidents may be turned over to the NICB, which has special expertise in preparing fraud cases for trial and serves as a liaison between the insurance industry and law enforcement agencies.
Additional takeaways from the latest study include:
- Anti-fraud technology is flourishing. The study identified automated red flags (88%), predictive modeling, text mining, reporting capability, case management, exception reporting, and data visualization/link analysis among insurers’ most used anti-fraud technologies.
- Insurers are diversifying their data sources. Beyond relying on their own internal data, insurers are turning to industry fraud-watch lists, public records, third-party data aggregators, social-media data and data from personal devices.
- A picture is worth a thousand data points. Insurers are flocking to photo analysis technology to authenticate claim damage, identify digitally altered images, and index pictures submitted in other claims.
- Investigators are clamoring for more resources. New anti-fraud technology is creating efficiencies in investigative processes, but the resources insurers are dedicating to internal and external investigative teams are insufficient to keep pace with the billions in fraud committed each year. Limited IT resources were the top anti-fraud challenge.
India’s insurance industry has significantly digitised its fraud investigations in the wake of the covid-19 pandemic, a new survey of industry professionals has revealed. Organizations were using digital solutions for investigations, while some are in various stages of planning the transition to digital.
Use of technology to combat fraud
One of the most effective means of combating fraud is the adoption of data technologies that cut the time needed to recognize fraud. Advances in analytical technology are crucial in the fight against fraud to keep pace with sophisticated rings that constantly develop new scams. Traditional approaches, such as using automated red flags and business rules, have been augmented by predictive modeling, and link analysis—which examines the relationships between items like people, places and events. Artificial intelligence can be used, among other tools, to uncover fraud before a payment is made. These newer strategies are employed when claims are first filed. Suspicious claims are flagged for further review, while those with no suspicious elements are processed normally.
In search of refinement, insurers are blending tools to improve their fraud detection programs. Programs that scan insurance claims have been improved by the consolidation of insurance industry claims databases. Systems that identify anomalies in a database can be used to develop algorithms that enable an insurer to automatically stop claim payments. The greatest challenges for insurers are limited IT resources, which affects about three-quarters of insurers. This is followed by problems in data integration. Today, insurance providers are increasingly turning to data analytics to quantify fraud detection and weed out bogus claims more efficiently than ever before. With the help of accurate underwriting, the potential of fraud is being detected faster now. However, for data analytics to successfully identify and eliminate frauds, it is imperative not to repeat the mistakes of the ‘Identify, Analyse, and Recommend’ statistical model that insurance companies used after the fall of claim agents.
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. Insurance fraud is any act committed to defraud an insurance process. It occurs when a claimant attempts to obtain some benefit or advantage they are not entitled to, or when an insurer knowingly denies some benefit that is due. Insurance fraud received little attention until the 1980s, when the rising cost of insurance and organized crime rings’ growing involvement in fraud spurred efforts to pass stronger antifraud laws.
To successfully bring a fraud case to trial, insurers must be able to provide information to prosecutors on individuals suspected of fraud. Immunity laws, which allow insurance companies to report information without fear of criminal or civil prosecution, now exist in all states. However, not all laws cover insurance fraud specifically, nor do all regulations allow information to be reported to law enforcement agencies or to state departments of insurance. Many are limited in other ways, like only providing protection against libel suits or violation of unfair claims practices acts in auto insurance fraud. Some experts believe that immunity laws should be extended to include good faith exchanges of certain kinds of claim-related information among insurance companies.
Categories of frauds
Two categories of fraud exist: hard fraud and soft fraud. Hard fraud occurs when a policyholder deliberately destroys property with the intent of collecting on the insurance policy. A hard fraud occurs when someone deliberately plans or invents a loss such as a theft of a motor vehicle or setting fire to property covered by an insurance policy. Soft fraud, which is more common, occurs when a policyholder exaggerates on an otherwise legitimate claim, or intentionally omits or lies about information on an application to obtain a lower premium. Soft fraud is often considered a crime of opportunity. The most common type of fraud scheme among insurance producers is premium diversion. This occurs when an insurance agent or broker keeps policyholders’ premium payments instead of sending them to the insurance company. Other types of diversion schemes include selling insurance without a license and collecting premiums without paying claims. Fraud affects the lives of innocent people as well as the insurance industry. Insurance fraud has existed ever since the beginning of insurance as a commercial enterprise. It takes many forms and may occur in any areas of insurance. Insurance companies, their intermediaries or those pretending to be either of them may also perpetrate frauds. It is important that fraudulent activities are eliminated from the industry and it is the duty of all stakeholders to do their bit in dealing with insurance fraud. The IRDAI has come across certain instances of fraudulent activities and has issued alerts to the public about them.
Continuous customer evaluation is vital for fraud detection
Consistently assessing existing customers is the key to detecting frauds early. For instance, a major red flag for potential fraud is the address or beneficiary change for new customers. Insurance providers should verify any change in address, considering most customers would be oblivious to the fact that their identities have been stolen. Fraudulent claims account for a significant portion of all claims received by insurers, and cost billions of dollars annually. Types of insurance fraud are diverse and occur in all areas of insurance. Insurance crimes also range in severity, from slightly exaggerating claims to deliberately causing accidents or damage. Fraudulent activities affect the lives of innocent people, both directly through accidental or intentional injury or damage, and indirectly by the crimes leading to higher insurance premiums. Insurance fraud poses a significant problem, and governments and other organizations try to deter such activity. The rising instances of fraudulent claims are a major concern for the insurance industry. Fraud cases cost not only the insurer but, also the honest people as the rates are increased owing to the losses borne by the companies. In a bid to prevent fraudulent claims from going through, insurers are updating their fraud detection capabilities. Fraudulent and dishonest claims are major morale and moral hazard, not only for the insurance industry but even for the entire nation’s economy. Insurance fraud is more common in semi-urban and rural areas where insurers might not have adequate infrastructure for a thorough inspection.
Insurance frauds in the form of inflated or false claims hurt not only the insurance companies, but also their customers or insurance buyers, who have to pay higher premiums as a result. Insurance frauds are typically committed at the time of applications or claims and cost a whopping amount every year to insurance companies. Nearly 70 per cent of these frauds are committed through false documents. According to industry estimates, insurers lose close to 10 per cent of their overall premium collection to frauds. The growing adoption of technologies like artificial intelligence and data analytics are enabling better and faster insurance investigations, which augurs well for the whole industry. Like in most developed insurance markets, it is imperative that data on policies, claims and customers be made available on a shared platform, in real-time. Such a platform can allow for real-time enquiries on customers. It can also facilitate screening of the originator of every proposal. Insurers would contribute policy, claims and distributors’ information to the repository on a regular basis. Such data repositories can provide insights to help insurers detect patterns, identify nexus and track mis-selling. While there is no doubt that the insurance segment is witnessing an unprecedented annual growth, Insurers continue to struggle with loss-leading portfolios and lower insurance penetration among consumers. Insurers are facing increasing pressure to strike the right balance, while ensuring adherence to underwriting and claims decisions in the face of regulatory pressures, growth of digital channels and increasing competition. Adding to this is the need to secure the good risks, while weeding out the bad risks. In the insurance industry, an estimated Rs 250 crore is the fraud losses every year. Of this, the health insurance-related fraud is estimated to be Rs 50 crore. Here the most common frauds are related to exaggerated medical bills presented by a hospital or fake hospital bills presented by a patient. Insurance fraud is the act committed with the purpose to obtain outcome from an insurance process in a fraudulent way. It is a big, unending problem in almost all countries around the world. Such rip-offs cost a whopping amount for these governments. Today everyone is looking out for the best ways to make a quick buck! In the event of expecting quick returns, sometimes it takes the form of gaining through forged insurance claims. According to a recent survey, the number of forged insurance claims accounts to 10-15 % of total claims in India. Insurers are doing everything they can to beat the evil impacts of extortion and headway in innovation could assist with going far in this battle.