Financial frauds are associated with sophisticated urban areas. But when it comes to insurance frauds, rural India has taken the lead due to various reasons. While baby steps like a fraudster database is being taken, such malpractices may not be contained without strict punishments under penal code, says Shilpy Sinha.
If you are from Maharashtra’s Nandurbar or Gujarat’s Mehsana districts, there are fair chances of insurance companies either rejecting your application for a cover under some pretext or the other, or you may end up paying a premium that is higher than the national average.
Insurers have identified at least 80 districts across the country which have excelled in fraudulent claims over the past decade. They have identified rings that operate with the efficiency of a corporation with well-trained men and women who collect data with the efficiency of a 21st century start-up.
A combination of poor due diligence in writing policies by insurance companies and the organisational efficiencies of criminals in identifying those who are on deathbed and in enlisting doctors to produce fake certificates led to frauds which are estimated to have cost over Rs 10,000 crore annually to the industry.
Lessons of the past decade are leading the industry to come together to form a data centre of fraudsters and their methods, which would function like the credit bureau which is tapped into by banks to know the customer’s financial history. Insurers are also investing money and human resources to enhance their abilities to detect fraud.
“To handle the fraud cases, we have set up a dedicated department by the name of — Risk & Loss Mitigation,” said Mukesh Kumar, executive director, HDFC Ergo General Insurance. “This department has a fraud control unit to carry out field investigations and one fraud analytics unit to trigger suspected case to FCU.”
Frauds are of different varieties and they mostly take place in rural and semi-urban areas where insurers do not have proper infrastructure to inspect or for that matter the local authorities, who are supposed to certify events, are corrupt.
Organised fraudsters identify people who are terminally ill and buy insurance on their behalf and share the booty with the family members. There is a nexus between fraudsters, doctors, lawyers and village-level administrators.
Accident claims have been a curse for general insurers. Uttar Pradesh has been notorious for fake claims. In many cases, those who died of natural causes were filed as road accident victims causing enormous losses to insurers.
ICICI Lombard launched an investigation when it was flooded with disproportionate road accident claims from UP. After getting a handle on a few false claims, it managed to file 30 complaints with the police after the Lucknow High Court ordered special investigation into the cases.
“The moment arrests happened, claim intimation from Uttar Pradesh halved,” said Lokanath Kar, chief legal and compliance officer, ICICI Lombard. “We came to the conclusion that manipulation was apparent when claims were not in proportion to distribution.” Monthly claims fell to 70 from as high as 130 prior to that.
Bajaj Allianz General Insurance recently stumbled upon a ring when it started probing a customer of suspected fraud. The company got suspicious when Nilesh Kumar from Mira Road applied for a claim of Rs 55,000 for treating fever.
Since it was over-the-top, Bajaj Allianz smelt something was amiss and employed 100 of its staff to investigate, which included former policemen, doctors and lawyers. Kumar admitted to have filed such claims with at least 11 other insurers aggregating Rs 10 lakh.
What it found was the organisation behind it with reams of letterheads, rubber stamps, and other stationary items of various hospitals along with 7 PAN cards with different names and 11 credit cards at his office in Bhayander.
HDFC Ergo, a joint venture between HDFC and German insurer Ergo, bust a nexus and got 13 persons arrested by Delhi police in the capital, Meerut and Noida. A bunch of criminals had set up a call centre and started selling policies on behalf of HDFC Ergo and pocketed the premium.
The company was alarmed to receive claims for ‘highway assist’ policies covering roadside assistance on highways it never sold.
“We got in touch with the cyber police branch and exposed the fraud,” said Kumar. “Following this, a police complaint was filed with adequate evidence gathered through field investigations carried out internally.”
Every year, the general insurance industry pays around Rs 70,000 crore in claims mostly towards motor, health and marine cases.
“If frauds reduce, claim ratio improves, it makes a case for lower premium,” said R Chandrasekaran, Secretary General, General Insurance Council, an umbrella body of general insurance companies. “In our estimate, 10-12% of claims are fraudulent or suspected cases.”
Almost 85-90% of life insurance frauds are in the sum assured bracket of Rs 1 lakh to Rs 10 lakh, and the bulk of it is from customers in villages. The industry has been seeing early claims under the insurance scheme Pradhan Mantri Jeevan Jyoti Yojana, where Rs 2-lakh cover is available at a small premium of Rs 330 a year.
“Most frauds are by way of insurance taken on dead people, and through manipulated Anganwadi records,” said Ganesh Iyer, head of the Association of Insurance Claims Management, a body to look into ways of claims management.
“There are quite a few cases where the gram panchayat issued death certificates without doing much due diligence. The industry is facing frauds from nonexisting individuals or already dead individuals in villages.”
NEED FOR LAW
The absence of strict punishment or a jail term, like for criminal activities, is yet another hindrance in curbing frauds. Even if individuals are blacklisted, many find ways to relocate to a different region and operate with different bunch of people.
“There is need for a law to stop this menace,” says Iyer.
Furthermore, there is a need to amend some laws that give access to insurers. There is a law enacted before insurance was privatised which directs hospitals to share information only with the Life Insurance Corp of India.
Life insurance companies are drawing up a list of corrupt investigators, dicey regions with the help of credit bureau— Experian. Similarly, General Insurance Council is creating a database of proven fraud cases and suspected frauds with the help of Lexis Nexis.
A beginning has been made with the creation of the database. Deterrents either in the form of scrutinising policies at entry level or using analytics, forensics, credit bureaus, courts should be used to insure cover against frauds. But as the UP case shows, there is no better cure than strict punishments, which needs a tough law.