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PROJECT REPORT ON FRAUDS IN INSURANCE

BACHELOR OF COMMERCE
BANKING & INSURANCE
SEMESTER VI
ACEDEMIC YEAR 2015-16
SUBMITTED
IN PARTIAL FULFILLMENT OF THE
REQUIREMENTS FOR THE AWARD OF DEGREE
OF BACHELOR OF COMMERCE
BANKING & INSURANCE
BY
MR. SIDDHARTH GOYAL
UNDER THE GUIDANCE OF : DR.AMIT PRAJAPATI
SEAT No. 16
JAI HIND COLLEGE
A ROAD, CHURCHGATE, MUMBAI 400 020

DECLARATION

I ,MR. SIDDHARTH GOYAL , student of B. Com. (BANKING


& INSURANCE) Semester VI (2015-16) hereby declare that I
have completed the Project on A PROJECT REPORT ON
FRAUDS IN INSURANCE

The information submitted is true & original to the best of my


knowledge.

Signature
MR.SIDDHARTH GOYAL
SEAT NO.

JAI HIND COLLEGE


A ROAD, CHURCHGATE, MUMBAI - 400 020.

CERTIFICATE
This is to certify that SIDDHARTH GOYAL of B.Com.
BANKING & INSURANCE Semester VI(2015-16) has
successfully completed the project on A REPORT ON
FRAUDS IN INSURANCE under the guidance of DR.AMIT
PRAJAPATI.

Course Cordinator

Internal Examiner

Principal

External Examiner

College Seal

ACKNOWLEDGEMENT

Interdependence
Interdependence is something, which is very essential in
todays world for competition of any task. This is also being
completed by the joint effort of so many people, so I wish to pay
my gratitude to all those people who have directly or indirectly
contributed towards the completion of this project. First of all, I
owe my gratitude to all might GOD and my parents because of
whom I am able to complete this project successfully. I am
deeply indebted and grateful to Miss. Savita (Business
Associate) who granted the permission to do this project, this
project has successfully taken place.

1.

INTRODUCTION

What Is Insurance?
Insurance is a form of risk management in which the insured transfers the cost of
potential loss to another entity in exchange for monetary compensation known as the
premium.

Insurance allows individuals, businesses and other entities to protect themselves


against significant potential losses and financial hardship at a reasonably affordable
rate. We say "significant" because if the potential loss is small, then it doesn't make
sense to pay a premium to protect against the loss. After all, you would not pay a
monthly premium to protect against a $50 loss because this would not be considered a
financial hardship for most.
Insurance is appropriate when you want to protect against a significant monetary loss.
Take life insurance as an example. If you are the primary breadwinner in your home,
the loss of income that your family would experience as a result of our premature
death is considered a significant loss and hardship that you should protect them
against. It would be very difficult for your family to replace your income, so the
monthly premiums ensure that if you die, your income will be replaced by the insured
amount. The same principle applies to many other forms of insurance. If the potential
loss will have a detrimental effect on the person or entity, insurance makes sense.
Everyone that wants to protect themselves or someone else against financial hardship
should consider insurance. This may include:

Protecting family after one's death from loss of income

Ensuring debt repayment after death

Covering contingent liability

Protecting against the death of a key employee or person in your business

Buying out a partner or co-shareholder after his or her death

Protecting your business from business interruption and loss of income

Protecting yourself against unforeseeable health expenses

Protecting your home against theft, fire, flood and other hazards

Protecting yourself against lawsuits

Protecting yourself in the event of disability

Protecting your car against theft or losses incurred because of accidents

And many more

Insurance works by pooling risk. What does this mean? It simply means that a large
group of people who want to insure against a particular loss pay their premiums into
what we will call the insurance bucket, or pool. Because the number of insured
individuals is so large, insurance companies can use statistical analysis to project what
their actual losses will be within the given class. They know that not all insured
individuals will suffer losses at the same time or at all. This allows the insurance
companies to operate profitably and at the same time pay for claims that may arise.
For instance, most people have auto insurance but only a few actually get into an
accident. You pay for the probability of the loss and for the protection that you will be
paid for losses in the event they occur.
Risks
Life is full of risks- some are preventable or can at least be minimized, some are
avoidable and some are completely unforeseeable. What's important to know about
risk when thinking about insurance is the type of risk, the effect of that risk, the cost
of the risk and what you can do to mitigate the risk. Let's take the example of driving
a
car.
Type of risk: Bodily injury, total loss of vehicle, having to fix your car.
The effect: Spending time in the hospital, having to rent a car and having to make car
payments for a car that no longer exists.
The costs: Can range from small to very large.
Mitigating risk:
Not driving at all (risk avoidance), becoming a safe driver (you still have to contend
with other drivers), or transferring the risk to someone else (insurance).
Let's explore this concept of risk management (or mitigation) principles a little deeper

and look at how you may apply them. The basic risk management tools indicate that
risks that could bring financial losses and whose severity cannot be reduced should be
transferred. You should also consider the relationship between the cost of risk transfer
and
the
value
of
transferring
that
risk.
Risk control:
There are two ways that risks can be controlled. You can avoid the risk altogether, or
you can choose to reduce your risk.
Risk Financing:
If you decide to retain your risk exposures, then you can either transfer that risk (ie.to
an insurance company), or you retain that risk either voluntarily (ie.you identify and
accept the risk) or involuntarily (you identify the risk, but no insurance is available).
Risk Sharing:
Finally, you may also decide to share risk. For example, a business owner may decide
that while he is willing to assume the risk of a new venture, he may want to share the
risk with other owners by incorporating his business.
So back to our driving example. If you could get rid of the risk altogether, there would
be no need for insurance. The only way this might happen in this case would be to
avoid driving altogether. Also, if the cost of the loss or the effect of the loss is
reasonable
to
you,
then
you
may
not
need
insurance.
For risks that involve a high severity of loss and a low frequency of loss, then risk
transference (ie. insurance) is probably the most appropriate protection technique.
Insurance is appropriate if the loss will cause you or your loved ones a significant
financial loss or inconvenience. Do keep in mind that in some instances, you are
required to purchase insurance (i.e. if operating a motor vehicle). For risks that are of
low loss severity but high loss frequency, the most suitable method is either retention
or reduction because the cost to transfer (or insure) the risk might be costly. In other
words, some damages are so inexpensive that it's worth taking the risk of having to
pay for them yourself, rather than forking extra money over to the insurance company
each month.
The Risk Management Process
After you have determined that you would like to insure against a loss, the next step is
to seek out insurance coverage. Here you have many options available to you but it's
always best to shop around. You can go directly to the insurer through an agent, who
can bind the policy. The process of binding a policy is simply a written
acknowledgement identifying the main components of your insurance contract. It is
intended to provide temporary insurance protection to the consumer pending a formal
policy being issued by the insurance company. It should be noted that agents work
exclusively for the insurance company. There are two types of agents:
1. Captive Agents: Captive agents represent a single insurance company and are
required to only do business with that one company.

2. Independent Agent: Independent agents represent multiple companies and


work on behalf of the client (not the insurance company) to find the most
appropriate policy.
Underwriting
Underwriting is the process of evaluating the risk to be insured. This is done by the
insurer when determining how likely it is that the loss will occur, how much the loss
could be and then using this information to determine how much you should pay to
insure against the risk. The underwriting process will enable the insurer to determine
what applicants meet their approval standards. For example, an insurance company
might only accept applicants that they estimate will have actual loss experiences that
are comparable to the expected loss experience factored into the company's premium
fees. Depending on the type of insurance product you are buying, the underwriting
process may examine your health records, driving history, insurable interest etc.
The concept of "insurable interest" stems from the idea that insurance is meant to
protect and compensate for losses for an individual or individuals who may be
adversely affected by a specific loss. Insurance is not meant to be a profit center for
the policy's beneficiary. People are considered to have an insurable interest on their
lives, the life of their spouses (possibly domestic partners) and dependents. Business
partners may also have an insurable interest on each other and businesses can have an
insurable interest in the lives of their employees, especially any key employees.
Insurance Contract
The insurance contract is a legal document that spells out the coverage, features,
conditions and limitations of an insurance policy. It is critical that you read the
contract and ask questions if you don't understand the coverage. You don't want to pay
for the insurance and then find out that what you thought was covered isn't included.
Bound: Once the insurance has been accepted and is in place, it is called "bound".
The
process
of
being
bound
is
called
the
binding
process.
Insurer: A person or company that accepts the risk of loss and compensates the
insured in the event of loss in exchange for a premium or payment. This is usually an
insurance
company.
Insured: The person or company transferring the risk of loss to a third party through a
contractual agreement (insurance policy). This is the person or entity who will be
compensated for loss by an insurer under the terms of the insurance contract.
Insurance Rider/Endorsement: An attachment to an insurance policy that alters the
policy's coverage or terms.
Insurance Umbrella Policy: When insurance coverage is insufficient, an umbrella
policy may be purchased to cover losses above the limit of an underlying policy or
policies, such as homeowners and auto insurance. While it applies to losses over the
dollar amount in the underlying policies, terms of coverage are sometimes broader
than
those
of
underlying
policies.
Insurable Interest: In order to insure something or someone, the insured must

provide proof that the loss will have a genuine economic impact in the event the loss
occurs. Without an insurable interest, insurers will not cover the loss. It is worth
noting that for property insurance policies, an insurable interest must exist during the
underwriting process and at the time of loss. However, unlike with property insurance,
with life insurance an insurable interest must exist at the time of purchase only.

2. TYPES OF INSURANCE

Insurance is a way of protecting yourself from any costs that may arise
from damage to your property or your health.
Insurance works when you agree to transfer risk by paying specified amounts of
money, called premiums. A premium is the amount of money you pay to an insurance
company to have an insurance policy. These premiums create a pool of money that
guarantees the person holding the policy will be compensated for losses caused by
occurrences such as fire, accident, illness, or death. Insurance companies decide what
the risk is on a particular policy and then charge the appropriate premium. You can
pay a premium monthly or annually.
Insurance policies are generally renewed annually so you should shop around at this
stage to see if you are getting the best value for your money.
Different policies have different terms and conditions so make sure you know what
the terms and conditions of your policy are. It is important to understand exactly what
your insurance policy covers when you buy it.
Home insurance
Home insurance will generally pay for any damage caused to your home by accident
or by bad weather.You are not obliged by law to insure your home but if you have a
mortgage, most lenders will insist that your house is appropriately insured. In general
your home should be insured for damage to contents and for damage to the structure
of your home
Mortgage protection insurance
When taking out a mortgage, you need to consider how it will be paid off in the event
of your death. You may also consider how to continue repayments if your income
falls, due to illness, unemployment or other reasons.
Motor insurance
It is a criminal offence for drivers to drive uninsured on public roads in Ireland
Health insurance
Health insurance is used to pay for private care in hospital or from various health
professionals in hospitals or in their practices. There are a number of health insurers
in Ireland.
Travel insurance
Travel insurance can cover you if you become ill or have an accident while you are on
holidays or travelling. If you are travelling within the EU/EEA you should have a
European health insurance card which allows you to access health care services. In
general travel insurance should supplement the services available to people with a
European Health Insurance Card

Life insurance
A life insurance policy provides money for defendants if you
die. Life insurance policies are important if you have
dependents such as a partner or children.

3. PRINCIPLES OF INSURANCE
The main objective of every insurance contract is to give financial security and
protection to the insured from any future uncertainties. Insured must never ever try to
misuse this safe financial cover.

Seeking profit opportunities by reporting false occurrences violates the terms and
conditions of an insurance contract. This breaks trust, results in breaching of a
contract and invites legal penalties.

An insurer must always investigate any doubtable insurance claims. It is also a duty of
the insurer to accept and approve all genuine insurance claims made, as early as
possible without any further delays and annoying hindrances.

1. Principle of Utmost Good Faith


Principle of Uberrimae fidei (a Latin phrase), or in simple english words, the
Principle of Utmost Good Faith, is a very basic and first primary principle of
insurance. According to this principle, the insurance contract must be signed by both
parties (i.e insurer and insured) in an absolute good faith or belief or trust.
The person getting insured must willingly disclose and surrender to the insurer his
complete true information regarding the subject matter of insurance. The insurer's
liability gets void (i.e legally revoked or cancelled) if any facts, about the subject
matter of insurance are either omitted, hidden, falsified or presented in a wrong
manner by the insured.
2. Principle of Insurable Interest
The principle of insurable interest states that the person getting insured must have
insurable interest in the object of insurance. A person has an insurable interest when
the physical existence of the insured object gives him some gain but its non-existence
will give him a loss. In simple words, the insured person must suffer some financial
loss by the damage of the insured object.
For example :- The owner of a taxicab has insurable interest in the taxicab because he
is getting income from it. But, if he sells it, he will not have an insurable interest left
in that taxicab.
3. Principle of Indemnity
Indemnity means security, protection and compensation given against damage, loss or
injury.
According to the principle of indemnity, an insurance contract is signed only for
getting protection against unpredicted financial losses arising due to future
uncertainties. Insurance contract is not made for making profit else its sole purpose is
to give compensation in case of any damage or loss.
In an insurance contract, the amount of compensations paid is in proportion to the
incurred losses. The amount of compensations is limited to the amount assured or the
actual losses, whichever is less. The compensation must not be less or more than the
actual damage. Compensation is not paid if the specified loss does not happen due to a
particular reason during a specific time period. Thus, insurance is only for giving
protection against losses and not for making profit.
However, in case of life insurance, the principle of indemnity does not apply because
the value of human life cannot be measured in terms of money
4. Principle of Contribution
Principle of Contribution is a corollary of the principle of indemnity. It applies to all
contracts of indemnity, if the insured has taken out more than one policy on the same

subject matter. According to this principle, the insured can claim the compensation
only to the extent of actual loss either from all insurers or from any one insurer. If one
insurer pays full compensation then that insurer can claim proportionate claim from
the other insurers.
For example :- Mr. John insures his property worth $ 100,000 with two insurers
"AIG Ltd." for $ 90,000 and "MetLife Ltd." for $ 60,000. John's actual property
destroyed is worth $ 60,000, then Mr. John can claim the full loss of $ 60,000 either
from AIG Ltd. or MetLife Ltd., or he can claim $ 36,000 from AIG Ltd. and $ 24,000
from Metlife Ltd.
So, if the insured claims full amount of compensation from one insurer then he cannot
claim the same compensation from other insurer and make a profit. Secondly, if one
insurance company pays the full compensation then it can recover the proportionate
contribution from the other insurance company
5. Principle of Subrogation
Subrogation means substituting one creditor for another.
Principle of Subrogation is an extension and another corollary of the principle of
indemnity. It also applies to all contracts of indemnity.
According to the principle of subrogation, when the insured is compensated for the
losses due to damage to his insured property, then the ownership right of such
property shifts to the insurer.
This principle is applicable only when the damaged property has any value after the
event causing the damage. The insurer can benefit out of subrogation rights only to
the extent of the amount he has paid to the insured as compensation.
For example :- Mr. John insures his house for $ 1 million. The house is totally
destroyed by the negligence of his neighbour Mr.Tom. The insurance company shall
settle the claim of Mr. John for $ 1 million. At the same time, it can file a law suit
against Mr.Tom for $ 1.2 million, the market value of the house. If insurance company
wins the case and collects $ 1.2 million from Mr. Tom, then the insurance company
will retain $ 1 million (which it has already paid to Mr. John) plus other expenses
such as court fees. The balance amount, if any will be given to Mr. John, the insured.
6. Principle of Loss Minimization
According to the Principle of Loss Minimization, insured must always try his level
best to minimize the loss of his insured property, in case of uncertain events like a fire
outbreak or blast, etc. The insured must take all possible measures and necessary steps
to control and reduce the losses in such a scenario. The insured must not neglect and
behave irresponsibly during such events just because the property is insured. Hence it

is a responsibility of the insured to protect his insured property and avoid further
losses.
For example :- Assume, Mr. John's house is set on fire due to an electric short-circuit.
In this tragic scenario, Mr. John must try his level best to stop fire by all possible
means, like first calling nearest fire department office, asking neighbours for
emergency fire extinguishers, etc. He must not remain inactive and watch his house
burning hoping, "Why should I worry? I've insured my house."
7. Principle of Causa Proxima (Nearest Cause)
Principle of Causa Proxima (a Latin phrase), or in simple english words, the Principle
of Proximate (i.e Nearest) Cause, means when a loss is caused by more than one
causes, the proximate or the nearest or the closest cause should be taken into
consideration to decide the liability of the insurer.
The principle states that to find out whether the insurer is liable for the loss or not, the
proximate (closest) and not the remote (farest) must be looked into.
For example :- A cargo ship's base was punctured due to rats and so sea water entered
and cargo was damaged. Here there are two causes for the damage of the cargo ship (i) The cargo ship getting punctured beacuse of rats, and (ii) The sea water entering
ship through puncture. The risk of sea water is insured but the first cause is not. The
nearest cause of damage is sea water which is insured and therefore the insurer must
pay the compensation.
However, in case of life insurance, the principle of Causa Proxima does not apply.
Whatever may be the reason of death (whether a natural death or an unnatural death)
the insurer is liable to pay the amount of insurance.

4.

INSURANCE FRAUDS

MEANING
Insurance fraud is any act committed with the intent to fraudulently obtain payment
from an insurer.
Insurance fraud has existed ever since the beginning of insurance as a commercial
enterprise. Fraudulent claims account for a significant portion of all claims received
by insurers and cost billions of dollars annually. Types of insurance trades are very
diverse and occur in all areas of insurance. Insurance crimes also range severity,
from slightly exaggerating claims to deliberately causing accidents or damage.
Fraudulent activities many times affect the lives of innocent people, both directly
through accidental or purposeful injury or damage and indirectly as their crimes
cause insurance premium to be higher. Investment fraud pose a very significant
problem and government and other organization are making efforts to do defer such
activities.

5. CAUSES OF INSURANCE FRAUDS

The chief motive in all insurance crimes is financial profit.


Many times it is observed that false insurance claims can be made to appear
like ordinary claims. This allows fraudster to file claims for damages that
never occurred and so obtain payment with little or no initial cost.
To attract maximum customers towards the insurer than competitors.
With intention, of concealing true information w.r.t. age, disease, etc.

6. TYPES OF INSURANCE FRAUDS


Many times insurance frauds exist from scamming whether it is auto insurance, life
property. All types of insurance frauds divided into:

Hard Fraud
Soft Fraud
Automobile Insurance Fraud
Life Insurance Fraud
Health Insurance Fraud
Property Insurance Fraud
Internal Fraud
External Fraud

Hard Fraud:
Hard fraud includes someone staging a car accident, injury, arson, loss, break-in or
someone writing false bills to Medicare to illegally receive money from their

insurance company. This type of frauds often receives more media attention and it is
easier to detect. Hard fraud often involves criminal activities of insurance company.
But, an individual can also be found guilty of hard fraud.
Soft Fraud:
It happens when a person pads their insurance claims by telling White lies, such as,
they are feeling, too ill to come to work, so they can receive workers compensation
benefits that they wouldnt have otherwise. This is more difficult to detect.
Automobile Insurance Fraud:
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.
Life Insurance Fraud:
Life insurance fraud may involve faking death to claim life insurance. Fraudsters may
sometimes turn up a few years after disappearing, claiming a loss of memory. Another
example is former British Government minister John Stonehouse who went missing in
1974 from a beach in Miami. He was discovered living under an assumed name in
Australia, extradited to Britain and jailed for seven years for fraud, theft and forgery.
Health Insurance Fraud:
Health insurance fraud is described as an intentional act of deceiving, concealing, or
misrepresenting information that results in health care benefits being paid to an
individual or group. Fraud can be committed by both a member and a provider.
Member fraud consists of ineligible members and/or dependents, alterations on
enrollment forms, concealing pre-existing conditions, failure to report other coverage,
prescription drug fraud, and failure to disclose claims that were a result of a work
related injury. Independent medical examinations are used to debunk false insurance
claims and allow the insurance company or claimant to seek a non-partial medical
view for injury related cases.
Property Insurance Fraud:
Possible motivations for this can include obtaining payment that is worth more than
the value of the property destroyed, or to destroy and subsequently receive payment
for goods that could not otherwise be sold. According to Alfred Manes, the majority
of property insurance crimes involve arson.
Internal Fraud:
There are those perpetrated against insurance companies or its policyholders by
agents, managers, executives or other employees.

External Fraud:
There are direct against insurance by individuals or entities as divers an policy holders
provides, beneficiaries, vendors, etc.

AUTOMOBILE INSURANCE FRAUDS:


Insurance fraud w.r.t. Automobiles is widespread, automobiles are supposed to be
insured everywhere. There are numerous types to automobile fraud claims such as:

Filing a false theft report


Filing a false injury report
Filing a false accident report
Filing a false damage report
Filing a claim that the automobile was wrecked.

In additions to individuals i.e. policyholders, the automobile frauds can be committed


by insurance adjusters repair shops, dealership and other co conspirators

LIFE INSURANCE FRAUDS:


Life insurance fraud is very specific. It refers to act of international deception on the
part of those selling life insurance. Following are the ways through which fraudsters
commit frauds in life insurance:
Some life Insurance fraud is committed by people buying insurance or who
already possess it. The m
Common kind is making deliberate misstatements on applications for
insurance.
It is observed that many times the information provides by the policy holder
are fake or incomplete whit the information of hiding truth. E.g. existing
disease, age factor hereditary problems etc.

Many times, the police holders have faked death so that family members can
claim policies.
Few doctors can get involved in life insurance fraud by acting as medical
examiners that certify the health of people applying. Whit the person seeking
health insurance, they deliberately information on medical exams.
Vertical frauds: In this agents recruit people whit terminal illnesses to buy
numerous policies, all of which will have an annuity. The person gets some
money to make it to the end of his or life, but the majority of the funds will
end up in the pockets of third-party investors sifter the person s death.

Health insurance fraud:


Fraudulent behavior designed to solicit money which a person or groups is not
entitled is called as health insurance funds involving, in this are perpetuated by verity
of sources , including health insurance companies ,insurance brokers, unscrupulous
doctors ,allied health professionals, medical institution and patients.
Following are the few examples to commits frauds:
Falsification of information on forms.
Filling of false claims, claims treatments for patients that never occurred.
Filling of prescription under patients names and then sell them in the black
market.
Diagnose diseases that not exists and order unnecessary testing,
Frauds are committed by health insurance companies also such as:
Companies are not paying on legitimate claims.
Some companies may intentionally deny payment in the hopes that
claimants will not protest the treatment.
Selling insurance in a state in which a company is not licensed to
operate is fraud too.

Property insurance fraud:


This is a wider area of insurance frauds different losses i.e. fire, marine, burglary,
theft, accidents w.r.t. property are utilized to commit fraud by fraudsters. Possible
areas include
Obtaining payment that is worth more than the value of the property destroyed
or to destroy and subsequently receive payment for goods that could not
otherwise be sold.
Concealing of the information by the insurance company at the time of
insurance contract.
Payment of exorbitant commission to the agents for heavy sales and
advertisement of the policies by the insurance companies.
Intentionally damaging the property and asking for insurance claim by the
policy holders.

Internal Frauds:
There are those perpetrated against insurance companies or its policyholders by
agents, managers, executives or other insurance employees.
It includes:
I.
II.
III.

Fake /False Documents: Agents or insurer issuing fake policies,


certificates, insurance identifications cards or binders.
False Statement: Agents or insurer making false statement on a filling
with the department and insurance.
Pocketing Premiums: Agents or insurer pocketing premiums, then
issuing a fairy policy or none at all.

EXTERNAL FRAUD:
There are direct against insurance by individuals or entities as diverse as policy
holders medical provides, beneficiaries vendors, etc.
It includes:
Arson-for profit:
An owner or someone hires the vehicle to collect insurance money.
Disaster fraud :

Unscrupulous operations persuade disaster fraud victims to claim more damages than
actually occurred, or they collect money to repair damages property but never
complete the work.
Creating a fraudulent claim:
It may include:
A.
B.
C.
D.
E.

Staged or caused auto accidents.


Staged slip and fall accidents.
False claim of foreign object in food or rink.
Taking a dearth to collect benefits.
Murder-for profit etc.

Exaggerated claims [overstating the amount of loss] :


The most common examples are:
A.
B.
C.
D.

Inflating bodily injuries from auto accidents.


Inflating value of items taken during a bulglary or theft.
Inflating a physical billing damage claim form a minor tender bender.
Medical providers inflating billing or upcoming of medical procedures to
name a few :

Falsifying a theft reports:


A property owner falsely reports items stolen or exaggerates the values of items taken
in a burglary to collect insurance money.
Medical fraud:
Unethical medical; practitioners or providers work in concert with scheming patient,
to create fictitious, accident related injuries to collect or fraudulently disability
workers compensation and personal injury claims. There provides usually work
through middlemen who recruit patients for their scams. The doctors often bull
insurers for multiple office visiting and which never take place.
Misrepresenting facts to receive payment:
Claiming prior damage occurred in the current accident claiming a injury created a
partial or total disability elsewhere conducting the same or some or work, duties etc.

7. THE IMPACT OF INSURANCE FRAUD


Many states have enacted victims rights laws that allow victims to make a
statement in court either during a trial or at sentencing. All victims of insurance fraud

are encouraged to take advantage of this opportunity to spread the word to judges,
juries and others in the courtroom including the news media about the nature
and severity of this crime. Below are facts and figures that can be woven into a
personal statement of how fraud has affected you and/or your company. Insurance
fraud is a major crime that imposes significant financial and personal costs on
individuals, businesses, government and society as a whole. Fraud is widespread and
growing. Insurance swindles victimize people
from virtually every race, income, age,
education level and region of the U.S.
At one level, insurance fraud is an economic
crime costing individuals, business and
government billions of dollars a year. But fraud
also is a violent crime that can involve murder,
personal injury and serious property damage.
Insurance fraud also imposes other personal
costs such as disrupted lives and families,
humiliation and depression, lost jobs and
bankruptcy.
Overall financial cost
Nearly $80 billion in fraudulent claims are made annually in the U.S., the Coalition
Against Insurance Fraud estimates. This figure includes all lines of insurance. Its also
a conservative figure because much insurance fraud goes undetected and unreported.
Higher insurance premiums
Fraud contributes to higher insurance premiums because insurance companies
generally must pass the costs of bogus claims and of fighting fraud onto
policyholders. This contributes to a premium spiral that can price essential insurance
coverage, often required by state law, beyond the reach of many consumers and
businesses. For example:
Auto insurance: False injury claims involving deliberately staged car accidents, for
example, are a major reason auto insurance premiums in New York, Florida and New
Jersey are among the nations highest.
Workers compensation: Workers compensation premiums are rapidly rising
rapidly, in part because of fake injury claims by employees and fraud by some
employers to lower their premiums. Many smaller businesses, especially, report that
workers compensation insurance is increasingly unaffordable.
Rising cost of goods & services
Businesses must pass the cost of rising insurance premiums onto their customers by
raising prices for goods and services. Many larger corporations also spend millions of
dollars a year for investigation and fraud-prevention programs that aim. This cost also
is reflected in higher prices of products and services.

Jeopardize health, lives and property


Peoples health, lives and property are often endangered by insurance fraud schemes.
Here are several examples:
Staged auto accidents: Innocent motorists lives are jeopardized when they are
maneuvered into car crashes staged by crime rings to collect large payouts from auto
insurers. One family of three was burned to death when a staged accident went awry
after their car was hit by two large trucks at high speeds on a California freeway.
Murder for life insurance: A common life-insurance scheme involves murdering a
spouse, relative or business associate to collect on the victims life insurance policy,
which often is worth $100,000 or more.
Health insurance swindles: The safety of people is jeopardized when they
unknowingly buy fake health insurance. In addition to having their premium money
stolen, policyholders needing chemotherapy and organ transplants have had to pay for
life-saving medical treatment themselves when they discovered their insurance was
fake.In other health schemes, medical providers often perform potentially dangerous
and unneeded surgery on healthy people solely to increase their insurance billings. In
many cases, the victims are elderly, poor and homeless.
Arson: Homes and businesses often are burned down for insurance money. The
lives of firefighters, family members and nearby residents also are placed at risk.
Numerous people have died or been seriously injured in arson-for-profit fires. Also,
the property damage is often magnified because arson fires frequently spread to
nearby dwellings.
Lost personal income, savings
Many insurance fraud schemes steal money directly from policyholders. The varied
schemes can cost people from a few dollars to their entire life savings. Here are
several examples:
Phony health coverage: Several hundred thousand people, for example, have
unknowingly purchased phony health coverage. They lost the premium money they
paid, but many also faced catastrophic losses when they became ill and had to pay
large medical bills themselves because their policy was worthless. Some people
incurred hundreds of thousands of dollars in personal debt.
Fraudulent viaticals: Thousands of people also have lost money to viaticals, a
quasi-insurance product where people invest in the life-insurance policies of dying
people. Viaticals can be legitimate, but many people have lost large investments in
fraudulent viaticals. Some have lost their life savings.
Dishonest agents: Dishonest insurance agents will pocket client insurance premium
checks themselves, leaving the clients dangerously uncovered. Dishonest insurance
agents also increase a policyholders premiums by secretly adding unwanted coverage
to clients policies. Agents often target the elderly with these swindles.

Ruined credit
Many seriously ill people who purchased phony health insurance found their credit
ruined when they couldnt pay large medical bills after their policy refused to pay.
Lost jobs
Some fraud schemes can cost people their jobs. Convicted swindler Martin Frankel
gained control of a small life insurance company called Franklin American and
secretly siphoned the companys assets into his own accounts. This sent the company
into bankruptcy, costing hundreds of employees their jobs.
Diverts government resources
Fighting insurance fraud is a major expense for federal, state and local governments.
This dilutes the nations overall anti-crime efforts by diverting often-limited
government resources needed to fight other crimes. Here are several examples of this:
State fraud bureaus: States conduct extensive anti-fraud programs, funded by
taxpayers and insurance companies. Most states, for example, have insurance fraud
agencies that investigate suspected swindles and refer cases for potential prosecution.
Police and other law enforcement: State, local and federal law enforcement all are
involved in investigating insurance-fraud cases, often jointly.
Prosecutions: Taxpayer funded prosecutors devote considerable time and resources
to pursuing fraud cases in court, many of which are complex and require extensive
time to build viable cases.
Federal government: The federal government annually allocates several billion
dollars to fighting fraud in Medicare and Medicaid, the respective public health
insurance programs for the elderly and poor.

Personal costs
Insurance fraud also can impose large personal costs on its victims. Many victims feel
embarrassed, humiliated and even violated. Often their lives and families also are
disrupted for long periods of time. Many must recover from serious financial losses or
fraud-related physical injuries. Victims also may have to recover or replace property
that was stolen, damaged or destroyed by schemes. Many victims also must spend
considerable assisting law enforcement and prosecutors as material witnesses.
Diverts from essential services
Federal and state government fraud-fighting efforts costs taxpayers billions of dollars
a year, thus diverting scarce tax money from other essential public services. Fraud

against taxpayer-funded health programs such as Medicare and Medicaid diverts that
money from meeting the health needs of Americas the elderly and poor.

8. MEASURES TO PREVENT INSURANCE FRAUDS


It is necessary to adopt proper fraud prevention programs me to control the rising
insurance frauds:
General measures:
Role of the government:
Government should take lead in prevention of fraudulent activities in the main
important sector of insurance, strict actions must be taken against the fraudsters
Awareness among the consumers:
Through proper training programs, street plays, consumer fares the awareness can be
created w.r.t. understanding of fraudulent areas in insurance and necessary actions
towards it.
Strengthening of low:
Fraud is a crime. The low and administration must be strengthened to take strict and
quick action against fraudsters. This will help to decline the no. of fraudulent cases in
future.

Role of media:
Media can play important role in spreading of awareness and knowledge w.r.t. fraud
prevention programs through newspaper, magazine, t. v. radio, information for fraud
phones areas and necessary help towards it can be provide
Role of supervisory authorities:
IRDA, SEB should prepare an action plan to combat with the serious issue of frauds.

Track down the cheaters:


Police authorities, CBI should take action lead in tracking down the cheaters.
Increasing value Bases approach in the society:
The citizens should believe and follow value based approach in their day-to-day life.
They must be able to differentiate between need and greed. Measures to prevent
frauds in insurance
Specific measures
I.
II.
III.
IV.

It requires high standard of integrity form directors management and


employees of insurance organizations.
It is necessary to set realistic goals and objectives for best use of resources.
It is necessary to organize, collect and evaluate the effectiveness of
information so that the management may avoid frauds.
To prevent frauds in insurance the audit function must be carried out in proper
manner.

Measures by IRDA

There is a need for a uniform policy and standard which will guide action of
employees within an insurance company. They are the guidelines for professional
conduct. It also states what the insurance company stands for and is committed to

which values. There should also be a reward and punishment for any other behavior
than that is prescribed. The code helps in achieving organizations goals in socially
acceptable manner. In case of any dilemma, it prescribes solution and thus helps
perform their routine activities.
Sec 14 of Act, 1998 lays down the duties, powers and functions of IRDA :
1. Subject to the provisions of this act and any other law for the time being in
force the authority shall have duty to regulate, promote and ensure orderly
growth of the insurance business and re-insurance business?
2. Without prejudice to the generality of the provisions contained in sub-section
The powers and functions of the authority shall include:
a. Issue to the applicant a certificate of registrations, renew, modify withdraw,
suspend or cancel such registration;
b. Protection of the investment of the policy holders in matters concerning
assigning of policy, nomination by policyholders, insurance claim, surrender
value of policy and other terms and conditions of insurance;
c. Specifying the code of conduct for surveyors and loss assessors;
d. Promoting efficiency in the conduct of insurance business;
e. Levying fees and other charges for carrying out the purposes of the act;
f. Promoting and regulating professional organization connected with the
investment and with business.
g. Calling for information form, undertaking inspect of, conducting enquiries and
investigations including audit of insurers, intermediaries, insurance
intermediaries and other organization connect with insurance business.
h. Specifying the form and manner in which books of A\c shall be maintained
and statement of A\c shall be rendered by insurers another insurance
intermediacies.
i. Specifying the form manner in which books of A/c shall be maintained and
statement of A/c shall be rendered by insurers other insurance intermediacies;
j. Regulating investment of funds by insurance companies;
k. Regulating maintenance of margin of solvency;
l. Adjudication of disputes between insurers and intermediaries of insurance
intermediaries,
m. Supervising the functioning of the tariff Advisory committee:
n. Specifying the %of premium income of the insurer to finance schemes for
promoting and regulating professional organizations
o. Specifying the % of life insurance business and general insurance business to
be undertaken by the insurer in the rural of social and
p. Exercising such power as my be prescribed
IRDAs code of conduct for agents

Proposals seeking insurance cover should be filled in inly the person/S seeking to be
insured, as per the code of conduct being formulated by the IRDA for insurance
agents.
The provision in the code to mainly avoid complaints at later stage, especially form
the nominees of the insured who at the time claim say that discrepancies could have
been avoided if the insured had filled in the application on their own.
As per the code, it would be necessary for those availing insurance to fill in the
applications themselves. And it would also be made mandatory for the agents to
disclose on demand the commission that they would be entitled to form the proposal.
The code to govern the intermediaries in insurance companies in the country is like to
direct the agents to provide a copy of the filled in proposal application to the client,
before submitting it the company.
For prospective insurance agents, the code is likely to recommend an examination and
a 100 hour training course. Additionally, all agents-present future will be issued with
identify cards by the IRDA.
Major Activities
a. Promotion of a better understanding of non-life insurance amongst the public:
providing inputs to the media about the developments in the non-life
insurance.
b. Promotion of sound development and maintenance of the reliability of the
non-life insurance industry: Developing codes of conduct for meter
companies, strengthening non-life insurance companies disclosure,
developing compliance programmers to observe laws and regulations, etc.
c. Presentation of request and proposal: Representing the non-life insurance
industry in the presentation of regulatory reform requests, and of opinions to
insurance administration.

d. Response to social issues: combating automobile theft taking measures to


prevent insurance fraud, etc.
e. International activities: promoting dialogue and information exchange with
overseas insurance associations, participating in international organizations
activities and international meetings.
f. Consumer Services: The GI Council promotes consumers understanding of
insurance, and the presence of the general industry in society.
g. Social responsibility: The GI council undertakes activities having far reaching
social implication in association with law enforcement.
h. Request s & proposals: The GI council carries out activities to realize the
establishment & revision of laws and regulations beneficial to the general
insurance industry and society by making request and proposals to the related
parties.
i. Development of the Business Environment: The GI supports the operation of
various insurance related systems and mechanism instrumental to insurance
companies such as, Commercial Vehicles Third party insurance pool.

9. 15 MOST FAMOUS CASES OF INSURANCE FRAUD


Insurance fraud seems like it might be an easy thing to do. Insurance companies are
often so huge, one wonders how they might not even notice a few mistakes in your
favor. But the fact is that insurance companies have people who make it their full time
job to sniff out fraud, ensuring that they keep a tight bottom line. And while they may
not catch every tiny little fudge, you can be sure they are on the hunt for major
offenders such as the ones on this list. Check out these famous insurance fraud cases
that surely carried a huge bounty.
1. HCA/Medicare: In 2000 and 2002, HCA pleaded guilty to 14 felonies,
including fraudulently billing Medicare as well as other programs. HCA had
inflated the seriousness of diagnoses, filed false cost reports, and paid
kickbacks to doctors to refer patients. HCA had to pay the US government
$631 million plus interest, as well as $17.5 million to state Medicaid agencies,
on top of $250 million already paid to Medicare for outstanding expense
claims. It was the largest fraud settlement in US history, with law suits
reaching $2 billion in total.

2. John Darwin's Death: John Darwin faked his death in a canoeing accident,
turning up five years later. He'd been secretly living in his house and the house
next door, while his wife claimed the money on his life insurance. They were
both sentenced to six years in prison, but released on probation. BBC created a
TV drama about their story called Canoe Man.
3. The horse murders scandal: Between the mid 1970s and mid 1990s many
expensive horses were involved in insurance fraud. These expensive horses,
often show jumpers, were placed on insurance for accident or death, and killed
for the insurance money. The number of horses killed in this manner is
believed to be at least 50 and possibly as high as 100. It was the biggest
scandal in equestrian sports, resulting in the death of a whistleblower, Helen
Brach, in addition to the horses.
4. John Mango's fire: A Toronto businessman, John Mango hired someone to
set fire to his business for the insurance money. Things got quite out of hand,
killing one person during the fire and forcing many families to leave the area
until the fire could be put out. Mango was charged with second degree murder
on top of his fraud charges.
5. Swoop and squat: In the 90s, car insurance fraud ran rampant. Cars would
purposely get into accidents with innocent people on the road, hoping to score
insurance money, and often, they did. These accidents frequently injured
drivers, and some were even fatal. These accidents usually earned the
orchestrators about $20,000 each.
6. Michael Jackson's prescriptions: Lloyds of London has recently filed suit to
invalidate an insurance policy taken out by Michael Jackson. The policy
covered his "This Is It" tour in the event that it was not successful. The payout
was to be $17.5 million, but Lloyds argues that it is invalid because Michael
Jackson did not disclose prescription drugs on his application. As Jackson died
from an overdose, Lloyds is claiming deception.
7. The Titanic: Everyone knows the story of the Titanic, but not everyone
realizes that some believe its part of a conspiracy to pull off a huge insurance
fraud. The Olympic, Titanic's sister ship, was damaged and rendered useless
during one of its voyages-and some believe that the Titanic as it sunk was
actually the Olympic. Conspiracy theorists note several inconsistencies in the
performance and construction of the "Titanic" that indicate the Titanic sinking
was a case of swapped ships.
8. Cooperman art theft hoax: Would you steal your own art for money? LA
ophthalmologist Steven Cooperman did. He arranged for a Picasso and a
Monet to be stolen from his home in an attempt to collect $17.5 million in
insurance money. He was convicted in July 1999.
9. Martin Frankel: Martin Frankel's insurance fraud is just one in a long list of
financial crimes. He was sentenced to 200 months in prison due to over $200
million in losses to insurance companies. He eventually plead guilty to 24
federal counts of racketeering and conspiracy, securities fraud, and wire fraud.

10. Bristol-Myers Squibb kickbacks: Regulators in California have gone after


Bristol-Myers Squibb for insurance fraud, among other offenses. The lawsuit
accuses Bristol-Myers of making payments to high-prescribing physicians,
targeting and profiting on the private insurance industry. It is the largest health
insurance fraud to be pursued by a California state agency. Additionally, in
2007, the pharmaceutical company paid $515 million to settle with federal and
state governments against allegations of kickbacks to defraud Medicare and
Medicaid.
11. Dr. Gupta's mystery procedures: There's a nationwide manhunt launched by
the FBI looking for Dr. Gautam Gupta. The complaint against him alleges that
he submitted claims to Blue Cross/Blue Shield and Medicaid for unnecessary
procedures, and even ones that were never performed. The fraudulent
insurance claims from Dr. Gupta reached nearly $25 million.
12. Millionaire insurance fraud: Charles Ingram was first made famous as a
fraud when he cheated on Who Wants To Be A Millionaire?, using coded
coughs to win. But his deception was further exposed when he was convicted
of insurance fraud as well. He placed a suspicious 30,000 burglary claim, and
was found to be dishonest, ultimately winning two guilty charges for his fraud.
13. TAP Pharmaceuticals fraud: The Department of Justice got involved with
this pharmaceutical insurance fraud case. TAP Pharmaceuticals engaged in
fraudulent drug pricing and marketing conduct, as well as filing fraudulent
claims with Medicare and Medicaid. They agreed to pay $559 million to the
government for those claims, as part of an $875 million settlement for all
criminal charges and civil liabilities.
14. I get knocked down, but I get up againand knocked down again 48
more times: With 49 cases, Isabel Parker earned her title as the queen of the
slip and fall scam. During her career, she received claims totaling $500,000.
15. Torching the Malibu: What do you do if you don't want to pay on your car
anymore? If you're teacher Tramesha Lashon Fox, you get your students to set
your car on fire in exchange for passing grades. She'd hoped to get insurance
money, but instead lost her job and served 90 days in jail.

10. WHAT YOU NEED TO KNOW ABOUT INSURANCE

FRAUD

Almost everyone is familiar with insurance fraud. We've all heard the stories of
people who received millions after a car accident or the heartless insurance firm
refusing to pay out to a widow on a technicality. Insurance fraud is one of the oldest

types of fraud ever recorded, dating back to 300 B.C., when a Greek merchant sunk
his own ship, in an attempt to cash in on the insurance, and drowned in the attempt.
Whether you are a policyholder or a shareholder in an insurance company, insurance
fraud affects you. The field of insurance is wide and fraud exists in every area.
Therefore, in this article we are going to focus in on one of the most important types
of insurance life insurance. We will look at the major types of life insurance fraud
and how they affect your bottom line.
It Takes Two to Tango
Insurance fraud comes in two main categories: seller fraud and buyer fraud. Seller
fraud occurs when the seller of a policy hijacks the usual process, in a way that
maximizes his or her profit. Buyer fraud occurs when the buyer bends the process to
obtain more coverage, or claim more cash, than he or she is rightly entitled to.
Types of Seller Fraud
There are many variations of seller fraud, but they all center around four basic types.
These are:

Ghost Companies: In the ghost company scenario, policies are issued and
premiums accepted from policyholders, but the company underwriting the
policy isn't legitimate and often doesn't exist. These outright frauds are a type
of boiler room operation, where a team of high-pressure scam artists dial
likely victims to sell them false policies. Unfortunately, the fraud isn't usually
discovered until someone tries to file a claim on the policy their family
member thought was in effect, in the event of his or her death.

Premium Theft: The premium theft scenario is when the insurance rep
accepts premiums, but doesn't submit them to the company underwriting the
policy, thus invalidating the policy. In this case, the agent essentially pockets
the money. Premium theft has become less of an issue as more companies
have moved towards direct deposit models, but it is still possible in some
cases.

Churning: Churning refers to a situation where the insurance rep advises the
customer to cancel, renew and open new policies in a way that is beneficial to
him or her, instead of beneficial to the client. This type of insurance fraud
often targets seniors and is driven by the agent's desire for larger commissions.
Churning keeps a portfolio constantly in flux, with the primary purpose of
lining the advisor's pockets.

Over or Under Coverage: Similar to churning, under or over coverage occurs


when an insurance rep convinces customers to buy coverage they don't need,
or sells a lesser policy and represents it as a complete policy. In either case, the
rep is trying to maximize commissions and ensure the sale, rather than
focusing on meeting the client's needs.

Types of Buyer Fraud:


Buyer fraud also comes in a number of different flavors, but they all center around a
theme of dishonesty. Basic types of buyer fraud include:

Post-Dated Life Insurance: Post-dated life insurance refers to a policy that


has been arranged after the death of the person being insured, but appears to
have been issued before death. This type of fraud is usually carried out with
the help of an insurance agent. It is also one of the easier types of fraud for
insurance companies to detect, because record keeping has become more
stringent.

False Medical History: Falsifying medical history is one of the most common
types of insurance fraud. By omitting details such as a smoking habit or a preexisting condition, the buyer hopes to get the insurance policy for cheaper than
he or she would have otherwise been able.

Murder for Proceeds: There are two versions of the murder for proceeds
fraud. In the first, the insured doesn't know they are insured and are
understandably surprised to be murdered. In the second, the policy is
legitimate and was taken out in better times, however, financial hardships lead
the perpetrator to decide that killing his or her spouse/family member/business
partner, for the money, is the best way out of the problem.

Lack of Insurable Interest: As with murder for proceeds, insuring people


you shouldn't be insuring, in hopes that they will die, constitutes fraud.
Insurance is founded on the idea of protecting people from financial loss, so
using it to gamble on lives for a financial gain is a perversion of the system.
This includes vertical settlements, which combine non-insurable interest with
falsified policies taken out on the terminally ill.

Suicidal Accidents: Just as financial hardship can lead otherwise rational


people towards murder, the same factors can lead people to commit suicide in
a way so it looks accidental. This constitutes fraud in that it is an intentional
act for the purpose of collecting the insurance proceeds, and would not have
occurred if those proceeds did not exist. This can be a very difficult one to
detect, as the medical examiner has final say in accidental death. Even if it is
clearly a suicide, the claim centers on the state of mind, rational or not, at the
time of suicide.

Faking Death or Disability: Many life insurance policies have riders for
disability, creating the temptation to fake one to get the payout. However,
some people take it a step further and fake their own deaths. In both cases, the
fraudster has to deal with the possibility of being discovered through an
investigation.

The Cost of Insurance Fraud


Just as there are two main types of life insurance fraud, there are also two

consequences. When people engage in buyer fraud, it raises the cost of insurance. The
reason for this is very simple; insurance companies are really good at modeling, so
they tweak their models to account for buyer fraud and then spread that cost across all
their policyholders. In a very real way, every person who tries to stick it to the
insurance company ultimately makes your policy cost more.
In contrast, seller fraud can potentially hurt just the select few that experience it. It is,
in every essence of the word, bad luck. However, on the whole, every time the
insurance company you invest in treats someone badly, it loses business to a company
with a better reputation and controls on the agents. As an investor, you will be
tempted to move your capital to the better performing company, thus punishing seller
fraud in a roundabout way. The internet has also helped reduce seller fraud, as many
shady outfits and practices become exposed sooner in the game.
The Bottom Line
Insurance is a business that is built on risk analysis and probabilities. Every instance
of insurance fraud puts pressure on the business, whether seller or buyer fraud. For
this reason, many companies build generous contingency funds to protect them
against fraud, as well as other unforeseen events. While this is good from the
investor's perspective, it does unfortunately lead to your personal life insurance
premiums being higher than they otherwise would have been, in a more honest world.

11. HOW TO DETECT AUTO INSURANCE FRAUD

Investigators use public and private information to detect potential auto insurance
fraud. Claims adjusters and data experts at insurance companies and law enforcement
organizations detect fraud in several ways. Suspicious claims are identified according
to the company's proprietary statistical methods. Specialists review suspicious claims
for more clues. Private Citizens, usually unrelated to the insured, might suspect fraud
and report it to police, fraud tip lines or fraud-focused organizations, such as the
National Insurance Crime Bureau and the Coalition Against Insurance Fraud. Fraud
raises auto insurance costs by at least 16 percent, according to author Saul W.
Seidman in his book "Trillion Dollar Scam: Exploding Health Care Fraud."
Instructions
1. Use sophisticated computer programs and computing methods to detect fraud,
according to "Surveillance Technologies and Early Warning Systems: Data Mining
Applications Methods for Risk Detection." Investigators also use data to identify
suspicious relationships associated with the insured. They review financial statements
for unusual cash flows. They look for associations with known insurance crime rings,
according to author Pamela Meyer in "Liespotting: Proven Methods to Detect
Deception."
2. Evaluate supervised and nonsupervised potential fraud claims, according to the
"Handbook of Statistical Analysis and Data Mining Applications" by Robert Nisbet,
John Elder, John Fletcher Elder and Gary Miner. Investigators use both supervised
and nonsupervised methods to evaluate the suspicious claim. Insurers develop frauddetection models based on demographic, attitudinal and business data information.
Supervised claims involve analysis of historical claim values to the insured's claim
values. A suspicious claim is compared to previously identified frauds. Unsupervised
analysis involves statistical identification of unusual amounts, repairs, medical care
and other red flags. Unsupervised analysis also connects abnormal values in current
claims to previously known fraud cases. Neither method absolutely confirms fraud.
Additional analysis helps to identify higher probabilities of insurance fraud.
3. Recognize common auto insurance fraud. According to author Saul W. Sideman,
fraud costs other insureds higher insurance premiums. Fraud costs of $1.05 for faked
thefts, $2.15 for previous damages, $2.20 for overcharges from body repair shops and
$3.00 in staged car accidents for every $100 in paid claims. Auto theft continues to
increase in the United States. According to the National Insurance Crime Bureau,
more than 57 percent of stolen cars disappear. Professional crime rings ship stolen
cars overseas or sell the car for parts. However, some stolen cars are resold in the U.S.
to unsuspecting consumers. The NICB's VIN Check helps prospective owners to
check vehicle identification numbers for free.

12. HOW TO DETECT HEALTH INSURANCE CLAIM

FRAUD
Health insurance claim fraud is the process in which a medical provider bills for
services that were never delivered or received. It's a way for medical providers to
dishonestly increase their payment. Health care fraud accounts for nearly $70 billion
of all health care spending in the United States. It's big business for unscrupulous
providers that translate to higher premium payments for consumers.

Instruction
1. Keep good records of the medical services that you received. Document all
procedures and tests performed dates of visits and tests, and providers who performed
them. Retain copayment receipts.
2. Compare your medical service records against your billing statement from your
insurance company. Contact your insurance company for a copy of your bill if one
wasn't sent to you.
3. Review your insurance plan benefit manual, so you know what's covered by your
insurance plan.
4. Note any billing discrepancies you find, such as an added charge for a procedure
you don't recall receiving, double billing for the same procedure when it was only
completed once, and/or charges for procedures your provider indicated were free.
5. Contact your insurance company right away when you suspect you're a victim of
fraud.
6. Report billing discrepancies to your state's Department of Insurance or the attorney
general's office. Someone from one or both agencies may ask questions about your
claim and request you submit to them copies of your medical records, including
receipts and other billing documentation. This will allow them to conduct an
investigation.

13. HOW TO REPORT INSURANCE FRAUD


Fraud can cost the insurance industry billions of dollars each year, which is ultimately
passed on to the insured as increased premiums. Insurance fraud can be reported
anonymously
and
easily.
According to insurancefraud.org, most states have their own fraud bureau that can
investigate insurance scams. Whistleblowers might even be able to collect a reward
for information leading to a conviction. Insurancefraud.org provides a list of states
that have an established fraud bureau. You can also contact the insurance company,
the National Insurance Crime Bureau, Medicaid and Medicare, and the social security
administration among others.
Instructions
Hotlines Available
1. Many insurance carriers offer a fraud hotline. If you suspect someone has
committed fraud, look up that carrier's information online and don't hesitate to give
them a call. Some of the more common acts of fraud toward an insurance carrier
might include destroying your own car, claiming lost or stolen personal items, or
claiming injuries that did not occur. The National Insurance Crime Bureau can also be
found online. This organization is operated by insurance carriers and will investigate
auto, liability, homeowners', and workers' comp fraud.

2. Social Security fraud occurs when someone is collecting benefits when they are not
eligible, collecting someone else's benefits such as a deceased party, or working under
the table for compensation above what is allowed by social security guidelines. Fraud
can also occur if an individual is reporting a child that is not their own, or by
collecting benefits when they live overseas. Call 1-800-269-0271 to report this type of
fraud or report it online at ssa.gov.
3. The types of fraud committed against Medicaid and Medicare involve doctors,
pharmacists, and other health care providers. Doctors may report patients or groups of
patients that did not visit their office, double bill for procedures, bill for procedures
that did not occur, or use false credentials when submitting claims. Fraud can be
reported at your local state Medicaid agency or by calling the OIG hotline at 1-800447-8477.
4. The USDA Office of the Inspector General offers a hotline at 1-800-424-9121
during regular business hours. Their email address, as well as an address for writing a
letter, can be found on rma.usda.gov. Types of crop insurance fraud might include
filing claims against fields that were never planted or crops that were not harvested.

14. Insurance companies concerned about rising incidents of fraud

Ernst & Youngs insurance fraud survey: frauds are driving up


overall costs for insurance companies
Mumbai, 2 June 2011 Ernst & Young's insurance fraud survey has revealed that the
rising incidence of fraud is driving up costs for insurance companies and premiums
for policy holders. Insurance companies are waking up to this grim reality, which may
threaten their viability and profitability. According to 80% of the survey respondents,
representing India's largest public and private insurance companies, fraud in insurance
can increase costs for insurers by at least 1% and can rise by more than 5% in certain
cases. Further, more than 50% of the respondents believe that fraud directly impacts
premium, in some cases increasing premiums by more than 3%. This adversely affects
innocent consumers who end up paying a higher premium.
The survey was conducted to assess the fraud scenario in the Indian insurance
industry, the potential risk exposure, the economic impact of rising incidents of fraud,
and industry practices to counter fraud. Of the surveys respondents, 50% expressed
the need for heightened and more stringent anti-fraud regulations in the area of claims
and surrender. This area is most prone to fraud, with nearly 27% respondents rating it
among the topmost fraud risks in the insurance sector.
Insurance sector regulator, the Insurance Regulatory and Development Authority
(IRDA), appears to share the concern of most of the respondents. According to public
media sources, the IRDA has reportedly decided to appoint reputed firms to develop
effective reporting on industry-wide fraud within health care insurance.*
The survey findings should cause concern among insurance company directors.
Complacency around fraud, bribery and corruption, combined with cost-cutting
initiatives at many companies, creates additional exposure. With new legislation such
as the UK Bribery Act giving regulators stronger enforcement powers, management,
in particular, should demonstrate greater commitment to ethical conduct through their
actions, including making tough choices regarding departmental budgets and
disciplinary measures.
As Arpinder Singh, Ernst & Youngs India Fraud Investigation & Disputes Services
Leader states, It is managements job to set the tone and frame the controls and
programs to mitigate the fraud risk.
Companies: not prepared to counter fraud risks
Many companies have to do more to establish a robust and effective fraud risk
management process. As much as 40% of the respondents expressed concern that their
organizations do not have a dedicated anti-fraud department. Worse still, around 43%
said that manual red flags are used to detect fraud in their organizations. Given the
quantum of data these insurance companies have to handle, this method may not be
effective enough as a measure.
Lack of third-party due diligence
The Indian insurance industry relies heavily on third parties, be it as a distribution
channel for selling its products or to conduct due diligence. As a result, the exposure
to fraud risk increases, which makes it imperative for a company to conduct duediligence checks before associating itself with any third party for business. Yet,

according to the survey, one-third of the respondents reported that their company does
not screen all key vendors and employees.
Arpinder Singh adds, The survey provides a wake-up call for insurance companies.
Lack of third-party due diligence and focus on anti-fraud measures; and a continued
reliance on manual methods to detect fraud inevitably increases the risk exposure. The
adoption of a definite methodology and a comprehensive and integrated approach to
fraud risk can help companies address the rising risk of fraud in the insurance sector.
Proactive fraud monitoring: the need of the hour
The results of the survey indicate that business leaders are aware of the need to
address fraud risk. Some of the more successful organizations have already begun
focusing on this area and have consequently benefitted from improved profitability.
Arpinder Singh concludes, Some of the points that companies must include in their
fight against fraud are a well-defined whistle-blowing policy, periodic fraud risk
assessment, third-party due diligence, data analytics tools to identify red flags, and the
automation of processes.

15. Insurers lost over Rs. 30,000 crore due to frauds in 2011:
Study

New Delhi : Indian insurance companies have borne a loss of over Rs. 30,000 crore in
2011 due to different kinds of frauds, a study has claimed.

It cited collusion between the employees of insurers and private persons, document
falsification and manipulation in citing cause of death to claim insurance benefits, as
some
of
the
reasons
behind
these
frauds.
"The losses caused to the insurance sector are Rs. 30,401 crore which is roughly 9 per
cent of the total estimated size of insurance industry in the year 2011," the report
said.
The total premium income of the insurance industry comprising life, non-life and
health, is around Rs. 3.5 lakh crore, as per the Insurance Regulatory and Development
Authority
(IRDA)
data.
The study was conducted by a Pune-based company Indiaforensic, which conducts
fraud examination, security, risk management and forensic accounting research. It has
also helped the country's investigating agencies like CBI in several high profile cases
such
as
the
multi-crore
Satyam
scam.
Around 86 per cent of the frauds occurred in the Life Insurance segment while the
remaining 14 per cent took place in the General Insurance sector (which includes risk
of
loss
to
assets
like
car,
house,
accidents),
it
said.
According to the study, in the last five years, the frauds in Life Insurance sector had
more than doubled (103 per cent) whereas the frauds in the General Insurance sector
rose
by
70
per
cent.
A total of Rs. 15,288 crore (Rs. 13,148 cr in life insurance and Rs. 2,140 cr in general)
was the loss borne by the companies in 2007. In 2011, the loss was pegged at Rs.
30,441
crore.
"The insurance sector is susceptible to various frauds in the country. There is an
urgent need to have strict measures including setting up of a dedicated unit to detect
and check frauds in the companies," said anti-fraud and money laundering expert
Mayur
Joshi,
who
is
founder
member
of
Indiaforensic.
The study said that insurers were defrauding the companies by not disclosing existing
diseases by manipulating the empaneled doctor while applying for the policy.
"All insurance policies have an eligible age at which the policy can be taken. To
accommodate oneself in to the product or enjoy a lower premium, age proofs are

modified to show a reduced age. Some cases require medical tests to issue the policy.
However, to substantiate non-disclosed or misrepresented medical conditions, a
different person may be sent at the time of the tests. While this may work to get the
policy, it would create discrepancy at the time of claims," it said.
There have been cases where the date of death was on the death certificate has been
fraudulently changed to a date before the actual death when the policy was in force, so
as
to
register
a
claim,
the
study
said.
"Medical Bills forgery is the most common scheme of frauds which affect the Health
Insurance sector the most. In as many as 31 per cent of the total falsified
documentation schemes medical bills were the common target of the frauds by the
external
parties.
"The second most common scheme of the frauds in the General Insurance space is the
non-disclosure of the facts. Travel abroad for the surgery without disclosing it or
getting the damaged vehicle insured without disclosing the accident are some of the
common schemes," it said giving examples of frauds in general insurance sector.
According to Ashish, a certified fraud examiner and investigator "there is a need to
have fraud control units in insurance sector to check losses. The study highlights a
worrying trend"
16.Fraud in motor and health insurance global perspective: Indian Approach

Global Perspective of General Insurance Fraud:


General insurance fraud is undergoing a sea change in its character. It is no more
confined to the domain of white-collar crime, but surpassed into a full-fledged scam,
world over, posing a serious threat to the global economy. What's visible is only the
tip of the iceberg and a lot more underneath.
After tax evasion, insurance fraud is officially acknowledged as the second biggest
financial crime in the US costing Americans about $100 billion each year reports
National Insurance Crime Bureau.
Did you know Insurance Fraud is akin to an industry in the West? Special classes are
held to make people proficient in perpetrating insurance fraud. There are organized

gangs that specialize in staging vehicular accidents, arson and sabotage of property all to one end - getting a fat insurance claim.
Unlike the rest of the world, in India, there is so little information in the public
domain about insurance fraud that easily misleads one to believe that the malaise has
skipped us. But in reality we are ahead of others.
Though a preliminary estimate puts fraud claims at 6% of the total number in India
but If insurance fraud levels in India are to be rated in the international range of 10%15%, the Indian general insurance industry would be losing between Rs.2,500-3,500
crore in a year.
Channels of Frauds Against Insurance Companies:
Fraud against the Insurance Companies committed at different stages are phenomenal
and alarming which can be from outside known as external sources or from within the
industry, known as internal source, but very often caused due to the unholy alliance of
both the sources.
Collusion between insurance employees, intermediaries and insured:
It would not be an exaggeration to say that in most of the cases the insurer cannot be
defrauded except without an unholy nexus between the employee/intermediary in one
hand and the insured/beneficiary at the other. Most of the frauds committed by way of
a concerted effort of agents, brokers, insurance employees, insured member and the
provider of services and other stakeholders of the general insurance system.
Not necessarily, the policy holder/beneficiary always bribes surveyors and officials of
insurance company to get false claims passed. Sometime 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.
Various stages of insurance fraud:
Fraud can occur at any stage during the process of applying, buying, using, selling,
underwriting insurance or while staking a claim which can be broadly categorized as

pre-insurance otherwise known as application fraud and post insurance comprising


eligibility and claims fraud.
Pre-insurance stage : Application fraud:
This is committed when material misrepresentations are made on an application for
insurance with the intent to defraud. Application Fraud differs from claim fraud in that
the perpetrator is not seeking to illegitimately obtain a benefit payment-rather the
perpetrator is seeking to illegitimately obtain a general insurance coverage only.
Planned non-disclosure by clients has always been a major problem faced by
Insurance industry, which sadly is socially acceptable.
Hiding relevant and potentially damaging information is almost a norm in India. Even
if the customer wants to disclose, his/ her insurance agent advises to the contrary and
convinces the customer not to tell as it may attract extra premium. Agent is after all
interested only in his commission and is worried that faced with extra premium, for
which client may decide not to take the policy.
Post insurance stage: Frauds at this stage can be either an eligible fraud or claims
fraud.
Eligibility fraud: Eligibility fraud most commonly involves misrepresentations of the
status of beneficiary. In such cases, the benefit is paid to a person not eligible to
receive benefits because of various factors..
Fraud by way of identity theft where people stole other person's identity to make false
insurance claim, widely prevailing in the west is another species of the eligibility
fraud.
Claims fraud: Most common where the losses are concocted, exaggerated, inflated,
manipulated, manufactured, stage managed, to name a few. Magnitude and frequency
of any insurance fraud is greater at the claim stage in comparison to pre-insurance
stage.
Types of insurance claims frauds

Insurance fraud is generally of two types - one the 'opportunity fraud' - otherwise
known as 'soft fraud' and the other is deliberate act to cheat known as 'hard fraud'.
Any misrepresentation of facts or circumstances while making a claim is fraud. This
could include hiding your previous driving record or padding up the claims sheet. But
unfortunately most people like to consider these as little exaggerations rather than
fraud.
Hard fraud: Premeditated fabrication of claim:
Hard fraud is a deliberate attempt either to stage or invent an accident, injury, theft,
arson or other type of loss. A hard fraud is committed by faking incidents, accident,
burglaries or illnesses, backdating claims, identity theft claims etc.
Soft fraud: Opportunistic padding up of claim:
In these kinds of fraud, the claimant demands more than what he otherwise deserve.
Approximately, 90% of the general insurance fraud results from soft fraud . Soft
fraud, which is sometimes called opportunity fraud, occurs when a policyholder or
claimant exaggerates a legitimate claim i.e. seeking more than the loss.
Immaterial fraud:
In some cases, what can described as 'immaterial' fraud occurs, where a policyholder
acts fraudulently simply to obtain legitimate payment of a genuine insured loss. A
classic example is where the policyholder has lost the receipt for a stolen item and,
facing pressure from the insurer, produces a forged receipt to substantiate the claim.
The loss is genuine but the policyholder has lied in the course of making the claim,
thereby breaching the duty to act 'in utmost good faith'.
Motor insurance frauds:
MOTOR: World over auto or motor insurance constitute the single largest portfolio
ranging between 40% to 70% of total general business insurance segment. Motor
insurance is the most potential and vulnerable fraud ridden sector in the industry in
comparison to other line of insurance. The Association of British Insurer said motor

insurance is now the leading area for fraud, with its member uncovering 24000
fraudulent car insurance claims worth 260 million during 2007- the equivalent of 5
million every week.
Motor Own Damage Claim Fraud: Motor own damage claims fraud committed at
pre and post insurance stage involving both hard and soft fraud.
A hard fraud includes total damage to the vehicle deliberately to get rid of the same or
to earn more money than its market value. Some of the examples are staging collision,
theft of the vehicle, burnt by fire, fall into river, owner vehicles give ups, loss under
an excluded peril etc.
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. Soft fraud accounts for the majority of the motor
insurance frauds. Some of the common soft frauds are filing more than one claim for
the single loss, higher costs for repair, damage caused earlier, replacement of old
spare parts etc.
With the advent of organized gangs in auto insurance fraud, it become more complex
and sophisticated., which are much difficult to detect, if detected difficult to prove.
Motor TP: From chasing ambulance to organize accidents, fraud in motor third party
insurance come a long way . Fraudulent motor TP claims is a multimillion dollar
business today involving highly organized gangs. More than one of every three
bodily-injury claims from car crashes involves fraud. Insurance Research Council
(1996). More than one-third of people hurt in auto accidents exaggerate their injuries.
(Rand Institute for Civil Justice).
Recently in USA, criminal charges were filed against Quentin Hawkins, also known
as "Flint Hawkins," the leader of a ring and 64 others for their participation in a largescale insurance fraud ring that either staged or fabricated at least 14 automobile
accidents between February 1999 and July 2000 and filed number of bogus bodily
injury and medical treatment claims under no-fault insurance policies.

Such gangs have their code words for communication among themselves, where
accident is referred to as Movie, vehicles as cans, hospitals as fruit stand and victims
as pineapple. Some of its modus operandi are as under:
Exaggerated claims: Many instances have been discovered in which corrupt
attorneys and health-care providers (combine to bill insurance companies for
nonexistent or minor injuries.
Hit and run cases: Conversion of natural death into a hit and run case or converting a
hit and run case to an accident is very common in India as well as abroad.
Paper accidents: Many a times documents created in collusion with various
authorities to fake an accident and claim compensation.
Staged accident: Where the fraudsters will use a vehicle to stage an accident with the
innocent party. Typically, there would be 4 or 5 fraudsters in the vehicle, which makes
an unexpected maneuver causing the innocent party to collide with the fraudster's
vehicle.
Swoop and Squat: Where one or more drivers in "swoop" car force an unsuspecting
driver into position behind a "squat car. This squat car, which is usually filled with
several passengers, then slows abruptly, forcing the driver of the chosen car to collide
with the squat car.
In India: Whatever is practiced in west easily find its way to India. A recent survey
has shown that more than 50% of the TP claims in India are bogus. There are several
claims that are based on bogus accidents carried out with the connivance of law
enforcing agencies.
In India one public sector insurance company become richer by around Rs.184 Crores
due to withdrawal of 427 number of Motor Third Party claim cases, including 40
cases where award have been made, fearing action following investigation by the CBI
in pursuance to the direction of the Madras High Court.
Last year it is reported that the Insurance companies were defrauded of around Rs.500
Crores for over five years in seven South Bengal districts. It is apprehended that the

figures could be around Rs.1500 Crores over the past ten years. (Times of India
Mumbai Edition dated 25-07-2007)
Some of the common Modus operandi of TP frauds in India are conversion of
ordinary death / other accidental death cases to Hit and Run cases. Conversion of hit
and run cases by implanting another vehicle. Most of the hit and run cases are fixed at
a later stage in collusion of the police.
In some cases it was found that the person making the claim changes but all the other
details remain the same like 20 claims made on the same car. It was also found that
the same vehicle involved in 18 different accidents, all in the same city and the same
years.
Death due to own negligence and without involvement of TP vehicles was converted
to cases where accident shown to be caused by another vehicle. Accident caused
under influence of alcohol converted to cases where accident caused by another
vehicle.
On Dec 2, 2000 M. Palanivel was injured in an accident while riding pillion on a two
wheeler. Investigation reveals he was riding the two wheeler and fell down when he
lost balance.
Mr. Shankar died in an accident when his car was hit by an Ambassador car.
Investigation revealed that he died in an accident when his car hit a tamarind tree.
There was no involvement of any Ambassador car. (Money Control .com)
Mr. Periyaswanmy was injured in an accident when his two-wheeler hit by an autorickshaw. Investigation revealed that he was allegedly driving under the influence of
alcohol and fell off his bike.
Mr. Mohan died in an accident when a lorry hit him when he was driving a
motorcycle. Hospital record shows that he died in an accident when his motorcycle
rammed into a bullock cart.
Mr. Senthilkumar was injured as a pedestrian when he was run down by a tempo. Fire
Dept. records show that he was injured when he fell down the village well.

Father and son succeeded in receiving compensation of Rs. 3,55,000/- and Rs.
1,52,000/- for the alleged injury sustained while proceeding in a motorcycle, which
was dashed by a car, actually they are operating their own tractor, which jilted into a
ditch as result of which the occupants slipped down and sustained injuries. United
India vs. Rajendra Singh : 2000(3) SCC 581.
Inclusion of some stock victims name in the list of persons as injured persons even
though they are not traveling. Substitution of un-insured vehicle with a insured
vehicle. X claiming compensation for the treatment to an injury sustained by Y in
vehicle accident. Passengers traveling in a truck converted to either owner of goods or
coolies carried in the vehicle. Impersonating the victim, claimant, owner, driver
sometimes advocates had been a norm.
Fraud on grand scale committed in MACT and labor Courts in the State of Gujarat by
invisible Advocates reports Yong Lawyers.
CBI books Ambala based advocate for insurance frauds to the tune of Rs. 200 Crores
reports Hindustan Times.
Filing cases without consent of the claimants and in the name of advocates who do
not exist had been widely prevalent. Filing of bogus injury report / medical certificate
etc. to inflate compensation considered to be a right.
FIR field against a Doctor from Godhra General Hospital for issuance of false
certificate to get compensation u/s 161 / 167 / 193 / 196 / 197 / 198 / 199 / 200 / 406 /
417 / 420/ 465/ 471/ 472/ 476/ 474/ 475 IPC.
The list is endless.
Health Insurance :
80 percent of healthcare fraud is by medical providers, 10 percent is by consumers
and the balance is by other sources. Health Insurance Association of America (1998)
Health insurance fraud is described as an intentional act of deceiving, concealing, or
misrepresenting information that results in health care benefits being paid to an

individual or group. Fraud can be committed by both a member and or a provider.


Member fraud consists of ineligible members and/or dependents, alterations on
enrollment forms, concealing pre-existing conditions, failure to report other coverage,
prescription drug fraud, and failure to disclose claims that were a result of a work
related injury.
Provider fraud consists of claims submitted by bogus physicians, billing for services
not rendered, billing for higher level of services, diagnosis or treatments that are
outside the scope of practice, alterations on claims submissions, and providing
services while under suspension or when license have been revoked. Independent
medical examinations are used to debunk false insurance claims and allow the
insurance company or claimant to seek a non-partial medical view for injury related
cases.
Global Scenario: Health insurance fraud and abuse is common and very costly to
America's healthcare system. Industry analysts argue that out of every $7 spent on
Medicare $1 is lost to fraud and abuse that forced the Congress of the United States,
to pass the Health Insurance Portability and Accountability Act of 1996 (HIPAA)
declaring health care fraud as a federal criminal offense with punishment of up to ten
years of prison in addition to significant financial penalties.
In India: In India, the health insurance statistics is alarming. According to a survey
conducted by one of the leading TPAs, the estimated number of false claims in the
industry is estimated at around 10-15 per cent of total claims. The report suggests that
the healthcare industry in India is losing approximately Rs 600 crore on false claims
every year. Health insurance is a bleeding sector with very high claims ratio.
Various types of Health Insurance Fraud:
False claims are the most common type of health insurance fraud. The goal is to
obtain undeserved payment for a claim or series of claims. Such schemes include any
of the following, when done deliberately for financial gain:
Some physicians charge insured patients more than uninsured ones but represent to
the insurance companies that the higher fee is the usual one. Charging for a service

that was not performed, or excessive charging for a service or providing unnecessary
services or ordering unnecessary tests.
Billing for inappropriate tests-Both standard and nonstandard-appears to be much
more common among health-care providers. Management of the patient.
Unbundling of claims: Billing separately for procedures that normally are covered
by a single fee.
Double billing: Charging more than once for the same service.
Up coding: Charging for a more complex service than was performed.
Miscoding: Using a code number that does not apply to the procedure.
Kickbacks: Receiving payment or other benefit for making a referral. Indirect
kickbacks can involve overpayment for something of value.
Misuse: Criminals sometimes obtain Medicare numbers for fraudulent billing by
conducting such as health survey or offering a free "health screening" test etc.
Attitude towards general insurance fraud
Insurance fraud is a globally accepted white collared crime, more so in India where
till recently defrauding an insurance company meant cheating the Government and, by
and large, people took as their right.
Cost of general insurance fraud
Fraud cost the insurance industry an estimated $96.2 billion in 1999. (Conning & Co.)
In the United States insurance fraud is estimated to cost US$875 per person per year.
Australian Institute of Criminology say that 10% of the claims paid by Australian
insurance companies are fraudulent and they add about A$70 to the premium of each
Australian policy. (Australian Institute of Criminology)

In the UK, about 1.50 billion is paid out on account of bogus and exaggerated
claims. This adds almost 5% to the premium of an average insurance policy.
The South African Insurance Association (SAIA) estimates that approximately 10%
of claims paid out are fraudulent.
Closer home, insurance frauds in Malaysia are estimated to be 10%-15% of premiums
collected.
Impact:
Since the very basis of general insurance system revolves around the principle of
"collecting from large to pay a few" ultimately it is the policy holders who bear the
brunt of the fraud for no fault of its own.
Existing system of fraud management: Anti fraud programme
Individual insurance companies do make attempts to combat fraud, but they are more
concerned about maintaining profitability and not being out-of-line with peer
companies, rather than with reforming the system. In most developed and developing
countries, insurance associations and insurers have joined hands with the government
to combat fraud and mange to promulgate anti-insurance-fraud legislation.
As far as Indian insurers are concerned, companies are in a denial and forfeiture mode
and, hence, unable to formulate a strategy to combat fraud.
Is there any specialty in a financial fraud requiring a separate treatment?
Difficulties In Proving Fraud:
Evidential Complexity: Insurance fraud is considered an 'invisible and victimless
crime' and all over the world.
An allegation of fraud should not be made lightly. From the point of view of law of
Evidence, it becomes a challenge to prove fraud. The burden of proof is on the
insurer, if it suspects that fraud has taken place. Therefore, insurers often end up

paying the claims because they find it difficult to prove the fraud and reject false
claims.
Tools for fraud management:
Constitution or formation of Statutory Fraud Committee.
There is a need for establishment of a exclusive Statutory fraud committee for the
insurance industry.
Amendment to Indian Penal Code to criminalize financial fraud: Insurance fraud
to be defined as an offence with severe punitive punishment with the burden of proof
to be shifted on the accused to prove absence of commission of fraud by amendment
to the IPC, Indian Evidence Act.
System reforms in insurance practice: Every insurance company should be required
to develop Best Practice Code (BPC) within a time frame and submit the same to the
regulator; make effective measures to internalize the BPC in its staff, effectively
supervise the fictionalization of the BPC, control and monitor variation from the BPC,
enforce BPC in the use of discretionary power and make documentation of the same,
periodically review the use of discretionary power, conduct periodical legal system,
audit and obtain compliance certificate.
Adherence to International Best Practices against prevention of fraud: In the UK,
the Association of British Insurers has set up databases that detect multiple insurance,
multiple claims, break in insurance, etc. They have taken the service of experts to do
data-sifting to detect potential fraudulent claims. Frauds have a pattern and datasifting helps insurers detect those patterns.
Law for data sharing: Sharing of data amongst the General Insurance Companies in
India could be a very effective tool for identification, detection control and combat the
fraud. However, for this they require legal immunity from sharing information on
fraudulent claims among themselves, as well as with other financial institutions,
regulators, statutory agencies and departments. At present, there are no guidelines
with regard to sharing of information among insurers on such fraudsters.

Specific Tool For insurance fraud management: The National Insurance Academy
(NIA) has devised a "scientific method" that would facilitate insurers and tackle these
third party motor claims. The NIA method is based on seven processes, four
preventive and three retrospective tools.
Preventive tools brought about are:
Stress analysis that would detect the strain and tension in a claimant's voice to figure
out if he/she is truthful about the accident.
Red flagging' which essentially means reporting bogus claims, thereby creating some
sort of a bank. The next time a surveyor deals with a particular accident case, he can
dip into the bank to help him identify a pattern.
Predictive modeling is a third tool by which an insurer can lay his hands on
information on the type of vehicles making a claim in a certain area.
The fourth preventive process is database searching. A record of various places and
conditions surrounding that area will be kept. This would help an insurer to be extra
cautious while settling claims in that area."

CONCLUSION
What is insurance fraud?
Insurance fraud is an attempt to obtain money from insurance companies by arranging
a loss or accident or falsifying information on applications for insurance claims. Fraud
can range from large, organized operations involving hundreds of thousands of dollars
to an otherwise honest individual who overstates a legitimate claim.
What is the penalty for being found guilty of insurance fraud?
In most of its forms, insurance fraud is a felony. When caught, prosecuted and found
guilty, most fraud perpetrators are required to make restitution and jail time is also
commonly imposed.

What is the most common types of fraud cases?


Insurance fraud can be divided into three categories: false claims for injuries; arson
for profit; and false or intentional auto theft and physical damage.
What is the insurance industry doing to reduce fraud?
The insurance industry is committed to reducing fraud by teaching claims
professionals how to recognize suspicious claims and work with law enforcement and
fir services. Insurance companies have units trained to investigate fraud.
What can citizens do to reduce fraud?
People who want to fight back against this crime can call their state department of
insurance and report the crime.
What effect does fraud have on the average insurance policy holder?
The insurance industry estimates the size of insurance fraud to be about 10-15 percent
of the premium dollar. This puts the yearly costs at an estimated $18 billion
nationally. As fraud is reduced or eliminated, clams costs can be lowers and those
savings can be passed on to policyholders.

BIBLIOGRAPHY
BOOKS
1.Business Ethics And Corporate Governance
By-Anita Bobade, Vipul Prakashan
2. Business Ethics And Corporate Governance
By-Archana Prabhudesai, Seth Publication
3.Organisation Of Commerce & Management
By-N.G. kale, Vipul Prakashan
WEBSITES

www.irda.gov.in
www.wikipedia.org
www.rediffbusiness.com