Frauds In Insurance

1. INTRO TO INSURANCE
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
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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

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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
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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

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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
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(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

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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:
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1. Captive Agents: Captive agents represent a single insurance

company and are required to only do business with that one
company.

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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.
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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

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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.

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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
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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

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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.

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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.
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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
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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.

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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
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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

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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.
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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

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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
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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.

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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.

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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.

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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 wouldn’t have otherwise. This is
more difficult to detect.
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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

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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
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involve arson.

Internal Fraud:

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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

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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 investor’s sifter
the person s death.

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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.

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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.

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

It includes:

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

certificates, insurance identifications cards or binders.
II. False Statement: Agents or insurer making false statement on a
filling with the department and insurance.
III. 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 holder’s 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 damage’s
property but never complete the work.

Creating a fraudulent claim:

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It may include:

A. Staged or caused auto –accidents.

B. Staged slip and fall accidents.

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C. False claim of foreign object in food or rink.

D. Taking a dearth to collect benefits.
E. Murder-for –profit etc.

Exaggerated claims [overstating the amount of loss] :

The most common examples are:

A. Inflating bodily injuries from auto accidents.

B. Inflating value of items taken during a bulglary or theft.
C. Inflating a physical billing damage claim form a minor tender bender.
D. 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

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created a partial or total disability elsewhere conducting the same or some

or work, duties etc.

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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. It’s also a conservative figure because much insurance fraud
goes undetected and unreported.
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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

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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 nation’s 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

People’s 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 victim’s
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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

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 Frauds In Insurance

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 policyholder’s premiums by
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secretly adding unwanted coverage to clients’ policies. Agents often target

the elderly with these swindles.

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Ruined credit

Many seriously ill people who purchased phony health insurance found
their credit ruined when they couldn’t 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 company’s 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 nation’s 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.
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• 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.

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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 America’s the elderly and poor.

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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
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Role of supervisory authorities:

IRDA, SEB should prepare an action plan to combat with the serious issue of
frauds.

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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. It requires high standard of integrity form director’s management
and employees of insurance organizations.
II. It is necessary to set realistic goals and objectives for best use of
resources.
III. It is necessary to organize, collect and evaluate the effectiveness of
information so that the management may avoid frauds.
IV. To prevent frauds in insurance the audit function must be carried out
in proper manner.

Measures by IRDA

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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;
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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,

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 Frauds In Insurance

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

IRDA’s code of conduct for agents

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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
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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.

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 Frauds In Insurance

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.

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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
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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.

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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
Frauds In Insurance

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

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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 again…and 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.
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She'd hoped to get insurance money, but instead lost her job and
served 90 days in jail.

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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
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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

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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,
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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 pre-existing condition, the buyer hopes to get the

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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.
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The Cost of Insurance Fraud

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

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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.

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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
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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."

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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 fraud-detection 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 insured’s 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.

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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
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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.

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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.

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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
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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

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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 1-800-447-8477.

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.

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 Frauds In Insurance

14. Insurance companies concerned

about rising incidents of fraud
Ernst & Young’s 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 survey’s 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 & Young’s India Fraud Investigation & Disputes Services
Leader states, “It is management’s job to set the tone and frame the controls and
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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%

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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 due-diligence
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.”

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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
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year 2011," the report said.

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 Frauds In Insurance

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.
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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.
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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"

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 Frauds In Insurance

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:

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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:

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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.
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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..

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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
Frauds In Insurance

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'.

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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
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Hawkins," the leader of a ring and 64 others for their participation in a large-scale 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.

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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
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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)

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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 auto-rickshaw.
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.
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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.

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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
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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

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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.

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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.

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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.
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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

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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

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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.

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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 data-sifting 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
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claims in that area."

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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
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costs can be lowers and those savings can be passed on to policyholders.

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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

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