CHAPTER 1

INTRODUCTION

 What is Insurance?

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

Insurance is a means of protection from financial loss. It is a form of risk management

primarily used to hedge against the risk of a contingent, uncertain loss.

An entity which provides insurance is known as an insurer, insurance company, insurance

carrier or underwriter. A person or entity who buys insurance is known as an insured or
policyholder. The insurance transaction involves the insured assuming a guaranteed and
known relatively small loss in the form of payment to the insurer in exchange for the insurer's
promise to compensate the insured in the event of a covered loss. The loss may or may not be
financial, but it must be reducible to financial terms, and usually involves something in which
the insured has an insurable interest established by ownership, possession, or preexisting
relationship.

The insured receives a contract, called the insurance policy, which details the conditions and
circumstances under which the insurer will compensate the insured. The amount of money
charged by the insurer to the insured for the coverage set forth in the insurance policy is
called the premium. If the insured experiences a loss which is potentially covered by the
insurance policy, the insured submits a claim to the insurer for processing by a claims
adjuster. The insurer may hedge its own risk by taking out reinsurance, whereby another
insurance company agrees to carry some of the risk, especially if the risk is too large for the
primary insurer to carry.

Insurance allows individuals, businesses and other entities to protect themselves against
significant potential losses and financial hardship at a reasonably affordable rate. We say
"significant" because if the potential loss is small, then it doesn't make sense to pay a
premium to protect against the loss. After all, you would not pay a monthly premium to
protect against a $50 loss because this would not be considered a financial hardship for most.

Insurance is appropriate when you want to protect against a significant monetary loss. Take
life insurance as an example. If you are the primary breadwinner in your home, the loss of

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income that your family would experience as a result of our premature death is considered a
significant loss and hardship that you should protect them against. It would be very difficult
for your family to replace your income, so the monthly premiums ensure that if you die, your
income will be replaced by the insured amount. The same principle applies to many other
forms of insurance. If the potential loss will have a detrimental effect on the person or entity,
insurance makes sense.

Everyone that wants to protect themselves or someone else against financial hardship should
consider insurance. This may include:

 Protecting family after one's death from loss of income

 Ensuring debt repayment after death
 Covering contingent liability
 Protecting against the death of a key employee or person in your business
 Buying out a partner or co-shareholder after his or her death
 Protecting your business from business interruption and loss of income
 Protecting yourself against unforeseeable health expenses
 Protecting your home against theft, fire, flood and other hazards
 Protecting yourself against lawsuits
 Protecting yourself in the event of disability
 Protecting your car against theft or losses incurred because of accidents

Insurance works by pooling risk. What does this mean? It simply means that a large group of
people who want to insure against a particular loss pay their premiums into what we will call
the insurance bucket, or pool. Because the number of insured individuals is so large,
insurance companies can use statistical analysis to project what their actual losses will be
within the given class. They know that not all insured individuals will suffer losses at the
same time or at all. This allows the insurance companies to operate profitably and at the same
time pay for claims that may arise. For instance, most people have auto insurance but only a
few actually get into an accident. You pay for the probability of the loss and for the
protection that you will be paid for losses in the event they occur.

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 Introduction to frauds
 What are frauds?

In a broad strokes definition, fraud is a deliberate misrepresentation which causes another

person to suffer damages, usually monetary losses. Most people consider the act of lying to
be fraud, but in a legal sense lying is only one small element of actual fraud.

A salesman may lie about his name, eye color, place of birth and family, but as long as he
remains truthful about the product he sells, he will not be found guilty of fraud. There must
be a deliberate misrepresentation of the product's condition and actual monetary damages
must occur.

Many fraud cases involve complicated financial transactions conducted by 'white collar
criminals', business professionals with specialized knowledge and criminal intent. An
unscrupulous investment broker may present clients with an opportunity to purchase shares in
precious metal repositories.

For example, His status as a professional investor gives him credibility, which can lead to a
justified believability among potential clients. Those who believe the opportunity to be
legitimate contribute substantial amounts of cash and receive authentic-looking bonds in
return. If the investment broker knew that no such repositories existed and still received
payments for worthless bonds, then victims may sue him for fraud.

Fraud is not easily proven in a court of law. Laws concerning fraud may vary from state to
state, but in general several different conditions must be met.

One of the most important things to prove is a deliberate misrepresentation of the facts. Did
the seller know beforehand that the product was defective or the investment was worthless?
Some employees of a large company may sell a product or offer a service without personal
knowledge of a deception.

The account representative who sold a fraudulent insurance policy on behalf of an

unscrupulous employer may not have known the policy was bogus at the time of the sale. In
order to prove fraud, the accuser must demonstrate that the accused had prior knowledge and
voluntarily misrepresented the facts.

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Another important element to prove in a fraud case is justifiable or actual reliance on the
expertise of the accused. If a stranger approached you and asked for ten thousand dollars to
invest in a vending machine business, you would most likely walk away. But if a well-
dressed man held an investment seminar and mentioned his success in the vending machine
world, you might rely on his expertise and perceived success to decide to invest in his
proposal. After a few months have elapsed without further contact or delivery of the vending
machines, you might reasonably assume fraud has occurred. In court, you would have to
testify that your investment decision was partially based on a reliance on his expertise and
experience.

The element of fraud which tends to stymie successful prosecution is the obligation to
investigate. It falls on potential investors or customers to fully investigate a proposal before
any money exchanges hands.

Failure to take appropriate measures at the time of the proposal can seriously weaken a fraud
case in court later. The accused can claim that the alleged victim had every opportunity to
discover the potential for fraud and failed to investigate the matter thoroughly.

Once a party enters into a legally binding contract, remorse over the terms of the deal is not
the same as fraud.

Those who commit insurance fraud range from organized criminals who steal large sums
through fraudulent business activities and insurance claim mills to professionals and
technicians who inflate the cost of services or charge for services not rendered, to ordinary
people who want to cover their deductible or view filing a claim as an opportunity to make a
little money.

Some lines of insurance are more vulnerable to fraud than others. Health care, workers
compensation and auto insurance are believed to be the sectors most affected.

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 Insurance fraud and abuse:

Fraud and abuse are widespread and very costly to any country‘s health-care system. Fraud
involves intentional deception or misrepresentation intended to result in an unauthorized
benefit. An example would be billing for services that are not rendered.

Abuse involves charging for services that are not medically necessary, do not conform to
professionally recognized standards, or are unfairly priced. An example would be performing
a laboratory test on large numbers of patients when only a few should have it. Abuse may be
similar to fraud except that it is not possible to establish that the abusive acts were done with
an intention to deceive the insurer.

 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.

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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 frauds and how they affect your bottom
line. It takes two to tango insurance frauds comes in two main categories seller fraud and
buyer fraud. Seller fraud occurs when the seller of a policy hijacks the usual process is 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 entitled to:

 Types of seller fraud

There are many variations of seller fraud, but they all center around four basic types. These
are:

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

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

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

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

 Types of buyer fraud:

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

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

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

 Murder for proceeds: There are two versions of the murder for proceeds fraud. In
the first, the insured doesn't know they are insured and are understandably surprised

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 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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 CHAPTER 2
TYPES OF INSURANCE FRAUDS

Fake insurance companies and dishonest insurance agents can defraud consumers by
collecting premiums for bogus policies with no intention or ability to pay claims. These
―companies‖ may offer policies at costs that are significantly lower than the traditional
market price in order to woo consumers who are trying to save money. In many cases, a fake
insurance company will provide consumers with documents that look real. In other instances,
these policies may even be represented by legitimate insurance agents who themselves have
been misled by fraudulent companies.

Legitimate companies that are not licensed by the state to sell insurance might lead
consumers to think they are selling ―insurance‖ while evading state insurance regulations. For
example, a company selling a health discount plan might call the plan insurance when it is
actually an unregulated, non-insurance product.

Employees of legitimate insurance companies can also deceive consumers for personal gain.
For instance, an unscrupulous agent could collect premiums from a customer without
delivering the insurance policy to the company. The insurance company could cancel or
refuse to renew the policy. Signs of fraud with reputable companies include the failure to
receive an insurance identification card or a copy of your policy in a timely manner.

Consumers can also be guilty of insurance fraud. Deliberate attempts to stage an accident,
injury, theft, arson or other type of loss that would be covered under an insurance policy;
exaggerating a legitimate claim; and/or knowingly omitting or providing false information on
an application are all examples of insurance fraud.

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

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  Property insurance fraud
 Internal fraud
 External fraud

 Hard fraud:

Hard fraud is a type of insurance fraud which involves stronger, more obvious and more
strident actions in the fraud. Likely most forms of insurance fraud that the average person has
heard about are hard fraud, because of the blatant nature of hard fraud incidents.
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.

Often, hard fraud will be pieced together as a major scheme, a large-scale deception, with the
goal of earning tremendous amounts of money from insurance companies. But because hard
fraud is often so much more of a scheme, it is often more easily detected. After all, the more
sophisticated the hard fraud scheme, the more evidence will be available in the correct places.

Hard fraud is also the type of fraud most likely to involve criminal action, thanks to the
complex nature of the schemes that can be involved. Often, hard fraud can involve fake
accidents, fake thefts, fake injury, or even arson.

There have even been cases of life insurance hard fraud, when the beneficiary of the life
insurance policy killed the policy holder, in order to reap the profits. While the hard fraud
itself would still be a source for some prosecution through state anti-fraud regulations, the
fact that hard fraud is so often connected to other major crimes means that those who commit
hard fraud are often tried federally, for the crimes, instead of just the hard fraud.

Insurance fraud penalties themselves have grown much stronger over the years, making those
cases of hard fraud which are easily discovered all the more dangerous for the perpetrator.
Insurance fraud penalties could now include anything from community service to huge fines
or jail time, depending on the state in which the fraud is perpetrated, and the severity of the

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fraud. These insurance fraud penalties, coupled with the potential for criminal charges from
hard fraud, make hard fraud a very risky way to defraud insurance companies.
Yet, hard fraud is still attempted because it, unfortunately, works. Major criminal
organizations have been known to use hard fraud scams consistently in order to make
tremendous amounts of money from the insurance companies; the most classic example is the
insured building, which is then burned down by an arsonist in order to collect on the fire
insurance. These schemes work more often than most people would like, even despite
increasing insurance fraud penalties.

For example, Tom has been unemployed for several months, when his old clunker car breaks
down. Desperate for money to replace his car, Tom decides to make it look like someone
broke into his house, then made a police report claiming theft of several expensive items.
This type of hard insurance fraud is common, and is one reason insurance companies employ
an insurance fraud investigator. Hard fraud cases almost always results in felony charges.

 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.

Soft fraud occurs when a person has a valid insurance claim, but falsifies part of the claim, or
exaggerates damages in order to obtain the maximum benefits. Many people do not consider
this to be as serious as hard fraud, but it is still a crime, and can result in increased insurance
costs for clients.Soft fraud the form of insurance fraud that is most difficult to detect, because
soft fraud inherently involves a legitimate claim at its core. A perpetrator of soft fraud is not
lying about the fact that items were stolen from him, for example; that is most certainly true.
But he is lying about the items' worth, or about exactly which items were stolen, sometimes
even going so far as to say that certain items, which he never actually owned, were stolen.
Soft fraud is also generally for smallish amounts of money, and the overall lie is not very
large or easily detected; after all, if the item was stolen, there is no easy way to verify how
much it was worth. As a result, soft fraud often goes uncaught.

For example, Elizabeth is involved in a minor collision when someone backs into her car in a
parking lot. There is substantial damage to one part of her car, and she is uninjured. When it
comes to filing the insurance claim, however, Elizabeth reports having neck and back pain,

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and even seeks treatment by a chiropractor to support her claim of injury. In this type of soft
fraud, Elizabeth has a valid claim for damages to her vehicle, but she claims personal injury
in an attempt to receive a higher payout.

 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.

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,

Medical providers can commit health insurance fraud by making false claims, billing for
services not provided or supplies not used, or altering existing claims. It is believed that most
healthcare providers that commit health insurance fraud do so in order to receive greater
compensation that they normally would from Medicare or Medicaid. This can be done in
several ways, including:

 Billing for procedures not actually performed

 Billing for a higher-rated exam, when a minor exam was performed
 Billing for 1-hour psych exam when a 15-minute med check was performed
 Referring patients to specialists when it is not necessary

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  Billing a family member‘s insurance from which the patient has no benefits
 Scheduling unneeded follow-up visits for patients
 Ordering tests that are not needed
 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.
 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.

 Automobile insurance fraud:

Fraud rings or groups may fake traffic deaths or stage collisions to make false insurance or
exaggerated claims and collect insurance money. The ring may involve insurance claims
adjusters and other people who create phony police reports to process claims.

Auto insurance fraud is a commonly perpetrated fraud in the U.S., occurring when people
fake traffic accidents, inflate claims, and even fake auto-related deaths in order to receive
auto insurance payouts. Insurance investigators have even discovered some insurance
adjusters getting in on the act for a fee. Perpetrators of auto insurance fraud use a variety of
tactic, such as braking sharply in traffic to intentionally cause the car behind them to hit them
in the rear. These fraudsters then claim that the other driver was at fault, and make a claim for
damages to their vehicle, as well as to injuries that don‘t exist.

Another tactic used by those who engage in insurance fraud is jumping in front of a moving
car and claiming that the car hit them. Often, when unintentional accidents occur, and the
victim will exaggerate their injuries to receive more money. They may even claim that the
accident caused injuries that were in fact, caused by something else, in order to get their
treatment paid for by the auto insurance company.

The majority of automotive insurance fraud arrests in involve:

 staged auto accidents and false claims of injury
 false reports of stolen vehicles
 false claims that an accident happened after a policy or coverage was purchased
 false claims for damage that already existed

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  claimants who concealed that a person excluded from coverage by their policy was
driving at the time of the accident

For examples, Susan was driving without insurance and had an accident. When she applied
for insurance, she lied. She said she‘d had no accidents. Then she filed a claim saying that her
car had been damaged, lying that the accident happened after the policy took effect.

When Howard purchased his policy, he admitted his adult son Trevor lived with him but
didn‘t have a valid driver‘s license. So Trevor was listed on the policy as an ―excluded
driver.‖ Howard‘s policy was clear that the insurance company would not pay any claim for
loss or injury if Trevor was operating the vehicle at the time of an accident. But after Trevor
crashed Howard‘s car into a telephone pole, Howard submitted a claim and lied by saying he
was driving.

 Property insurance fraud:

Possible motivations for this can include obtaining payment that is worth more than the value
of the property destroyed, or to destroy and subsequently receive payment for goods that
could not otherwise be sold. According to Alfred Manes, the majority of property insurance
crimes involve arson.

Property insurance fraud occurs when an individual either destroys, or makes a false report of
theft of, personal property items, a structure, or even a vehicle, in order to obtain benefits
from the insurance company. This is usually done because the individual is strapped for cash,
and the insurance payout is often greater than what the property would be worth to simply
sell it. Additionally, when someone reports property loss or damage, they too inflate the
claim, reporting property they never had, or reporting items as being a better brand, and
newer than they actually were. The most common type of property insurance is a loss of a
home due to arson. This may be because the insurance covers, not only the structure, but all
of the property contained inside.

This is a wider area of insurance frauds different losses i.e. fire, marine, burglary, theft,
accidents to 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.

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  Concealing of the information by the insurance company at the time of insurance
contract.
 Payment of exorbitant commission to the agents for heavy sales and advertisement of
the policies by the insurance companies.
 Intentionally damaging the property and asking for insurance claim by the policy
holders.

 Internal fraud:

There are those perpetrated against insurance companies or its policyholders by agents,
managers, executives or other employee executives or the insurance employees. Internal
frauds are a threat for all companies. Company procedures are often based on trust and
typical mechanism in place are not always focused on preventing or detecting fraud. Some
perpetrators may be highly qualified specialists or in middle management in your firm. These
people are optimally placed to access company assets thanks to their know how and long
experience of how the company works. Statistics show that internal fraud can be the most
harmful, regardless of the business work.

It includes:

 Fake/False documents: Agents or insurer issuing fake policies, certificates,

insurance identifications cards or binders.
 False statement: Agents or insurer making false statement on a filling with the
department and insurance.
 Pocketing premiums: Agents or insurer pocketing premiums, then issuing a fairy
policy or none at all.
Illustrated list:
 misappropriating funds
 Fraudulent financial reporting
 stealing cheque
 overriding decline decisions so as to open accounts for family and friends e) inflating
expenses claims/over billing
 paying false (or inflated) invoices, either self-prepared or obtained through collusion
with suppliers

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  permitting special prices or privileges to customers, or granting business to favored
suppliers, for kickbacks/favors
 forging signatures
 removing money from customer accounts
 falsifying documents
 Selling insurer‘s assets at below their true value in return for payment.

 External fraud:
External frauds are direct against insurance by individuals or entities as diverse as policy
holders provide, 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: It may include:
 Staged or caused auto accidents.
 Staged slip and fall accidents.
 False claim of foreign object in food or rink.
 Taking a dearth to collect benefits.
 Murder-for –profit etc.
 Exaggerated claims [overstating the amount of loss]: The most common examples
are:
 Inflating bodily injuries from auto accidents.
 Inflating value of items taken during a burglary or theft.
 Inflating a physical billing damage claim form a minor tender bender.
 Medical providers inflating billing or upcoming of medical procedures to name a
few
 Falsifying a theft reports: A property owner falsely reports items stolen or exaggerates
the values of items taken in a burglary to collect insurance money.

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 Life insurance frauds:

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. Life insurance
fraud occurs when a person fakes their own death, or the death of another person, in order to
receive life insurance payments from the insurance company. This type of fraud usually
involves two or more people. When the life insurance company is notified of a death, the
named beneficiary receives the insurance settlement. Many people committing life insurance
fraud resurface years after the assumed death took place. If the person is caught, the person
who aided in the life insurance fraud scheme is charged with the crime as well. Life insurance
fraud would be considered hard fraud and, because of the dollar amounts involved, is a
felony.

Life insurance fraud is relatively limited in its forms and variants, if only because life
insurance policies are relatively specific in their function. Life insurance policies exist to
provide money to those surviving the policy holder, in the event of his or her death. Life
insurance fraud, then, can only function in so many ways, as the only possible way to collect
money on a life insurance policy is if the holder is officially considered dead by the insurance
company issuing the policy.

There are two main types of life insurance fraud, the first of which involves less by way of
criminal charges, and is also theoretically the easier form to investigate. One way to pull off
life insurance fraud is simply to fake the death of the policy holder. Having that person
vanish willingly, while somebody close to him or her then collects on the policy, is a classic
life insurance fraud strategy.

The other main type of life insurance fraud is significantly more dangerous for all involved
parties, and is significantly more serious. In this version of life insurance fraud, one party,
usually the beneficiary of the policy, will attempt to murder the life insurance policy holder
for the sake of receiving whatever money would come from the policy.

Life insurance fraud is one of the less perpetrated forms of fraud, not least because it is so
difficult. There is no way to perform soft life insurance fraud, which would simply be an
exaggeration of a claim, instead of an outright lie, as the policy holder will either be dead, or
alive. This means that the only kind of life insurance fraud is hard fraud, which generally
indicates a greater amount of planning or criminal intent.

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Furthermore, life insurance fraud being so decidedly in the realm of hard fraud indicates that
the people who would likely commit life insurance fraud are the people who would be more
likely to commit any kind of criminal act, in general.
This could be a very plotted out scheme, in which the policy holder does not even necessarily
know that a life insurance policy has been taken out on him, or it could be a more spur of the
moment crime. But either way, this kind of life insurance fraud is much more serious than the
other kind, as it obviously involves criminal murder charges, along with the life insurance
fraud. Fraud investigations may actually subside next to criminal investigations, which would
likely also discover the fraud, along with the murder.

Policyholder Fraud and Claims Fraud:

 Exaggerating damages/loss
 Staging the occurrence of incidents
 Reporting and claiming of fictitious damage/loss
 Medical claims fraud Page
 Fraudulent Death Claims

 Intermediary fraud:
 Premium diversion-intermediary takes the premium from the purchaser and does not
pass it to the insurer
 Inflates the premium, passing on the correct amount to the insurer and keeping the
difference
 Non-disclosure or misrepresentation of the risk to reduce premiums
 Commission fraud - insuring non-existent policyholders while paying a first premium
to the insurer, collecting commission and annulling the insurance by ceasing further
premium payments.

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  10 Most common types of insurance fraud
Insurance fraud is not a victimless crime. When people cheat insurance companies out of
money, the honest people that pay premiums pay through increased insurance costs.
Insurance companies lose an estimated $30 billion per year in insurance fraud costs that have
to get passed on to bill-paying consumers.

You can help stop insurance fraud by contacting your state department of insurance and
giving as many details as you possibly can about the fraud that you witnessed. Consumers
should learn to be vigilant in identifying insurance fraud by becoming familiar with the 10
most common forms of fraud.

 Stolen car
There are two ways that criminals perpetrate the stolen car insurance fraud scam. The first
type of stolen car fraud is when a car owner sells his car to a body shop to be cut up for
parts and then reports the car was stolen. The body shop is in on the fraud, so the
authorities are never told about the sale for parts.

The second most common way that criminals commit stolen car fraud is to sell the car to
an overseas buyer, make the transaction without any paperwork, ship the car overseas and
then report it stolen.

 Car accident
The next time you see a car accident, you could be watching insurance fraud in action. In
most cases, the driver and accident victim are the only ones in on the scheme. In other
cases, the driver, victim, insurance investigators and even some of the bystanders that
give statements are in on the fraud. The value of the vehicles is greatly inflated and the
insurance payoff is for two totaled vehicles.

 Car damage
Any form of insurance fraud is illegal and damaging to the insurance company. Some
people will report a small car accident, get an estimate for damages, collect the insurance
check and then not get the car fixed. This is single most common form of auto insurance
fraud going on, and it happens constantly. The people doing it see no harm in it, but the
money the insurance company pays out comes from premiums paid by other customers,
which will go up the more often this fraud is committed.

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 Health insurance billing fraud
Unfortunately, health care professionals will sometimes get in on the insurance fraud act.
One form of & it is for health care providers to bill health insurance companies a high fee
for a standard procedure, or to bill for services that were never rendered. For example,
you may go in for a regular check-up but your doctor decides to bill your insurance
company for an in-office surgical procedure that never happened. The patient is the
victim of fraud and does not even know it.

 Unnecessary medical procedures

If it seems like your doctor is ordering you to go for unnecessary testing, then you may be
the victim of insurance fraud. If you go to the doctor for a sore arm but your doctor orders
a series of blood tests that have nothing to do with your arm, then that could be a common
form of insurance fraud.

 Staged home fires

Home owner insurance fraud costs insurance companies and their customers billions of
dollars each year. One of the most common forms of home owners ways is The
homeowner either removes important family items before the fraud takes place, or the
homeowner makes sure that the insurance company knows the value of the expensive
items and then has them destroyed.
In almost every case of a staged home fire, the homeowner is not home and can account
for his whereabouts when the event took place. Criminals are hired to set fire to the home,
or break in and vandalize the home to make it look like the homeowner was victimized.

 Storm fraud
Criminals will take advantage of any situation to commit insurance fraud, including a
major storm. A common form of fraud that happens in the wake of major storms is
homeowners will either enhance the storm damage to their home to get more of a
settlement, or the homeowner will take advantage of how busy the insurance company is
and call in a claim even if there was no storm damage.
 Abandoned house fire
One of the most common forms of homeowners insurance fraud is the abandoned house
fire. It can happen for a variety of reasons, but the end result is always fraud. The

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 homeowner could have been transferred to a different city because of his job and cannot
sell his property, or a landlord owns a home in a neighborhood that is no longer popular
and cannot get tenants to help pay the mortgage.
If you have ever been at the scene of an abandoned house fire after the flames have been
put out, you will see at least one fire inspector for the insurance company on site. This is
an extremely common kind of insurance fraud that not only causes premiums to go up,
but it also puts the buildings next to the abandoned home in jeopardy as well.

 Faked death
This form of insurance fraud is so common that it has been the plot of many movies,
television shows and books. A criminal will take out a life insurance policy on himself
and make his spouse the beneficiary. After the policy has been in effect for several
months, the insured criminal fakes his death and his spouse is paid the death benefit.
When the funeral is over, the spouse suddenly disappears and the insurance company is
out the death benefit

 Renters insurance
People who rent homes or apartments will often take out inexpensive renter‘s insurance
policies to cover the cost of their possessions. Prior to moving out of the home or
apartment or when financial times get bad, the insured will sell their possessions and then
report them stolen to collect the insurance money.

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 CHAPTER 3

CAUSES OF INSURANCE FRAUD

An increasingly significant portion of these increases results directly from our friends and
neighbors who inflate claims, to minimize the impact of deductibles, or intentionally report
incidents incorrectly to overcome policy exclusions that would otherwise apply. Employees
who are injured at home playing touch football with their children suddenly develop lower-
back pain while entering or exiting a truck cab in order to collect workers' compensation
benefits. Claims for overage, shortage and damage continue to escalate as drivers or
consignees enter into duplicitous schemes to intentionally miscount freight. In more cases
they want to remember, hijacking claims were paid because the driver surrendered his keys
under "threat of physical harm" by the hijackers, only to have a later investigation confirm
that the hijacking was actually a "giveback" by the driver under prearranged circumstances.
Pier losses to cargo have had an almost universal reference to ill-gotten goods that "fell of the
truck."

Staged automobile accidents involve hundreds of rings of thieves who brazenly orchestrate a
variety of accidents in which the victims collect millions of dollars in fraudulent claims. This
is the money they are stealing.

While insurance fraud is immensely attractive to organized crime, the opportunity for a
quick, tax-free windfall has also sullied the medical and legal professions. I'm startled at the
frequency of investigations that confirm physician frauds for office visits and treatments that
never took place.

The hard-pressed stand to believe that some of the finest legal minds in the country were
unaware that their clients were conspiring to defraud insurance companies as the attorneys
negotiated their settlements.

Why is it that seemingly honest people think they have a license to steal when an insurance
claim presents itself? What causes this phenomenon? Thinking about the vanishing-integrity
that forms some but surely not all of the consumers who practice insurance fraud would never
think of committing felonies such as burglary or murder. Could it be that consumers so
engaged in insurance fraud do so because almost everyone's experience with insurance
companies results in frustration, delay, bad faith and evasive heavy-handed claims practice?

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Has the insurer's promise to pay become a shallow, unfulfilled commitment that inevitably
resulted in increased fraudulent activity by the policyholder? The thought that this may well
be the case. Do the insurer's ongoing delaying tactics in the payment of legitimate claims
foster the hostile consumer attitudes that breed dishonesty?

Is insurance fraud justified? Of course not! Yet as the routinely review losses and claims that
are clearly covered by insurance policies, they shudder at insurance attitudes that often result
in claims denials that are dangerously close to bad faith by the insurer. Policyholders do not
author the insurers' contracts of insurance. The insurers construct these policies. Consumers
purchase coverage as it becomes available to them as it becomes available to terms and
conditions of coverage that are often extremely broad. Because of the policy's broadness, the
insurer is resentful, and often hostile, toward policyholders who rightfully pursue a covered
claim.

The claims- and loss-settlement process has become a battleground for many policyholders. It
breeds an environment that, not surprisingly, encourages fraudulent activity. So much of the
litigation the review is unnecessary. We are convinced that many excessive jury awards are
the consequence of a horrible prior experience one or more of the jurors has had with an
insurance company.

 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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 CHAPTER 4

IMPACT OF INSURANCE FRAUD

Indian insurance companies have collectively lost a whopping Rs 30,401 crore due to various
frauds which have taken place in the life and general insurance segments during the year,
according to a study. The losses work out to about nine per cent of the total estimated size of
the insurance industry in 2011, the study carried out by Pune based company India forensic
states said.
The total premium income of the insurance industry, comprising life, non-life and health, is
around Rs 3.5 Lakh crore, according to the figures by Insurance Regulatory and Development
Authority (IRDA).
The company has identified collusion between employees of insurance companies and
beneficiaries furnishing false documents, and manipulation in citing the cause of death as part
of the modus operandi adopted by fraudsters to claim undue insurance benefits. India forensic
carries out regular studies in examining frauds, security, risk management and forensic
accounting and claims to have assisted the Central Bureau of Investigation (CBI) in the multi-
crore Satyam scam.
The life insurance segment accounted for as much as 86 per cent of the frauds while
remaining 14 per cent took place in the general insurance sector, which includes false claims
for cars, houses and accidents, the report showed. The study also highlighted that the frauds
in the life insurance segment had more than doubled in the last five years while those related
to general insurance sector increased by 70 per cent.
In 2007, insurance firms had lost as much as Rs 15,288 crore, of which life insurance
accounted for 13,148 crore while the general insurance segment lost Rs 2,140 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 a founder
member of India forensic. However, insurance experts assert that while it is true that
insurance companies are cheated, the quantum of losses is not as high as the study claims.
IRDA chairman J. Harinarayan brushed aside the study. He said the insurance firms are
capable enough to protect their interests. However, he admitted that insurance companies
were not reporting scams or other malpractices in the insurance industry. "It is just a
sensational claim. I do not think so. Insurance companies have not reported to me about such

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frauds. Let me see the report first and what it says and how it claims that a 30,000 crore fraud
was committed in 2012 in the insurance sector. Insurance companies are capable enough to
protect their interest," Harinarayan told Mail Today on Sunday. LIFE Insurance Council
secretary general S.B. Mathur said, "I think the figures of fraud as claimed are unrealistic.
The fraud committed could be higher in non-life insurance compared to life insurance
companies. However, the total figure for fraud cannot be as high as Rs 30,000 crore.
"I went through reports submitted by the respective insurance companies to their audit
committees which are not open documents. But I have not come across such mind-boggling
figures. It is next to impossible.
The internal laws are not so lax." The study said that clients were defrauding the insurance
companies by not disclosing existing diseases. This was being done by manipulating the
impaneled doctors while applying for the policy. False age certificates are also being
submitted to become eligible for insurance. The forging of medical bills are the most
common fraud that affect the health insurance sector. In as many as 31 per cent of the total
falsified documentation, medical bills were the common target of the frauds by external
parties.
Travel abroad for surgery without disclosing it, or getting a damaged vehicle insured without
disclosing the accident are some of the common methods of cheating insurance companies,
the report states as examples of frauds in the general insurance sector.
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.

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 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.
 Higher insurance premiums
Fraud contributes to higher insurance premiums because insurance companies generally
must pass the costs of bogus claims and of fighting fraud onto policyholders. This
contributes to a premium spiral that can price essential insurance coverage, often required
by state law, beyond the reach of many consumers and businesses. For example:
 Auto insurance: False injury claims involving deliberately staged car accidents, for
example, are a major reason auto insurance premiums in New York, Florida and New
Jersey are among the 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 life insurance policy,
which often is worth $100,000 or more.

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 • Health insurance swindles: The safety of people is jeopardized when they
unknowingly buy fake health insurance. In addition to having their premium money
stolen, policyholders needing chemotherapy and organ transplants have had to pay for
life-saving medical treatment themselves when they discovered their insurance was
fake.In other health schemes, medical providers often perform potentially dangerous
and unneeded surgery on healthy people solely to increase their insurance billings. In
many cases, the victims are elderly, poor and homeless.
• Arson: Homes and businesses often are burned down for insurance money. The lives
of firefighters, family members and nearby residents also are placed at risk. Numerous
people have died or been seriously injured in arson-for-profit fires. Also, the property
damage is often magnified because arson fires frequently spread to nearby dwellings.

 Lost personal income, savings

Many insurance fraud schemes steal money directly from policyholders. The varied
schemes can cost people from a few dollars to their entire life savings. Here are several
examples:
• Phony health coverage: Several hundred thousand people, for example, have
unknowingly purchased phony health coverage. They lost the premium money they
paid, but many also faced catastrophic losses when they became ill and had to pay
large medical bills themselves because their policy was worthless. Some people
incurred hundreds of thousands of dollars in personal debt.
• Fraudulent Viaticals: Thousands of people also have lost money to viaticals, a
quasi-insurance product where people invest in the life-insurance policies of dying
people. Viaticals can be legitimate, but many people have lost large investments in
fraudulent viaticals. Some have lost their life savings.
• Dishonest agents: Dishonest insurance agents will pocket client insurance premium
checks themselves, leaving the clients dangerously uncovered. Dishonest insurance
agents also increase a policyholder‘s premiums by secretly adding unwanted coverage
to clients‘ policies. Agents often target the elderly with these swindles.

 Ruined credit
Many seriously ill people who purchased phony health insurance found their credit ruined
when they couldn‘t pay large medical bills after their policy refused to pay.

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 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.
 Federal government: The federal government annually allocates several billion
dollars to fighting fraud in Medicare and Medicaid, the respective public health
insurance programs for the elderly and poor.

 Personal costs
Insurance fraud also can impose large personal costs on its victims. Many victims feel
embarrassed, humiliated and even violated. Often their lives and families also are
disrupted for long periods of time. Many must recover from serious financial losses or
fraud-related physical injuries. Victims also may have to recover or replace property that
was stolen, damaged or destroyed by schemes. Many victims also must spend
considerable assisting law enforcement and prosecutors as material witnesses.

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 CHAPTER 5

MEASURES TO PREVENT INSURANCE FRAUDS

Steps such as having a comprehensive fraud and abuse management policy which covers
types of fraud and abuse alongside with policies, procedures, and controls, company action
being documented and implementing a review mechanism should be taken by insurance
companies also so that they are also in a position to take legal action.

Sharing of knowledge and data should be more prevalent with the victims of fraudulent
insurance claims, this data should include fraud patterns and case studies, fraud customer list
and intermediaries, fraudulent providers and investigators etc.

Most importantly awareness should be brought about the due legal process to be followed
before reporting a case. Reporting to external bodies such as Medical Council of India,
IRDA, and corporate Human Resources can also be tried.

Consumers should be on the lookout for the following warning signs, as they may indicate
that an insurance company is fake:

 If an agent or broker is very aggressive and pressures a consumer by saying they must
sign up for a policy right away (sometimes adding…or the premiums will go up).
 The premiums from one company are a lot lower (more than 15-20% less) than other
companies‘ comparable coverage.
 When a consumer tries to call the insurer to get more details or ask a question, they
can‘t find a listed phone number, or it is very difficult to get through on the phone.

Before signing an application for an insurance policy or writing a check to an insurance

company, consumers should stop and take the time to confirm that the company they are
about to do business with is legitimate. Their state insurance department – easily reached by
phone – can quickly verify whether an insurance company exists and is authorized to sell
insurance in their state. The NAIC‘s ―Fight Fake Insurance‖ program seeks to protect
consumers from insurance fraud by encouraging them to Stop. Call. Confirm. before buying
coverage.

29
Consumers should call their state insurance department if they suspect illegal activity or if
they have questions before purchasing an insurance policy. To deal with specific issues
involving criminal activity, many state insurance departments have antifraud and criminal
investigators, who work closely with federal, state and local law enforcement officials to
prosecute insurance fraud.

Fighting fraud is an important aspect of state regulation. To help fight the growing problem
of insurance fraud, the NAIC created a uniform fraud reporting system through which
consumers and insurance departments can electronically report suspected fraud to the
appropriate insurance department. In 2010, state fraud bureaus received more than 132,000
case referrals from insurance companies, consumers and other law enforcement agencies.
About 45,000 cases were opened for investigation resulting into more than 4,200 arrests and
2,000 civil actions. In addition, the NAIC maintains the Special Activities Database (SAD)
to capture market activities and legal actions involving entities engaged in the business of
insurance.

The NAIC Antifraud (D) Task Force monitors all aspects of antifraud activities. The Task
Force mission is to serve the public interest by assisting the state insurance supervisory
officials, individually and collectively, to promote the public interest through the detection,
monitoring and appropriate referral for investigation of insurance crime, both by and against
consumers.

Anti-Fraud Policy Procedures for Fraud Monitoring This policy applies to all activities
undertaken by or on behalf of India First Life. It also applies to internal fraud i.e. fraud
against an employee and external fraud i.e. fraud against an external party viz. employees of a
partner or vendor or against the customer/policyholder. All fraud, suspected fraud, or other
dishonesty, will be investigated by the fraud control team or by an independent investigation
agency where appropriate, and the investigations will be reported to the Management. The
company will exchange necessary information relating to frauds proved with Life Council by
information sharing mechanisms. The framework includes measures to protect us from the
threats posted by the following broad categories of frauds:

 Policy holder fraud and/or Claims fraud: Fraud against the company in the
purchase and/or execution of an insurance product, including fraud at the time of
making a claim.

30
  Intermediary fraud: Fraud perpetuated by an insurance agent/corporate agent/Third
Party Administrators(TPA) against the company and/or policy holders.

 Internal fraud: Fraud/misappropriation against the company by its Director,

Manager and/or any other officer or staff member (by whatever name called).

Process for Fraud Monitoring If employees are involved in fraudulent activity, an appropriate
action will be taken in consultation with the Human Resources team. Appropriate action may
include any of the following:

 Issue Warning letters to the fraudulent employee.

 Terminate the services of the fraudulent employee/contract with the fraudulent

vendors.

 Register First Information Report/ police complaints against the fraudulent individual.

 Recover loss caused by fraudulent activity from the fraudulent employee/vendor.

 Initiate legal proceedings against the fraudulent individual/group of individuals.

All employees/advisors must report any incidence of fraud or suspected fraud, immediately to
the Head – Process, Quality and Fraud Control The Fraud Control Unit is part of Head –
Process, Quality and Fraud Control and reports to MD & CEO.

 Identify potential areas of fraud: While fraudulent activity could have a very wide
range of coverage, the following are some of the act(s) which constitute fraud.

The list given below is only illustrative and not exhaustive:

 Forgery or alteration of an application form or any document submitted by the

customer.

 Forgery or alteration of any document or account belonging to the Company.

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  Forgery or alteration of cheque, bank draft or any other financial instrument etc.

 Misappropriation of funds, securities, supplies or others assets by fraudulent means

etc.

 Falsifying records such as pay-rolls, removing the documents from files and /or
replacing it by a fraudulent note etc.

 Making fraudulent or false noting

 Willful suppression of facts/deception in matters of appointment, placements,

submission of reports, etc. as a result of which a wrongful gain(s) is made to one and
wrongful loss(s) is caused to the others.

 Utilizing Company funds for personal purposes.

 Authorizing or receiving payments for goods not supplied or services not rendered.

 Destruction, disposition, removal of records or any other assets of the Company with
an ulterior motive to manipulate and misrepresent the facts so as to create
suspicion/suppression/cheating as a result of which objective assessment/decision
would not be arrived at.

 Any other act that falls under the gamut of fraudulent activity.

A list of indicators and types of fraud are enclosed as per Appendix 1, Annexure I and
Annexure-II respectively.

Coordination With law Enforcement Agencies: Any one (full time & part time employees or
persons appointed on temporary/ contract basis, trainees, apprentices, representatives of
vendors/ suppliers/ contractors /consultants /service providers or any other agency doing any
business with India First) - as soon as he / she comes to know of any fraud or suspected fraud
or if they notice any other fraudulent activity - he/she must report such incident(s) without
further loss of time to the Head – Process, Quality and Fraud Control.

32
The reporting of the fraud normally should be in writing. In case the reporter is not willing to
furnish a written statement of fraud but is in a position to give sequential and specific
transaction of fraud/suspected fraud, then Head Process, Quality and Fraud Control receiving
the information should record such details in writing as narrated by the reporter and also
maintain the details about the identity of the official / employee / other person reporting such
incident. Reports can be made 'in confidence'. The person to whom the fraud or suspected
fraud has been reported must maintain the confidentiality with respect to the reporter. Such
matter should under no circumstances be discussed with any other person who is not
supposed to know about/ or is not an authorized person in such matters. Anonymous
complaints received, if not supported by the relevant evidence, may not be acted upon.
However, a record of such complaints will be maintained. Also, a record of the reasons to be
made in writing (for not taking any action on such anonymous complaints) will be maintained
by Head - Process, Quality and Fraud Control. In the case the management finds the
complaint to be motivated or vexatious, it shall be at liberty to take appropriate steps against
complainant. All reports of fraud or suspected fraud shall be handled with utmost speed and
shall be coordinated by Head Process, Quality and Fraud Control. Head Process, Quality and
Fraud Control on receiving input about any suspected fraud shall ensure that all relevant
records/ documents and other evidence is being immediately taken into custody and being
protected from being tampered with, destroyed or removed by suspected perpetrators of fraud
or by any other official under his influence. All fraud, suspected fraud, or other dishonesty,
will be investigated and where appropriate, the concerns may be reported to the relevant
regulatory authorities. The timelines would be as follows:

 Internal Investigation – 45 days.

 Legal Notice – 30 days.

 Police Complaint – 45 days.

All Investigations of Fraud shall include a Root Cause Analysis of the reasons for fraud and
the same shall be presented to the Management. Where warning letter has been issued to the
fraudulent individual/group of individual, any second incident will be treated gravely and all
investigation reports shall mention the first incident so occurred. As per the Media Policy,

33
only the authorized official of the Company will liaise with the Press Office in case such
fraud is reported in the media.

 Framework for exchange of information: IRDA through Life council has formed a core
group to discuss the framework for exchange of information and head process, Quality and
Fraud Control is part of the team. The Broad parameters have been initiated and the final
report would be circulated shortly. The policy will be modified once Life Council notifies the
requirement.

 Due diligence: Every employee (full time, part time, temporary, contractual),
representative of vendors, consultants, service providers or any other agencies doing any type
of business with India First, is expected and shall be responsible to ensure that there is no
fraudulent act being committed in their areas of responsibility/control. As soon as it is learnt
that a fraud or suspected fraud has taken or is likely to take place they should immediately
apprise the same to the concerned official as per the procedure. All officers shall share the
responsibility of prevention and detection of fraud and for implementing the Anti-Fraud
Policy. It is the responsibility of all officers to ensure that mechanisms are in place wit hin
their area of function to Inform every one working with/ under him/her about ‗Anti- Fraud
Policy‘, Familiar to each employee with the types of improprieties that might occur in their
area. Educate employees about fraud prevention and detection. Create a culture whereby
employees are encouraged to report any fraud or suspected fraud which comes to their
knowledge, without any fear of victimization. Promote employee awareness of ethical
principles and values of the Company A disclosure about the 'Anti Fraud Policy' will be made
a part of the RFP process, so as to make every one aware of and not to indulge or allow
anybody else working in their organization to indulge in fraudulent activities while dealing
with India First. The following disclaimer may be made a part of the RFPs issued by the
Company: Fraud Prevention Policy of India First:

Everyone may take a note that an "Anti-Fraud Policy" is being followed at India First, which
provides a system for prevention/ detection/ reporting of any fraud. It also forbids everyone
from involvement in any fraudulent activity and that where any fraudulent activity is
suspected by any one, the matter must be reported to Head - Process, Quality and Fraud
Control, as soon as he /she comes to know of any fraud or suspected fraud or notice any other
fraudulent activity.

34
  Anonymous complaints received, if not supported by the relevant evidence or not
easily verifiable by the Company, may not be acted upon.

 All reports of fraud or suspected fraud shall be handled and shall be coordinated by
the Head - Process, Quality and Fraud Control.

 A copy of the 'Anti Fraud Policy' is available on the official web-site of India First.

 Regular communication channels: Ensure all the employees, agents, temporary staff,
contractors or relevant third parties are made aware of the requirements of this policy.
Ensure the effective implementation of this policy by devising appropriate procedures to
ensure compliance with this policy. Ensure that the Fraud control team is informed of
suspected fraud or other financial crime immediately and that no action is taken until
directed by the Fraud control team. This is because evidence could be destroyed, which
could impede any subsequent investigation or prosecution. The Whistle blower policy is
in place and has been approved in the Board Meeting held on 25th Oct, 2010.

 Fraud monitoring function (FMF): The FMF shall ensure effective implementation of
the policy and shall also be responsible for the following:

 Internal reporting from/and to Management and Board.

 Creating awareness amongst the employees/ intermediaries/ policyholders to counter

insurance frauds.

 Furnishing various reports on frauds to the IRDA as stipulated in the guidelines; and

 Furnish periodic reports to their respective Board for its review. The FMF is headed
by the Head Process, Quality and Fraud Control. All employees/advisors must report
any incidence of fraud or suspected fraud, immediately to the Compliance officer.

35
 How to report
 Reports to the authority: The statistics on various fraudulent cases investigated/
highlighted and action taken thereon shall be filed with IRDA in forms FMR 1 and
FMR 2 providing details of (i) outstanding fraud cases; and (ii) closed fraud cases
every year within 30 days of the close of the financial year.
 Preventive mechanism: India First will inform both potential clients and existing
clients about the policy. The company will include necessary caution in the relevant
documents, duly highlighting the consequences of submitting false statement and/or
incomplete statement, for the benefit of the policyholders, claimants and the
beneficiaries. 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 fraud prevention programs through newspaper, magazine, t. v. radio,
information for fraud phones areas and necessary help towards it can be provide
 Role of supervisory authorities: IRDA, SEB should prepare an action plan to
combat with the serious issue of frauds.
 Track down the cheaters: Police authorities, CBI should take action lead in tracking
down the cheaters.
 Increasing value base 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

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

 Precaution is better than cure

Insurance fraud is not typically a violent crime, just a lucrative one. As consumers, there are
several common-sense steps you can take to help reduce fraud and minimize its impact.

 Be an informed consumer: Insurance premiums are a significant expense for most of

us. The premiums you pay are based on your individual claims history and the degree
of risk involved. Generally speaking, the greater the risk, the higher the premium. For
example, the theft premium for a Honda Accord will be far higher than that of a Yugo
quite simply because more Honda Accords are stolen. Similarly, a tightrope walker
will pay more for life insurance than a librarian, all else being equal.

 Comparison shop: Premiums can vary significantly from insurer to insurer so it pays
to shop around. To make comparison shopping a little easier, the Insurance
Department publishes consumer guides for auto, homeowners, long-term care and
HMO/health insurance that provide sample premiums for insurers that offer these
coverage. In addition, the Insurance Department's Web site is also the home of an
Interactive Guide to HMOs, which allows consumers to find information about HMOs
operating within their home country.

• Know your agent or broker: Consumers can often be victimized by unscrupulous

agents or brokers and discover only after they file a claim that they are without
coverage for their home or their car. If an uninsured home is damaged by fire, the
owner is solely responsible for restoring it and paying back any mortgage holders. If a
driver is involved in an accident while driving an uninsured vehicle, any personal
assets are subject to forfeiture if that driver is sued for damages. Deal only with
licensed agents and brokers. Agents and brokers must carry proof of licensure.

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 • Where's the proof: Never pay for a premium in cash. Pay by check or a money order
made out to the insurance company directly or to the agency—not to the individual
agent or broker. In addition, always request a receipt.

 Where's the policy? You should receive a copy of any type of insurance policy
complete with endorsements and declarations specifically outlining your coverage and
its limitations within a reasonable period after your purchase. If you do not receive it,
question your agent or broker. If there is no satisfactory explanation for the delay,
contact the New York Insurance Department immediately. You may not have the
insurance coverage you paid for.
 Are you being billed for services you have not received? If you have received
medical or dental treatment that is covered by an HMO or an insurance company, you
will receive an "Explanation of Benefits" statement listing the services for which
benefits have been paid. Review it carefully to ensure that your health care provider
has not "bumped up" your claim (i.e., overstated services provided in order to receive
a higher payment), or charged for services you did not receive. Contact your insurer
immediately if you feel there are discrepancies. Fraudulent claims payments translate
into higher insurance premiums for all of us.

 What if you’re involved in an automobile accident?

Call the police to the scene and make sure that the details of the accident are documented and
the identities of the occupants of the other vehicle are verified. Be suspicious if the driver of
the other vehicle insists there is no need to call the police. That driver‘s insurance card may
be fraudulent and his car uninsured.

• Auto insurance fraud: is a multi-billion-dollar problem nationwide. Watch out for

these common scams:
• The staged accident: A vehicle filled with people will stop suddenly in front of you,
setting you up as the cause of a rear-end collision. The "victims" will then file costly
multiple medical and damage claims using doctors and lawyers who are part of the
scam.
• Steers: These individuals will solicit the injured or allegedly injured parties and direct
them, for a "referral fee," to lawyers, doctors and/or medical facilities that are part of

38
 the scheme. Be on the lookout for steer at accident scenes and don‘t become their
victim.
• Inflated claims: If you are in an automobile accident, be sure you know the extent of
the damages to your own car and the other vehicle and carefully review claims.
Vehicle owners and body shops frequently inflate estimates for damages and then
either perform other repairs not related to the accident or simply keep the extra
money.

 Be alert! It's your money

Think twice before replacing an existing life insurance policy with a new one. The new
policy may have exclusions or waiting periods for pre-existing conditions that are covered by
your current policy. And premiums are likely to be higher because you are older. The
Insurance Department protects consumers by requiring agents to provide prospective
purchasers with pertinent facts when that purchase will cause the buyer to surrender, lapse, or
in any way change the status of an existing life insurance policy. Department Regulation 60
requires this full disclosure so that prospective life insurance purchasers can make decisions
in their own best interest. Don’t allow high-pressure salesmanship to persuade you to sign up
for a type of policy or certain coverage that you are not sure you need. Take time to decide
what’s right for you. Read your policy carefully before you sign. If you have questions, ask your
agent or broker, or your insurer. An additional source of information and help is the Insurance
Department’s Consumer Services Bureau.

 Be Aware, don’t be a victim

The Coalition Against Insurance Fraud (CAIF) is a national advocacy organization of

consumer groups, public interest organizations, government agencies and insurers. Its website
notes ―insurance fraud is hard to measure because so much goes undetected, and complete
research has yet to be done. Still, we have enough evidence to know that fraud is widespread
and expensive.‖ National studies conducted by the Insurance Research Council (IRC) show
that auto insurance, workers‘ compensation and health insurance are the lines that are most
vulnerable to fraud. The IRC estimates that one-third of all bodily injury claims from auto
accidents contain some amount of fraud, usually in terms of padding or exaggerating a claim,
but only 3% are totally fraudulent such as staged accidents. Another form of fraud, lying on

39
applications in order to reduce premium, costs auto insurers $13.7 billion annually (Insurance
Information Institute, or III).

As to workers‘ compensation fraud, one of the most common forms of workers‘

compensation fraud in Maine is a faked or exaggerated injury, an area within the jurisdiction
of the Maine Workers‘ Compensation Board‘s Fraud and Abuse Unit to investigate. There
are, however, other forms of workers compensation fraud are employers who misrepresent
payroll or the type of business in order to reduce their insurance premiums and real or bogus
entities that purport to provide real or bogus workers compensation coverage or ―alternatives‖
to coverage to employers.

Fraud has also gotten the attention of the National Association of Insurance Commissioners
(NAIC), which encourages the insurance industry to take a proactive role in controlling fraud.
The NAIC offers states support through their Antifraud Task Force.
The mission of the Antifraud Task Force is to serve the public interest by assisting state
insurance supervisory officials, individually and collectively, in the following fundamental
antifraud activities:

 Promotion of the public interest through the detection, monitoring and appropriate
referral for investigation of insurance crime, both by and against consumers.

 Provision of assistance to the insurance regulatory community through the maintenance

and improvement of electronic databases regarding fraudulent insurance activities.
 Disseminate the results of research and analysis of insurance fraud trends as well as
case-specific analysis to the insurance regulatory community and state and federal law
enforcement agencies.
 Provision of the liaison function between insurance regulators, law enforcement and
other specific antifraud organizations.

Highlights of the 2004 charges of the Antifraud Task Force include: compile and maintain
detailed information on antifraud databases maintained by antifraud organizations, financial
regulators, and law enforcement; consider developing further guidelines for use by the
industry in determining when suspicious claims should be reported; review industry
compliance with antifraud initiatives; develop methods to enhance the investigation and

40
prosecution of financial services fraud; and establish guidelines on the investigation and
prosecution of insider insurance industry fraud.

Additionally, in 2005 the NAIC created a ―Fraud Web line,‖ an online insurance fraud
reporting system located on the Web site of the National Association of Insurance
Commissioners (NAIC). The system allows consumers to provide information anonymously.

The new fraud reporting system was developed as part of the response by insurance
regulators to the national allegations about misconduct involving compensation agreements
between some insurance companies and brokers. The allegations of improper activity spurred
regulators to improve their abilities to collect information from consumers, producers and
insurance company employees. Many places participates in the online fraud reporting system,
in conjunction with the NAIC.

The online fraud reporting system lets consumers anonymously supply detailed information
regarding suspected fraudulent activities to the NAIC where the information is then
forwarded to the appropriate state. Although consumers may identify themselves, no personal
identifying information is required to report an allegation of suspected fraud. Consumers are
required to designate the state where the suspected fraud occurred and the name and address
of the business or individual. A text box is included for the consumer to provide the details of
the suspected fraud. Other optional fields on the form include phone number, date of birth,
date of suspected fraud, and amount of loss.

Despite the anti-fraud activities of state and federal agencies discussed above, the Bureau
notes that an enforcement and prosecutorial gap exists in current Maine government
operations insofar as no entity exists that is focused on investigation and prosecution of
fraudulent insurance acts and the crimes of insurance deception and deceptive insurance acts.
The American Insurance Association and the Property Casualty Insurers Association and
several of the individual fraud investigators who commented as interested persons all noted
the frustration when hard work has been expended to develop a case and local prosecutors
have refused to prosecute or believe that it is not a serious crime meriting their attention. The
interested persons believe that a strong and effective insurance fraud unit would be effective
not only in punishing those convicted of insurance fraud, but in deterring others.

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Forty other states currently have insurance fraud units. The Director of the Fraud Division of
the New Hampshire Insurance Department shared his concern with the Joint Standing
Committee on Insurance and Financial Services during his testimony on L.D. 1561 that
organized insurance fraud rings are gravitating toward those jurisdictions with the least
regulation, for the conduct of affairs. That concern has been echoed by other interested
persons as well.

 Our mission
The mission of the NAIC is to assist state insurance regulators, individually and
collectively, in serving the public interest and achieving the following fundamental
insurance regulatory goals in a responsive, efficient and cost effective manner, consistent
with the wishes of its members:

→Protect the public interest;

→Promote competitive markets;

→Facilitate the fair and equitable treatment of insurance consumers;

→Promote the reliability, solvency and financial solidity of insurance institutions;

→and Support and improve state regulation of insurance.

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 CHAPTER 6

INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY

(IRDA)

The Insurance Regulatory and Development Authority of India (IRDAI) is an autonomous,

statutory agency tasked with regulating and promoting the insurance and re-
insurance industries in India. It was constituted by the Insurance Regulatory and
Development Authority Act, 1999an Act of Parliament passed by the Government of
India. The agency's headquarters are in Hyderabad, Telangana, where it moved from Delhi in
2001.

IRDAI is a 10-member body including the chairman, five full-time and four part-time
members appointed by the government of India.

 Functions
The functions of the IRDAI are defined in Section 14 of the IRDAI Act, 1999, and
include:
Issuing, renewing, modifying, withdrawing, suspending or cancelling registrations
 Protecting policyholder interests
 Specifying qualifications, the code of conduct and training for intermediaries and
agents
 Specifying the code of conduct for surveyors and loss assessors
 Promoting efficiency

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  Promoting and regulating professional organisations connected with the insurance and
re-insurance industry
 Levying fees and other charges
 Inspecting and investigating insurers, intermediaries and other relevant organisations
 Regulating rates, advantages, terms and conditions which may be offered by insurers
not covered by the Tariff Advisory Committee under section 64U of the Insurance
Act, 1938 (4 of 1938)
 Specifying how books should be kept
 Regulating company investment of funds
 Regulating a margin of solvency
 Adjudicating disputes between insurers and intermediaries or insurance intermediaries
 Supervising the Tariff Advisory Committee
 Specifying the percentage of premium income to finance schemes for promoting and
regulating professional organisations
 Specifying the percentage of life- and general-insurance business undertaken in the
rural or social sector
 Specifying the form and the manner in which books of accounts shall be maintained,
and statement of accounts shall be rendered by insurers and other insurer
intermediaries.

 Measures by IRDA
There is a need for a uniform policy and standard which will guide action of employees
within an insurance company. They are the guidelines for professional conduct. It also states
what the insurance company stands for and is committed to which values. There should also
be a reward and punishment for any other behavior than that is prescribed. The code helps in
achieving organizations goals in socially acceptable manner. In case of any dilemma, it
prescribes solution and thus helps perform their routine activities.

Sec 14 of Act, 1998 lays down the duties, powers and functions of IRDA :

1. Subject to the provisions of this act and any other law for the time being in force the
authority shall have duty to regulate, promote and ensure orderly growth of the
insurance business and re-insurance business.
2. Without prejudice to the generality of the provisions contained in sub-section.

44
The powers and functions of the authority shall include:

• Issue to the applicant a certificate of registrations, renew, modify withdraw, suspend

or cancel such registration;
• 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;
• Specifying the code of conduct for surveyors and loss assessors;
• Promoting efficiency in the conduct of insurance business;
• Levying fees and other charges for carrying out the purposes of the act;
• Promoting and regulating professional organization connected with the investment
and with business.
• Calling for information form, undertaking inspect of, conducting enquiries and
investigations including audit of insurers, intermediaries, insurance intermediaries and
other organization connect with insurance business.
• 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.
• 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;
• Regulating investment of funds by insurance companies;
• Regulating maintenance of margin of solvency;
• Adjudication of disputes between insurers and intermediaries of insurance
intermediaries,
• Supervising the functioning of the tariff Advisory committee:
• Specifying the %of premium income of the insurer to finance schemes for promoting
and regulating professional organizations
• Specifying the % of life insurance business and general insurance business to be
undertaken by the insurer in the rural of social and
• Exercising such power as my be prescribed

 IRDA’s code of conduct for agents

Proposals seeking insurance cover should be filled in only the person/S seeking to be insured,
as per the code of conduct being formulated by the IRDA for insurance agents.

45
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
• 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.
• Promotion of sound development and maintenance of the reliability of the non-
life insurance industry: Developing codes of conduct for meter companies,
strengthening non-life insurance companies‘ disclosure, developing compliance
programmers to observe laws and regulations, etc.
• Presentation of request and proposal: Representing the non-life insurance industry
in the presentation of regulatory reform requests, and of opinions to insurance
administration.
• Response to social issues: combating automobile theft taking measures to prevent
insurance fraud, etc.
• International activities: promoting dialogue and information exchange with overseas
insurance associations, participating in international organizations ‗activities and
international meetings.
• Consumer Services: The GI Council promotes consumers ‘understanding of
insurance, and the presence of the general industry in society.
• Social responsibility: The GI council undertakes activities having far reaching social
implication in association with law enforcement.

46
 • Requests and 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.
• 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.

 Current action against fraud

No fraud Management policy has been properly documented or implemented till date by
the various insurance regulatory authorities or the government.

These are the various actions which can be taken when it comes to insurance fraud and the
actions are limited to :

• Rejection of claims of serious fraud in all cases brought out in the court if the guilt is
found out, the claim is outright rejected
• Fraud can also lead to cancellation of policy in serious fraud cases, however, this does
not generally happen in abuse or mis-declaration.
• There are only limited actions which can be taken against the agents due to lack of a
comprehensive legal framework to punish the same.
• Most of the insurance companies do not have an underwriting as a part of their
disclosures or documents, about what action will be taken against the consumers in
case of mis declaration or non-declaration of material information.

 Setbacks
Due to the mounting backlog of pending cases in the judicial machinery of our state, taking
legal action against fraud is not a common occurrence and fraud of amounts not big enough
are let go off as opposed to the heavy investment of time and energy in pursuing the same.
Even if legal remedies are taken or help of the court is availed due to various reasons and the
design and process of the law sometimes make the recovery of the money lost by frauds rare
occurrence. Legal Provisions under Indian Penal Code,1860.

47
The provisions which can be applicable in such cases are:
Section 205 False presentation for purpose of act or proceeding in suit or prosecution.
Whoever falsely personates another, and in such assumed character makes any admission or
statement, or confesses judgment, or causes any process to be issued or becomes bail or
security, or does any other act in any suit or criminal prosecution, shall be punished with
imprisonment of either description for a term which may extend to three years, or with fine,
or with both.
1. Section 420 Cheating and dishonestly inducing delivery of property.—Whoever cheats
and thereby dishonestly induces the person deceived to deliver any property to any
person, or to make, alter or destroy the whole or any part of a valuable security, or
anything which is signed or sealed, and which is capable of being converted into a
valuable security, shall be punished with imprisonment of either description for a term
which may extend to seven years, and shall also be liable to fine.
2. Section 464 making a false document. A person is said to make a false document or
false electronic record First Who dishonestly or fraudulently:
(a) makes, signs, seals or executes a document or part of a document;
(b) makes or transmits any electronic record or part of any electronic record;
(c) affixes any [electronic signature] on any electronic record;
(d) makes any mark denoting the execution of a document or the authenticity of
the[electronic signature] with the intention of causing it to be believed that such
document or part of document, electronic record or [electronic signature] was made,
signed, sealed, executed, transmitted or affixed by or by the authority of a person by
whom or by whose authority he knows that it was not made, signed, sealed, executed or
affixed;
Or Secondly - Who, without lawful authority, dishonestly or fraudulently, by
cancellation or otherwise, alters a document or an electronic record in any material part
thereof, after it has been made, executed or affixed with [electronic signature] either by
himself or by any other person, whether such person be living or dead at the time of
such alteration;
Or Thirdly - Who dishonestly or fraudulently causes any person to sign, seal, execute or
alter a document or an electronic record or to affix his [electronic signature] on any
electronic record knowing that such person by reason of unsoundness of mind or
intoxication cannot, or that by reason of deception practiced upon him, he does not
know the contents of the document or electronic record or the nature of the alteration.]

48
4. Section 405. Criminal breach of trust. Whoever, being in any manner entrusted with
property, or with any dominion over property, dishonestly misappropriates or converts
to his own use that property, or dishonestly uses or disposes of that property in violation
of any direction of law prescribing the mode in which such trust is to be discharged, or
of any legal contract, express or implied, which he has made touching the discharge of
such trust, or willfully suffers any other person so to do, commits ―criminal breach of
trust‘‘.

As seen above from the comprehensive and elaborate explanations/definitions all these
sections under this law can be used to persecute in case of insurance fraud however due to the
time and cost involved, parties generally refrain:

Legal Remedies under The Indian Contract Act, 1872

1. Misrepresentation within the meaning of Section 18of the ICA

2. The contract of insurance is also void in as per Section 10 read with Section
14(4) and Section 18 of the ICA generally in cases of fraud.
3. As per Section 20of the Indian Contract Act, 1872, the agreement is void where both
parties are under mistake as to matter of fact. Some factors are essential
for insurance cover.

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 CHAPTER 7

INTERNATIONL ASSOCIATION OF INSURANCE FRAUD AGENCIES

(IAIFA)

Insurance fraud is recognized internationally as a multi-billion dollar problem. IAIFA was

created after a group consisting of the Directors of Insurance Fraud Agencies from the U.S.A.
and Canada met to confront this burgeoning problem which is not restricted by jurisdictional
boundaries.

It soon became apparent that if the agencies could share information they would increase
their degree of effectiveness. Rapid communication is of the essence in catching fraud artists
who know how to move money literally at the speed of light. From those early beginnings in
1986, with only a handful of members in North America, IAIFA now encompasses the
Globe.

The IAIFA and its members are continually working to improve the quality of data available
to members and break down the jurisdictional barriers by working with regulators, companies
and other law enforcement agencies. Those who break the law are adept at using these
jurisdictional boundaries as a protective shield. IAIFA is trying to cut red tape involved in the
various (often necessary) jurisdictions' "privacy" laws in an attempt to track down crime and

50
encourage other enforcement agencies to share information to the mutual benefit of all who
are involved in assuring a high level of integrity throughout the insurance industry.

 Goals:

IAIFA's goal is "to co-ordinate the efforts, training and education of law enforcement
agencies, government bodies, and the insurance industry to move more efficiently prevent
and combat insurance fraud worldwide." IAIFA has kept its focus on insurance fraud, which
its members view as a crime against all segments of society - not a victimless felony, as some
would define it.

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 CHAPTER 8

CASE STUDY

 Case Study No.1

 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 1970‘s and mid 1990s many expensive
horses were involved in insurance fraud. These expensive horses, often show jumpers,
were placed on insurance for accident or death, and killed for the insurance money. The
number of horses killed in this manner is believed to be at least 50 and possibly as high

52
 as 100. It was the biggest scandal in equestrian sports, resulting in the death of a
whistleblower, Helen Brach, in addition to the horses.

4. John Mango's fire: A Toronto businessman, John Mango hired someone to set fire to
his business for the insurance money. Things got quite out of hand, killing one person
during the fire and forcing many families to leave the area until the fire could be put
out. Mango was charged with second degree murder on top of his fraud charges.

5. Swoop and squat: In the 90s, car insurance fraud ran rampant. Cars would purposely
get into accidents with innocent people on the road, hoping to score insurance money,
and often, they did. These accidents frequently injured drivers, and some were even
fatal. These accidents usually earned the orchestrators about $20,000 each.

6. Michael Jackson's prescriptions: Lloyds of London has recently filed suit to

invalidate an insurance policy taken out by Michael Jackson. The policy covered his
"This Is It" tour in the event that it was not successful. The payout was to be $17.5
million, but Lloyds argues that it is invalid because Michael Jackson did not disclose
prescription drugs on his application. As Jackson died from an overdose, Lloyds is
claiming deception.

7. The Titanic: Everyone knows the story of the Titanic, but not everyone realizes that
some believe it is 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: LA ophthalmologist Steven Cooperman did. He arranged

for a Picasso and a Monet to be stolen from his home in an attempt to collect $17.5
million in insurance money. He was convicted in July 1999.

9. Martin Frankel: Martin Frankel's insurance fraud is just one in a long list of financial
crimes. He was sentenced to 200 months in prison due to over $200 million in losses to

53
 insurance companies. He eventually plead guilty to 24 federal counts of racketeering
and conspiracy, securities fraud, and wire fraud.

10. Bristol-Myers Squibb kickbacks: Regulators in California have gone after Bristol-
Myers Squibb for insurance fraud, among other offenses. The lawsuit accuses Bristol-
Myers of making payments to high-prescribing physicians, targeting and profiting on
the private insurance industry. It is the largest health insurance fraud to be pursued by a
California state agency. Additionally, in 2007, the pharmaceutical company paid $515
million to settle with federal and state governments against allegations of kickbacks to
defraud Medicare and Medicaid.

11. Dr. Gupta's mystery procedures: There's a nationwide manhunt launched by the FBI
looking for Dr. Gautam Gupta. The complaint against him alleges that he submitted
claims to Blue Cross/Blue Shield and Medicaid for unnecessary procedures, and even
ones that were never performed. The fraudulent insurance claims from Dr. Gupta
reached nearly $25 million.

12. Millionaire insurance fraud: Charles Ingram was first made famous as a fraud when
he cheated on Who Wants To Be A Millionaire?, using coded coughs to win. But his
deception was further exposed when he was convicted of insurance fraud as well. He
placed a suspicious £30,000 burglary claim, and was found to be dishonest, ultimately
winning two guilty charges for his fraud.

13. TAP Pharmaceuticals fraud: The Department of Justice got involved with this
pharmaceutical insurance fraud case. TAP Pharmaceuticals engaged in fraudulent drug
pricing and marketing conduct, as well as filing fraudulent claims with Medicare and
Medicaid. They agreed to pay $559 million to the government for those claims, as part
of an $875 million settlement for all criminal charges and civil liabilities.

14. I get knocked down, but I get up 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.

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15. Torching the Malibu: What do you do if you don't want to pay on your car anymore?
If you're teacher Tramesha Lashon Fox, you get your students to set your car on fire in
exchange for passing grades. She'd hoped to get insurance money, but instead lost her
job and served 90 days in jail.

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 Case Study No. 2
 Hydrabad: A 35-year-old woman has been arrested for allegedly declaring herself
"dead" in a bid to fraudulently claim Rs. 1 crore from a private insurance company at the
behest of her husband the police said today. Their plan was foiled by official of the firm who
found that the claimant was alive. The woman's husband Syed Shakeel Alam a real estate
agent who allegedly submitted "fake" documents declaring that his policy-holder wife had
died is on the run. A police official said Alam sought Rs.1crore insurance from the firm in
June, sayings his wife had died a Banjara Hills police station official said.

Syed Shakeel Alam had taken the insurance policy coverage of Rs.1 crore in his wife name in
2012 and used to pay Rs. 11,800 towards the annual premium.

"In June this year, he submitted the insurance claim stating that his wife had died due to chest
pain. However, it was found during verification that Alam had submitted fake documents of
death of another woman, along with fake medical records, fake certificates pertaining to a
graveyard and also a death certificate from the civic body," police inspector K Srinivas said.

However, the insurance company official found that the policy-holder woman was alive and
subsequently approached the police.

A case was registered in the last week of September on charges of cheating and forgery under
relevant sections of the IPC and the woman was arrested yesterday, he said, adding that Alam
is absconding. K Srinivas said another private insurance company had also lodged a
complaint accusing the couple of using a similar modus operandi in order to claim insurance
policy amount and that case is also under investigation.

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 Case Study No. 3
 Maggi controversy: ICICI Lombard, the country‘s privately-held largest insurance
company, may have to shell out over Rs 150 crore under liability arising out of possible
lawsuits in the Maggi controversy that's been raging on for the past few weeks.
The consumer affairs ministry is likely to file a case against Nestle seeking compensation for
damages caused from selling an unsafe product, said an executive of ICICI Lombard on the
condition of anonymity since he is not authorized to speak to the media. The claim would
come under commercial general liability (CGL) policy.

Commercial general liability policy covers third-party liabilities arising out of various
business operations. Nestle, the maker of Maggi noodles, has bought CGL cover for Rs.
150crore from private insurer ICICI Lombard.

But the multinational food giant has not taken the product liability cover, which would have
taken care of loss arising out of recalling the products. The policy insures against damage
arising out of the use or consumption of products manufactured by the insured in this case,
Nestle.

Pharmaceutical and consumer companies mostly buy this kind of cover, but it‘s at a very
nascent stage in India, said Hitesh Jain, senior partner of law firm ALMT legal. The way
consumer activism and regulatory authorities are becoming stringent, more and more sectors
will now go for such insurance covers.

Insurance sector veterans feels that so far this is the first such case in India where commercial
liability insurance will be evoked and the insurer will have to write a cheque to lawyers on
the company‘s behalf. An email query to Nestle India and ICICI Lombard did not elicit any
response till the time of going to press.

The controversy erupted with the Uttar Pradesh Food and Drug Association detecting higher
levels of lead than the permitted limits apart from the presence of monosodium glutamate
(MSG) in its packets. This was followed by states such as Goa and Delhi banning Nestle‘s
popular Maggi noddles.

―Until now, it was just commercial liability but now that the suit will start, it will also get
reported on a daily basis which means the company will have to be on damage control mode
for even longer,‖ said Tina Jain Mehta, founder of Mumbai-based boutique branding agency

57
Pineapple Consulting.‖ Nestle will have to figure out a long term strategy not just for
Maggie, but Brand Nestle as a whole.‖

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 CONCLUSION

There has been a growing instance of fraudulent insurance claims and the Supreme Court also
in January 2017 has stressed on the need for framing guidelines with the suggestions of the
states and the insurance companies to rule out such cases. In some cases claims are also filed
wrongly under different acts. It is important to evolve an efficient legal framework and take
recourse to the existing one as well to prevent such plunder of the money of the public.

There have been many institutions and agencies formed all over the world to detect fraud and
penalize the one conscientious for such mishaps. There is Division of Insurance Fraud,
International Association of Insurance Fraud Agencies (IAIFA), etc. through the enduring
and conscious endeavor of these institutions insurance fraud tempo has declined by an
enormous amount. Several have studied preceding and enduring market conditions to identify
with the diverse frauds that take place and the reasons behind committing these frauds.

One cannot diminish frauds, schemes, swindles, scams but can positively be alert of them so
as not to be a victim of it themselves. Tumbling fraudulent situations is a unremitting and
collective effort of countless. One must be sensitive and offer their helping as much as they
can.

One can either grumble about how things are all going wide of the mark or swallow the
consequences. Or put their foot down and make an attempt to change the immoral to the
right. The wrong will change and everyone will see the bright light of truth and right with the
revolution of knowledge, awareness or attitude for change amongst the humanity.

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 WEBLIOGRAPHY

https://www.irdai.gov.in/Defaulthome.aspx?page=H1

https://en.wikipedia.org/wiki/General_insurance

https://www.google.co.in/search?q=types+of+insurance+in+india&sa=X&ved=0ahUKEwiH
hsOa8NLZAhWIQpQKHVKTB4IQ1QIIgQIoAQ&biw=1366&bih=637

https://www.google.co.in/search?q=life+insurance&oq=LIFE&aqs=chrome.0.0j69i57j35i39j
69i60l3.4223j0j7&sourceid=chrome&ie=UTF-8

https://en.wikipedia.org/wiki/Insurance_Regulatory_and_Development_Authority

https://www.indiafirstlife.com/downloadPDF/Anti-Fraud-Policy/Anti-Fraud-Policy_22-01-
2014.pdf

http://www.policyholder.gov.in/be_alert!.aspx#

http://www.policyholder.gov.in/Know_your_Rights_and_Duties.aspx

www.naic.org

http://www.businessinsurance.org/10-most-common-types-of-insurance-fraud/

http://www.naic.org/cipr_topics/topic_insurance_fraud.htm

https://www.google.co.in/search?q=extracts+on+irda+guidelines+on+frauds&oq=extracts+on
+irda+guidelines+on+frauds&aqs=chrome..69i57.29010j0j7&sourceid=chrome&ie=UTF-8

https://legaldictionary.net/insurance-fraud/

https://www.bajajallianz.com/Corp/content/newstrack/2013/fraud-prevention-in-
insurance.pdf

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