SHIVAM WAHI

6727

TYBBI
 FRAUDS
IN
INSURANCE

INTRODUCTION:
The insurance business, by its very nature, is susceptible to fraud.
Insurance is a risk distribution system that requires the accumulation of
liquid assets in the form of reserve funds that are, in turn, available to
pay loss claims. Insurance companies generate a large steady flow of
cash through insurance premiums. Steady cash flow is an important
economic resource that is very attractive and easily diverted. Large
accumulations of liquid assets make insurance companies attractive for
take over and loot schemes. Insurance companies are under great
pressure to maximize the return on investing the reserve funds, thus
making them vulnerable to high yielding investment schemes.
Insurance fraud occurs when any act is committed with the intent
to fraudulently obtain some benefit or advantage to which they are not
otherwise entitled or someone knowingly denies some benefit that is due
and to which someone is entitled. False insurance
claims are insurance claims filed with the intent to defraud an insurance
provider.
Insurance fraud has existed ever since the beginning of insurance as a
commercial enterprise.[1] Fraudulent claims account for a significant
portion of all claims received by insurers, and cost billions of dollars
annually. Types of insurance fraud are very diverse, and occur in all
areas of insurance. Insurance crimes also range in severity, from slightly
exaggerating claims to deliberately causing accidents or damage.
Fraudulent activities also affect the lives of innocent people, both
directly through accidental or purposeful injury or damage, and
indirectly as these crimes cause insurance premiums to be higher.
Insurance fraud poses a very significant problem, and governments and
other organizations are making efforts to deter such activities.

CAUSES OF FRAUDS IN INSURANCE:

The “chief motive in all insurance crimes is financial profit.”[1] Insurance
contracts provide both the insured and the insurer with opportunities for
exploitation.
According to the Coalition Against Insurance Fraud, the causes vary, but
are usually centered on greed and holes in the fraud fight.[2] Often, those
who commit insurance fraud view it as a low-risk, lucrative enterprise.
Drug dealers who have entered insurance fraud [3] think it’s safer and
more profitable than working street corners. Compared to other crimes,
court sentences for insurance fraud can be lenient, so scammers may try
to take advantage of the system. Though insurers try to fight fraud, some
will pay suspicious claims, since settling such claims is often cheaper
than legal action.
Another reason that this opportunity arises is in the case of over-
insurance, when the amount insured is greater than the actual value of
the property insured.[1] This condition can be very difficult to avoid,
especially since an insurance provider might sometimes encourage it in
order to obtain greater profits.[1] This allows fraudsters to make profits
by destroying their property because the payment they receive from their
insurers is of greater value than the property they destroy.
Insurance companies are also susceptible to fraud because false
insurance claims can be made to appear like ordinary claims. This
allows fraudsters to file claims for damages that never occurred, and so
obtain payment with little or no initial cost.
The most common form of insurance fraud is inflating of loss.

HARD FRAUD VS SOFT FRAUD:

Insurance fraud can be classified as either hard fraud or soft fraud.
  Hard fraud occurs when someone deliberately plans or invents a
loss, such as a collision, auto theft, or fire that is covered by their
insurance policy in order to receive payment for damages.
Criminal rings are sometimes involved in hard fraud schemes that
can steal millions of dollars.[11]

 Soft fraud, which is far more common than hard fraud, is

sometimes also referred to as opportunistic fraud.[10] This type of
fraud consists of policyholders exaggerating otherwise legitimate
claims. For example, when involved in a collision an insured
person might claim more damage than was really done to his or her
car. Soft fraud can also occur when, while obtaining a new
insurance policy, an individual misreports previous or existing
conditions in order to obtain a lower premium on their insurance
policy.

TYPES OF INSURANCE
AUTO INSURANCE
Vehicle insurance (also known as auto insurance, GAP insurance, car
insurance, or motor insurance) is insurance purchased for cars, trucks,
motorcycles, and other road vehicles. Its primary use is to provide
financial protection against physical damage and/or bodily injury
resulting from traffic collisions and against liability that could also arise
there from. The specific terms of vehicle insurance vary with
legal regulations in each region. To a lesser degree vehicle insurance
may additionally offer financial protection against theft of the vehicle
and possibly damage to the vehicle, sustained from things other than
traffic collisions.

HEALTH INSURANCE
Health insurance is insurance against the risk of incurring medical
expenses among individuals. By estimating the overall risk of health
care and health system expenses among a targeted group, an insurer can
develop a routine finance structure, such as a monthly premium or
payroll tax, to ensure that money is available to pay for the health care
benefits specified in the insurance agreement. The benefit is
administered by a central organization such as a government agency,
private business, or not-for-profit entity.

LIFE INSURANCE
Life insurance is a contract between an insured (insurance policy
holder) and an insurer, where the insurer promises to pay a designated
beneficiary a sum of money (the "benefits") upon the death of the
insured person. Depending on the contract, other events such as terminal
illness or critical illness may also trigger payment. The policy holder
typically pays a premium, either regularly or as a lump sum. Other
expenses (such as funeral expenses) are also sometimes included in the
benefits.
The advantage for the policy owner is "peace of mind", in knowing that
the death of the insured person will not result in financial hardship for
loved ones and lenders.
It is possible for life insurance policy payouts to be made in order to
help supplement retirement benefits; however, it should be carefully
considered throughout the design and funding of the policy itself.
Life policies are legal contracts and the terms of the contract describe
the limitations of the insured events. Specific exclusions are often
written into the contract to limit the liability of the insurer; common
examples are claims relating to suicide, fraud, war, riot and civil
commotion.
Life-based contracts tend to fall into two major categories:

 Protection policies – designed to provide a benefit in the event of

specified event, typically a lump sum payment. A common form of
this design is term insurance.
 Investment policies – where the main objective is to facilitate the
growth of capital by regular or single premiums. Common forms (in
the US) are whole life, universal life and variable life policies.

AGRICULTURAL INSURANCE
Agriculture in India is highly susceptible to risks like droughts and
floods. It is necessary to protect the farmers from natural calamities and
ensure their credit eligibility for the next season. For this purpose,
the Government of India introduced many agricultural schemes
throughout the country.

PROPERTY
Property insurance provides protection against risks to property, such
as fire, theft or weather damage. This may include specialized forms of
insurance such as fire insurance, flood insurance, earthquake
insurance, home insurance, inland marine insurance or boiler insurance.
The term property insurance may, like casualty insurance, be used as a
broad category of various subtypes of insurance, some of which are
listed below:

 Aviation insurance protects aircraft hulls and spares, and

associated liability risks, such as passenger and third-party
liability. Airports may also appear under this subcategory, including
air traffic control and refuelling operations for international airports
through to smaller domestic exposures.

 Boiler insurance (also known as boiler and machinery insurance, or

equipment breakdown insurance) insures against accidental physical
damage to boilers, equipment or machinery.

 Builder's risk insurance insures against the risk of physical loss or

damage to property during construction. Builder's risk insurance is
typically written on an "all risk" basis covering damage arising from
any cause (including the negligence of the insured) not otherwise
expressly excluded. Builder's risk insurance is coverage that protects
a person's or organization's insurable interest in materials, fixtures
and/or equipment being used in the construction or renovation of a
 building or structure should those items sustain physical loss or
damage from an insured peril.[22]

 Crop insurance may be purchased by farmers to reduce or manage

various risks associated with growing crops. Such risks include crop
loss or damage caused by weather, hail, drought, frost damage,
insects, or disease.[23]

 Earthquake insurance is a form of property insurance that pays the

policyholder in the event of an earthquake that causes damage to the
property. Most ordinary home insurance policies do not cover
earthquake damage. Earthquake insurance policies generally feature a
high deductible. Rates depend on location and hence the likelihood of
an earthquake, as well as the construction of the home.

 Fidelity bond is a form of casualty insurance that covers

policyholders for losses incurred as a result of fraudulent acts by
specified individuals. It usually insures a business for losses caused
by the dishonest acts of its employees.

 Flood insurance protects against property loss due to flooding.

Many insurers in the US do not provide flood insurance in some parts
of the country. In response to this, the federal government created
the National Flood Insurance Program which serves as the insurer of
last resort.

 Home insurance, also commonly called hazard insurance or

homeowners insurance (often abbreviated in the real estate industry
as HOI),provides coverage for damage or destruction of the
policyholder's home. In some geographical areas, the policy may
exclude certain types of risks, such as flood or earthquake, that
require additional coverage. Maintenance-related issues are typically
the homeowner's responsibility. The policy may include inventory, or
this can be bought as a separate policy, especially for people who rent
housing. In some countries, insurers offer a package which may
 include liability and legal responsibility for injuries and property
damage caused by members of the household, including pets.[24]

 Landlord insurance covers residential and commercial properties

which are rented to others. Most homeowners' insurance covers only
owner-occupied homes.

Marine insurance and marine cargo insurance cover the loss or

damage of vessels at sea or on inland waterways, and of cargo in
transit, regardless of the method of transit. When the owner of the
cargo and the carrier are separate corporations, marine cargo
insurance typically compensates the owner of cargo for losses
sustained from fire, shipwreck, etc., but excludes losses that can be
recovered from the carrier or the carrier's insurance. Many marine
insurance underwriters will include "time element" coverage in such
policies, which extends the indemnity to cover loss of profit and other
business expenses attributable to the delay caused by a covered loss.

 Supplemental natural disaster insurance covers specified expenses

after a natural disaster renders the policyholder's home uninhabitable.
Periodic payments are made directly to the insured until the home is
rebuilt or a specified time period has elapsed.

 Surety bond insurance is a three-party insurance guaranteeing the

performance of the principal.

 Terrorism insurance provides protection against any loss or

damage caused by terrorist activities. In the US in the wake of 9/11,
the Terrorism Risk Insurance Act 2002 (TRIA) set up a federal
Program providing a transparent system of shared public and private
compensation for insured losses resulting from acts of terrorism. The
program was extended until the end of 2014 by the Terrorism Risk
Insurance Program Reauthorization Act 2007 (TRIPRA).

 Volcano insurance is a specialized insurance protecting against

damage arising specifically from volcanic eruptions.
 Windstorm insurance is an insurance covering the damage that can
be caused by wind events such as hurricanes.

TYPES OF INSURANCE FRAUD:

This section will introduce you to some of the most common types of
fraud involving the insurance industry.

Agent/Broker Fraud
 Cash, Loan, and Dividend Checks
A company employee without the knowledge of an insured or contract
holder requests cash, a loan, or a dividend check, and deposits the check
into either his bank account or a fictitious account. The employee, in
order to minimize his chances of being detected committing a fraudulent
act, might change the company policyholder’s address of record to either
his address or a fictitious address. Once the check is issued, the address
is then changed back to the previous address.
 Settlement Checks
A company employee can misdirect settlement checks, such as for a
matured endowment settlement, to the branch office, their home, or a
fictitious address. The employee can easily create a check defalcation by
changing the address of record prior to the settlement check issue date,
thus misdirecting the check in question. Also, an orphan contract holder
might be transferred to his agency periodically, affording the
opportunity to improperly request the issuance of a settlement check.
An orphan contract holder is a policyholder or contract holder who has
not been assigned to a servicing agent or the whereabouts of this
individual is unknown. The servicing agent attempts to locate this family
group and could influence them to purchase additional insurance.
 Premium Fraud
The agent collects the premium, but doesn’t remit the check to the
insurance company. The insured has no coverage.
 Fictitious Payees
An agent or a clerk can change the beneficiary of record to a fictitious
person and subsequently submit the necessary papers to authorize the
issuance of a check.
 Fictitious Death Claims
An agent or employee obtains a fictitious death certificate and requests
that a death claim check be issued. The agent receives the check and
cashes it.
The sales representative can also write a fictitious application and, after
the contestable period (two years), submit a phony death claim form and
obtain the proceeds. The agent, by investing a few thousand dollars,
could receive $50,000 or more in misappropriated claims.

Underwriting Irregularities
 Equity Funding
Equity funding is the process of using existing premium/policy values to
finance new businesses. So long as the insured is aware of what is being
done by the agent and fully understands the long range method of
payment on the new contract, there is no apparent underwriting
irregularity.
Equity funding techniques, also known as piggybacking, usually do not
produce quality business.
Furthermore, the company increases the amount of life insurance on the
books but receives little or no new funds while incurring increased sales
and administrative expenses associated with the issue of that new
business.
 Misrepresentation
Misrepresentation might occur if a sales representative makes a false
statement with the intent to deceive the prospective insured in order to
knowingly obtain an unlawful gain.
 False Information
A company employee might submit the following false information to
obtain unlawful financial gain:

 Improper medical information to obtain a better insurable rate for

the prospective policy holder
 Improper date of birth to obtain a cheaper premium on the new
policy
 Improper home address to obtain a cheaper premium for home or
automobile insurance
 Improper driving history prior to purchasing automobile insurance
to reduce the annual premium or obtain insurance where normally
the individual would have to apply through the risk pool
  Fictitious Policies
A salesman, in order to keep his position, submits fictitious policies to
improve his writing record. Or, prior to an individual leaving the
company, he writes fictitious policies called tombstone cases to improve
his commission pool so that his compensation will be greater.
Tombstone means an agent literally takes names from tombstones in a
cemetery and writes new policies.
 Surety and Performance Bond Schemes
Surety and performance bonds guarantee that certain events will or will
not occur. An agent may issue worthless bonds to the insured for high-
risk coverage in hopes that a claim is never made. If a claim is made, the
agent might pay it off from agency funds, delay the payment, or skip
town.
 Sliding
Sliding is the term used for including additional coverages in the
insurance policy without the knowledge of the insured. The extra
charges are hidden in the total premium and, since the insured is
unaware of the coverage, few claims are ever filed. For example, motor
club memberships, accidental death, and travel accident coverages can
usually be slipped into the policy without the knowledge of the insured.

 Twisting
Twisting is the replacement, usually by high pressure sales techniques,of
existing policies for new ones.
The primary reason, of course, is for the agent to profit, since first-year
sales commissions are much higher than commissions for existing
policies.
 Churning
Churning occurs when agents falsely tell customers that they can buy
additional insurance for no cost by using built-up value in their current
policies. In reality, the cost of the new policies frequently exceeds the
value of the old ones

Vehicle Insurance Schemes

 Ditching
Ditching, also known as owner give-up, is getting rid of a vehicle to cash
in on an insurance policy or to settle an outstanding loan. The vehicle is
normally expensive and purchased with a small down payment.
The vehicle is reported stolen, although in some cases, the owner just
abandons the vehicle, hoping that it will be stolen, stripped for parts, or
taken to a pound and destroyed. The scheme sometimes involves
homeowner’s insurance for the property that was “stolen” in the vehicle.

 Past Posting
Past posting is a scheme in which a person becomes involved in an
automobile accident, but doesn’t have insurance. The person gets
insurance, waits a little bit of time, reports the vehicle as being in an
accident, and then collects for the damages.
 Vehicle Repair
This scheme involves the billing of new parts on a vehicle when used
parts were actually replaced in the vehicle. Sometimes this involves
collusion between the adjuster and the body repair shop.
 Vehicle Smuggling
This is a scheme that involves the purchase of a new vehicle with
maximum financing. A counterfeit certificate of the vehicle’s title is
made showing that it is free and clear. The vehicle is insured to the
maximum, with minimum deductible theft coverage. It is then shipped to
a foreign port and reported stolen. The car is sold at its new location and
insurance is also collected for the “theft.”
 Phantom Vehicles
The certificate of title is a document that shows the legal ownership of a
vehicle. Even though it is not absolute proof that a vehicle exists, it is
the basis for the issuance of insurance policies. Collecting on a phantom
vehicle has been shown to be easy to do.
 Staged Accidents
Staged accidents are schemes in which an accident is predetermined to
occur on a vehicle. The schemes are organized by rings and the culprits
move from one area to another. They often use the same vehicle over
and over, which is sometimes what causes their scheme to be uncovered.
 Inflated Damages
The business environment and competition for work in the automobile
repair industry have caused the development of a scheme in which some
establishments inflate estimated costs to cover deductibles. The insured
is advised by the repair shop that the shop will accept whatever the
company authorizes.

 Vehicle Identification Number (VIN)-Switch

A VIN-switch is a fraud scheme in which a wrecked vehicle is sold and
reported as being repaired. The vehicle is not actually repaired; instead,
the VIN plate is switched with that of a stolen vehicle of the same make
and model.
 Rental Car Fraud
A person doesn’t need to own a vehicle to commit automobile fraud.
There are several schemes that can be perpetrated using rental cars. The
most prevalent involve property damage, bodily injury, and export fraud.

Property Schemes
Property schemes usually involve the filing of insurance claims for
property that never existed or for inflated loss amounts.
 Inflated Inventory
Property that is lost through fire is claimed on an insurance form.
However, property that doesn’t exist also finds its way onto an inventory
of the property claimed. Property claimed might have been previously
sold or never owned by the claimant.

 Phony or Inflated Thefts

A home or car that has been burglarized is the basis for filing a claim for
recoveries of monies lost.
However, as with items “destroyed” by fire above, the items never
existed or were previously sold.
 Paper Boats
A claim is filed for a boat that sank, but the boat never actually existed.
It is not difficult to register a boat based on a bill of sale. After a period
of time, a loss is claimed for the sinking of the boat. It is difficult to
prove that the boat didn’t exist or was sunk intentionally.
 Arson for Profit
Personal dwellings or commercial properties are destroyed by fire for
the sole purpose of financial gain. Insureds may act alone or in concert
with agents or highly organized crime rings specializing in arson.

Life Insurance Schemes

 Fraudulent Death Claims
To obtain reimbursement for life insurance, a death certificate is
required. However, phony death certificates are not that difficult to
obtain. The person might be very much alive and missing or the person
might be dead, and the death is past posted. With small settlements,
death claims aren’t closely scrutinized and are paid relatively easily.

 Murder for Profit

This scheme involves the killing (or arranging for the killing) of a
person in order to collect insurance.
The death might be made to look like it was an accident or a random
killing.
 Liability Schemes
In a liability scheme the claimant has claimed an injury that did not
occur. The slip and fall scam is the most common, and involves a person
claiming to fall as the result of negligence on behalf of the insured.

“Red Flags” of Insurance Fraud

Red flags of insurance fraud may include any of the following:
 The claim is made a short time after inception of the policy, or
after an increase or change in the coverage under which the claim
is made. This could include the purchase of a scheduled property
or jewelry floater policy, or more than one during the time before
the loss.
 The insured has a history of many insurance claims and losses.
 Before the incident, the insured asked his insurance agent
hypothetical questions about coverage in the event of a loss similar
to the actual claim.
 The insured is very pushy and insistent about a fast settlement, and
exhibits more than the usual amount of knowledge about insurance
coverage and claims procedures, particularly if the claim is not
well documented.
 In a burglary loss, the claim includes large, bulky property that is
unusual for a burglary.
 In a theft or fire loss claim, the claim includes a lot of recently
purchased, expensive property, or the insured insists that
everything was the best or the most expensive model, especially if
the insured cannot provide receipts, owner’s manuals, or other
documentary proof of purchase.
 In a fire loss claim, property considered personal or sentimental to
the insured and that you would expect to see among the lost
property (such as photographs, family heirlooms, or pets) is
conspicuous by its absence.
 A large amount of the property was purchased at garage and yard
sales and flea markets, or otherwise for cash, and there are no
receipts (the insured will be unable to recall exactly where these
sales took place or by whom).
 The insured cannot remember, or does not know, where he or she
acquired the claimed property, especially unusual items, and/or he
cannot provide adequate descriptions.
 On the other hand, the insured already has receipts and other
documentation, witnesses, and duplicate photographs for
everything; the claim is too perfect.
 Documentation provided by the insured is irregular or
questionable, such as:
 Numbered receipts are from the same store and dated
differently or sequentially.
 Documents show signs of alteration in dates, descriptions, or
amounts.
 Photocopies of documents are provided and the insured
cannot produce the originals.
 Handwriting or signatures are similar on different receipts,
invoices, gift verifications, or appraisals.
  The amount of tax is wrong, either for the price of the
property or for the date appearing on the receipt.
 Receipts, invoices, or shipping documents do not have
“paid,” “received,” or other shipping stamps.
 In a theft or loss away from home, the insured waits an
unusually long time before reporting the theft to the police.
 The insured is able to give the police a complete list of lost
property on the day of the burglary or shortly after.
 The amount of the claim differs from the value given by the
insured to the police.
 In a business inventory or income loss claim, the insured
does not keep complete books, or the books do not follow
accepted accounting principles.
 The physical evidence is inconsistent with the loss claimed
by the insured.
 In a burglary loss, there is no physical evidence of breaking
and entering, or a burglary could not have occurred unnoticed
under the circumstances.
 In a fire loss:
 The apparent cause and origin of the fire is inconsistent with an
accidental cause and origin, or there is evidence of the use of an
accelerant.
 The remains of the property do not match the claimed property.
 The premises do not show signs of having contained the claimed
property, or the amount of property would not fit into the space
where the insured says it was.
 Physical damage to the insured’s car is inconsistent with its having
been in a collision with an uninsured car.
 The insured has discarded the claimed damaged property before
the adjuster can examine it.
 The cost of the claimed property, over the period of time it
allegedly was acquired, seems to exceed the insured’s financial
ability to purchase it.
 The insured refuses or is unable to answer routine questions.
 The insured provides supporting evidence and documentation that
cannot be corroborated.
 Information on a life application is very vague or ambiguous as to
the details of health history, such as dates, places of treatment,
names of physicians or hospitals, or specific diagnoses.
 Applicant fails to sign and date the application.
 Pertinent questions on the application are not answered, such as
income, other insurance carried, hazardous duties, or aviation or
flying activity.
 The insured has “excess insurance,” either shown at the time of
application or developed through an underwriting report of
database information.
 Earned income does not warrant the amount of insurance being
applied for.
 The applicant’s date of birth as shown on the application is much
earlier than shown with other carriers or in previous applications or
policies.
 The agent is putting on a great deal of pressure to have the policy
issued because of the large amount applied for, but is going over
the underwriter’s head in order to do so (working out of the
system).
 The physician’s report is very vague on details of past medical
history and does not coincide with the information shown on the
application.
 A death claim is presented in which the death has taken place
outside of the country.
 The signature on the application for insurance does not appear to
be the same signature as shown on an authorization at the time of
the claim.
 A claimant or a claimant’s attorney attempts to limit the type of
information to be related by a signed authorization, which is a
standard authorization used by the company.
 An attorney is immediately brought into a contestable death claim,
attempting to interfere with the investigation and to withhold
information required by the company.
 A contestable death claim is reported as an accidental death, but
could possibly be a suicide (such as a fatal accident involving only
one vehicle, a hunting accident, or an accidental shooting while
cleaning or repairing a weapon).
 An autopsy report discloses a different height and weight than
what is shown on the recent application (auto or house fire death).
Dental records do not match the dental findings in theautopsy
report.
 Records are missing on a patient who was confined to a hospital,
or a patient’s medical records are missing from the physician’s
office.
 The death claim package sent to the insurance company is too well
packaged and complete in every detail with supportive documents.
Documentation that was not initially asked for or required by the
insurance company was voluntarily sent, such as newspaper
reports, burial certificates, or shipment of the body from one
country to another.
 The routine audit of a designated insured group shows a significant
increase of added employees whose names do not show up on the
payroll.
 Gunshot wounds or stabbings were inflicted by the insured as the
aggressor or were self-inflicted.
 Police accident reports were submitted by the claimant.
 The claimant pushes for the claim to be handled quickly; for
example, he wants to stop by the office to pick up his check “as
we’re leaving for vacation in the morning.”
 Series of prescription numbers from the same drug store don’t
coincide chronologically with the dates of the prescriptions.
 An automobile was destroyed by a fire in a very remote rural area
with no witnesses; the driver claims an electrical shortage in the
engine compartment caused the fire.
 Preliminary information for a business fire loss or home fire loss
indicates considerable financial difficulties and financial pressures
being brought upon the owner and the fire is suspicious in nature
and/or origin.
 An employee within the claims operations of an insurance
company is known to have a drinking ordrug problem, financial
pressures, serious marital difficulties, or an affair and irregularities
start to appear.
 On burglary losses from a business or especially a home, the
investigator observes that the remaining contents at the scene are
of much inferior quality than those reported stolen. There is no
indication of indentation in the piling of the carpet where heavy
items of furniture or equipment were to have been placed. There
are no hooks or nails on the walls where valuable pictures might
have been hung. Entrances or exits are too small to take a large
item through without laboriously disassembling it.
 A claim contains false statements or it has been determined that
there has been a deliberate coverup.
  A disability income protection claim is filed and it is determined
that the claimant had recently purchased numerous expensive items
on credit and had them all covered by credit A&H insurance
coverage.
 Public transportation accidents in which there are more passenger
claims filed than there were passengers at the time of the accident.
 A witness to an accident or incident deliberately tries to hide from
investigators rather than come forth and tell the truth.
 An official document of findings is in complete conflict with the
facts in the case and there is no explanation for this conflict of
facts. Photographs or other documents do not substantiate the
reported findings.

Workers’ Compensation Fraud

Workers’ compensation laws require employers or their insurance plans
to reimburse employees (or on their behalf) for injuries that occurred on
the job regardless of who is at fault and without delay of legal
proceedings to determine fault. The injury may be physical, such as a
broken limb, or mental, such as stress.
 Common Schemes
Schemes are generally broken into four categories: premium fraud, agent
fraud, claimant fraud, and organized fraud schemes.
 PREMIUM FRAUD
This entails misrepresenting information to the insurer by employers to
lower the cost of workers’ compensation premiums.
 AGENT FRAUD
Agents issue certificates of coverage indicating the customer is insured,
but never forward the premium to the insurance company. An agent may
alter the application for coverage completed by the employer in order to
be able to offer a lower premium to his client.
 CLAIMANT FRAUD
Misrepresenting the circumstances of any injury or fabricating an injury.
 ORGANIZED FRAUD
Organized fraud schemes are composed of the united efforts of a lawyer,
a capper, a doctor, and the claimant. This scheme is used not only in
workers’ compensation cases, but also in other medical frauds,such as
automobile injuries.
 THE LAWYER
The lawyer is usually the organizer of the scheme and the one who will
profit the most. The lawyer will entice the claimant into securing his
services by promising a large settlement from the insurance company.
The claimant may or may not have to undergo medical tests, since the
only requirement of the claimant is that he be insured. The lawyer will
then refer the injured party to a doctor for “treatment.”
 THE CAPPER
A capper, also known as a runner, is used to recruit patients for the
scheme. He may be employed by either the attorney or the doctor, and is
paid, either a percentage of the total take or per person, for bringing in
patients.

 THE DOCTOR
The doctor may be one of the organizers or a player in the scheme, but
must be a part of it in order for it to work properly. The doctor is used to
lend authenticity to the scheme, and he is well compensated for his
efforts. The doctor bills for services that he may or may not render as
well as for unnecessary services. In addition, if the patient has regular
health insurance, the doctor may double bill for the services. If the injury
occurred as the result of an automobile accident while the patient was on
the job, the doctor may bill all three insurance companies: the workers’
compensation carrier, the employee’s health insurance, and the
automobile carrier.

LEGISLATION:

National and local governments, especially in the last half of the

twentieth century, have recognized insurance fraud as a serious crime,
and have made efforts to punish and prevent this practice. Some major
developments are listed below:

United States
 Insurance Fraud is specifically classified as a crime in all states,
though a minority of states only criminalize certain types (i.e. Oregon
only outlaws Worker Compensation and Property Claim fraud).[10]
 19 states require mandatory insurer fraud plans. This requires
companies to form programs to combat fraud and in some cases to
develop investigation units to detect fraud.
 41 states have fraud bureaus. These are law enforcement agencies
where “investigators review fraud reports and begin the prosecution
process.”[10]
 Section 1347 of Title 18 of the United States Code states that
whoever attempts or carries out a “scheme or artifice” to “defraud a
health care benefit program” will be “fined under this title or
imprisoned not more than 10 years, or both.” If this scheme results in
bodily injury, the violator may be imprisoned up to 20 years, and if
the scheme results in death the violator may be imprisoned for life.[43]

Canada
 The Insurance Crime Prevention Bureau was founded in 1973 to
help fight insurance fraud. This organization collects information on
insurance fraud, and also carries out investigations. Approximately
one third of these investigations result in criminal conviction, one
third result in denial of the claim, and one third result in payment of
the claim.[44]
 British Columbia’s Traffic Safety Statutes Amendment Act of
1997 states that any person who submits a motor vehicle insurance
claim that contains false or misleading information may on the first
offence be fined C$25,000, imprisoned for two years, or both. On the
second offense, that person may be fined C$50,000, imprisoned for
two years, or both.[45]
United Kingdom

 A major portion of the Financial Services Act of 1986 was

intended to help prevent fraud.[46]
 The Serious Fraud Office, set up in 1987 under the Criminal
Justice Act, was established to “improve the investigation and
prosecution of serious and complex fraud.”[46]
 The Fraud Act 2006 specifically defines fraud as a crime. This act
defines fraud as being committed when a person “makes a false
representation,” “fails to disclose to another person information
which he is under a legal duty to disclose,” or abuses a position in
which he or she is “expected to safeguard, or not to act against, the
financial interests of another person.” This act also defines the
penalties for fraud as imprisonment up to ten years, a fine, or both.
CASE STUDY
Maulana Azad Charitable Trust (MACT) - Motor TP Claims

A senior assistant in one of the Divisional Offices of a General

Insurance Company has been working in Motor Third Party Claims
Department for a long time. His wife was working in the Account
Department of the same office. In the compound where Motor Accident
Claim

Tribunal was situated, there was a branch of a nationalized bank. The

tribunal has its account also in the same branch. The insurance company
has its payment account in the same bank.

This particular senior assistant, over a period of time became very

friendly with some of the advocates in MACT as also some assistants in
the Bank. This was made possible because of his regular visit to MACT
to meet advocates in his official capacity as also to the Bank where the
company was having the payment account. In collaboration with some
advocates and

Bank employees, he floated a charitable trust called Maulana Azad

Charitable Trust (MACT)and managed to open an account in the bank in
the name of the same trust which was existing on paper only. Against
the award passed by the tribunal, cheques used to be prepared in
settlement of the award. As per the usual practice, the cheques were
prepared in the name of MACT and the same, instead of being deposited
in the tribunal, were deposited in the trust account. His wife being in the
accounts department made his task easier. His advocate friends and
friends in bank were helpful in ensuring that proceeds are transferred to
the trust without any problem.

A situation started developing wherein the claim file status in insurance

company's office showed that award has been satisfied where as in
court's record settlement was still awaited.
This resulted in starting of execution proceedings against the insurance
company. The senior assistant would then remove the office note sheet
and the original judgment from the file and would prepare a fresh note-
sheet seeking permission for immediate settlement of award to avoid
execution. He used to wait for the Divisional Manager to be on tour or
leave and would go to the person officiating in the absence of Divisional
Manager. The amount of second cheque would be different from the
original cheque in satisfaction of the award because of interest part on
account of delayed settlement. This continued for quite some time and
by the time it was detected more than 26 lakh of rupees had been
siphoned.

Why did it happen and how was it detected? It happened because of the
personal greed of the senior assistant. In most of the fraudulent claims,
somebody's greed is involved. It happened also because of
concentration of the entire procedure of T.P. Claims processing in the
Senior Assistant's hands. He had been very hard working and never
gave any chance to his superiors for any complaint. Nobody even
thought that he could indulge in such malpractice.

It never came to light whether he was able to entice the advocates and
bank people or it was other way round. The Detection was late because
the bank reconciliation was not done regularly. It came to light at the
time of annual accounts finalization. The full dimension could be
understood only after a team of officers conducted a thorough enquiry.
The developments taking place in the court on compensation claim files
were being conveyed by the advocates on regular basis to the senior
assistant in insurance company. In view of the likely involvement of
advocates and bank people, the company decided to entrust the case to
the CBI. The case is now going on in the court. The Senior Assistant
involved committed suicide.
The lessons to be learnt are: -

●Never say good-bye to established system and procedures. Some

times, it may involve delay. But it is worth it. Bank reconciliation must
be done on a regular basis as per the norms.

● Ethical values are important and a culture based on ethics and

professionalism must been couraged in organization.

●Even if going is very good in any department, the in charge of office

must maintain good vigil and supervision so that he knows what is
happening in any department and should intervention be required, the
same is taken in time.

● Outsider must not have direct access to any claim file of the office
even if he is our own advocate / surveyor.

● Spouses working in the same offices in sensitive department can

sometimes create problems.

It should be noted that the senior assistant was financially well off and
has no financialcompulsion for him to indulge in such act.
Frauds blow a hole in insurance firms

Indian insurance companies have collectively lost a whoppingRs.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 asRs.15,288 crore, of which
life insurance accounted for `13,148 crore while the general insurance
segment lostRs.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
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 asRs.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.
CONCLUSION

Soft frauds are increasingly becoming cause of concern for general

insurance companies in
India. Because of dishonest acts of few, all other stakeholders have to
pay a price. This must stop. All fraudulent claims whether soft or hard
must be curbed for it is in the best interest of everybody concerned. In
case of organized fraudulent claims racket (MACT,Health etc.) there is
need for national level information gathering and strong mechanism and
a collective effort to minimize fraudulent claims. Ultimately, honest
customers have to pay for fraudsters. There is need to declare a war
against the "fraud." According to a report published by the Association
of British Insurers (ABI) the cost of insurance fraud is now estimated to
be £ 5.2 million ($ 8.48 million) everyday. Back in India, if newspaper
reports are to be believed, then according to a recent survey conducted
by India Forensic Research
(Pune based consultancy) the insurance industry in India is loosing
around Rs.15000 crores in a year due to fraudulent claims on health and
motor portfolio. Judiciary unfortunately takes a different attitude to
fraudulent claims as compared to other fraudulent civil suit. Public
attitude towards insurance fraud is also a cause of concern for insurance
companies. Majority of the people do not see anything wrong in
inflating the claim. This has been confirmed in an independent opinion
research into public attitude towards insurance frauds commissioned by
ABI. If such an opinion poll is conducted in India the result will not be
any different. There is a need to create awareness.