1. Discuss the importance of privacy in insurance fraud management.

Explain what the key

considerations are regarding privacy from the insurer’s perspective?

Ans: Issues around privacy are key considerations when dealing with insurance fraud. For example:

 Prevention
 Intelligence is created by gathering and using personal information to be used by technology to
block unwanted new business or to sever existing business.
 The insurer will not do business with a supplier because the supplier has been prohibited from
providing goods due to previous fraudulent acts.

 Detection
 A person's information is collected unused to feed data models in fraud prediction technology.

 Investigation
 Information from investigations is disclosed to other organisations that are conducting
investigations into similar allegations against the same people or entities.
 Surveillance of people is conducted during investigations.

 Deterrence
 Information collected during an investigation is disclosed to initiate an enforcement complaint
 actions are outcomes from complaints made to enforcement bodies are publicized

Moral principles related to privacy must be integrated into an insurer's fraud management practices to
ensure a fair balance between effective fraud management and intrusiveness.

Right to privacy risks:

Three foundational privacy rights present legal and reputational risks through fraud management
activity, not just for the insurance industry but for any industry:

1. The right to freedom to choose to be left alone without interference or intrusion.

2. The right to protection from unreasonable collection, disclosure, or retention of personal
information.
3. The right to be free from damaging publicity or public attention.

2. a. Explain how estoppel impacts the insurance contract

Ans: estoppel is general legal principle that applies to contractual relationships. It is a bar created when
someone by his action, or lack of it, indicates that he will not exercise a right he has. He stops himself
from exercising his right later. Estoppel is best explained by referencing two parties to contract: Party A
and Party B. Party A is barred from relying on or adopting a position that Party A would normally be
entitled to rely on or adopt because Party A previously did or said something that-

 Directly, or by inference, caused party B to believe that party A would not rely on or adopt the
position.
  Caused Party B to do something that, If party a later relied on or adopted the position call mom
would be to party B's detriment.

In this circumstance, party a is estopped from acting on something it is contractually entitled to do. By
itself, the representation by party a that created the estoppel is not A cause for legal damages for which
party B can pursue Party a. Estoppel is a defence that can be raised by party B in support of a legal claim
by party be against party a.

Estoppel is different from waiver.

b. Explain how estoppel can be removed by way of the non-waiver agreement and the reservations of
rights letter?

Ans: There are two key mechanisms to remove estoppel:

1. Non-waiver agreement between parties: it is an agreement signed by the policy holder after a
loss, agreeing that the investigation and determination of the amount of damage by the
insurance company shall not be confused as an admission of liability. It is used when the insured
is in violation of a policy condition and there is a question as to whether or not the company is
liable for a loss but it wishes to investigate the loss and determine the amount of damage.

A non waiver agreement is documented and signed agreement between an insurer and insured. It is
presented by the insurer to the insured when insurer believes that coverage may not apply call mom
based on the insurers knowledge of the circumstances of a claim, so that the insurer is protected
from the claims of waiver or estoppel. Instead of unilateral reservation off rights, a non waiver
agreement involves joint acknowledgement that the insurers investigation does not waive the
insurers right to deny or contest coverage later.

Many non waiver agreements are templated farms that list all common circumstances that arise
during claims handling where a risk of waiver or estoppel might occur rather than the one or two
circumstances that pertain to a case. The form the insured is asked to sign can become confusing for
an insured when-

 the insurer's representative explains that some circumstances listed in the form do not apply to
the current issue or circumstances;
 Legal language used to set out the agreement is difficult for the insured to comprehend;
 the reason for requesting the agreement is related to fraud, yet there is no mention of fraud
related concern in the agreement.

In many cases, the presentation of a non waiver agreement either prompts an insured to consult a
lawyer or simply go along with the request to sign the agreement because the insured believes it is
necessary to advance the claim.

If an insurer is later required to rely on a non waiver agreement, the insurers representative should we
prepared to rationalize his or her understanding that the content of the document was understood by
the unrepresented insured.

There is no benefit to an insured to sign a non waiver agreement. There is little benefit to the insurer if
the insured signs the non waiver agreement without understanding it. Often, the in shorters
representative presents a non waiver agreement to win insured as a proactive measure without fully
recognizing whether one is needed. This creates an argument off whether the insurer is acting in utmost
good faith.

2. Reservation of rights letter parties: it is an insurers notification do an insured that coverage for a
claim may not apply. Search notification allows an insurer to investigate claim to determine
whether coverage applies without waiving its right to later deny coverage based on information
revealed by the investigation. In reserving its rights to later deny coverage, the insurer is merely
telling the insured of its concern that the claim, in whole or in part, may not be covered under
the policy, pending further investigation.

A reservation of rights letter is a unilateral notification by an insurer to an insured that the insurer
intends to investigate, or is investigating, without prejudicing its rights or position. The insured should
not assume entitlement, in whole or in part, because the insurer is investigating. It is the insurer's way of
notifying an insured that entitlement is contingent and the outcome of the investigation. It is commonly
used in-

 claims situations where the cause of her reported loss is not yet known or determined;
 policy situations where coverage of reported loss is not clear.

The reservation of rights effectively removes estoppel and asserts that an insurer is not waiving any of its
rights by investigating. Because it is unilateral, the insurer must prove that it provided notification.

In cases where an investigation concludes fraud or presumed fraud, removal of estoppel is not necessary
because an insurer will never be compelled to pay a fraudulent claim or provide coverage for
fraudulently obtained policy coverage. Notification of reservation of rights should occur as soon as
possible after an insurer believes the information gathered during the case suggest coverage might
become an issue.

Discuss how the role of intermediaries can be effective in controlling policy fraud?

Ans. Working on a client’s application, He or she must explain to the client the consequences of
misstatements and risk concealment-coverage may be voided. Clients should be advised that all
information will be verified through databases, credit history, references, claim history, and prior
insurance carriers. They must also understand the need to operate ethically and in good faith during
application process. The intermediary asks a series of questions an application to get to know the client
and understand the insurance risk. The intermediary gives advice on insurance protection and risk
management and explains how the policy works by detailing conditions, exclusions, and limitations.

An intermediary is a physical link between an insurer and a consumer. Intermediaries have the vital
function of bringing the consumer and the insurer together. Many consumers do not have the in depth
knowledge of insurance or of insurers and their practices to be successful in setting up insurance to best
protect their risks. Intermediaries help in identifying insurance needs, matching those needs with
product available, and facilitating insurance contracts to the satisfaction of all parties concerned. Such an
intermediary is known as insurance agent or broker. Agents are brokers responsibilities and duties are
basically the same. Both owe a duty of care to consumer and a duty of care to the insurers they
represent.

New customers may bring an element of fraud risk. Intermediaries should apply the following strategies
to deal with this potential issue-

 about business practices to develop effective work processes and to create and maintain
technical competencies-for the insurer, this means having underwriters thoroughly investigate
clients even when operating in a busy and rushed environment.
 Develop and maintain professional standards of conduct to serve the public-insurers must
always aim to improve both interpersonal communication and networking skills.
 Understand and use a checklist of red flags- if a risk has a red flag, the insurer must investigate it.
Technology may have indicators built into the management systems, but employees of the
insurer must understand what these red flags are and the business practices that follow. Red
flags merely trigger a more detailed investigation.

When completing application (oral, written, or online), the intermediary must do the following:

 discuss the applicants requirement in detail

 gain knowledge of applicants background to understand any moral hazards
 explain why certain questions are asked, what information is needed, and how the information is
used.
 explain what happens when misinformation is provided.
 evaluate the hazards and perils the risk is exposed to.
 offer risk management advice to mitigate risk and losses.

Many consumers of insurance never meet a representative of insurance company that issued their
policies; they may not recall the name of their insurer, but they likely know their agent or broker on a
first name basis. This individual has their trust and probably knows almost as much about their personal
and business affairs as their banker or accountant. Clients call their agent or broker when they want to
purchase insurance and when they have suffered a loss. It is often the agent or broker who helps guide
them through the trauma of loss by reassuring them and offering wise counsel acquired from years of
experience.

Just as there are various types of insurers, so also are there different distribution strategies and types of
intermediaries. This area continues to innovate and evolve in response to changes in technology and
increased competition as companies strive for greater cost effectiveness.

Automobile insurance represents one of the greatest premium exposure for insurance fraud. Explain
what insurers look for when assessing automobile insurance applications and the red flags that may
indicate that the application is fraudulent.

Ans: Insurers tend not to know their automobile insurance clients well. Fraudulent claims can flourish
more readily in an environment where anonymity prevails. Three insurance inspections are conducted,
especially for resell vehicles before they are insured. Three inspection is also required if there is a new
application for insurance, or if an automobile is added to a policy and is non exempt from inspection.
This is an initiative to reduce falls an inflated insurance claims regarding the following:

 phantom vehicles
 non-existent equipment and accessories
 pre-existing damage and salvage scheme
 import export frauds

Detailed descriptions are helpful when it comes to insuring vehicles. Information may include vehicle
description, unrepaired damage, vehicle identification number verification, special equipment and
photographs. Insurers can enhance inspection services according to their underwriting needs.
Inspections may be carried out by insurers, service providers, independent appraisers, garage mechanics,
brokers and agents.

People often cannot remember the date of a claim, accident, or vehicular conviction, so it becomes
important to verify the information through independent sources. This is an excellent way to prevent
fraud when the inspection reveals dents or problems from before the loss.

Automobile insurance fraud is a common and growing concern for the industry. The presence of a red
flag is not an indicator that fraud has occurred. It means that an insurance professional should
thoroughly review and analyze the documentation.

The following are some red flags pertaining to automobile insurance application in general:

 vehicle does not match the applicant's income and lifestyle

 applicant has had the vehicle with the insurer for less than one year
 applicant has no previous insurance
 applicant is newly licensed
 applicant is requesting full coverage for an older vehicle
 vehicle has existing damage or mechanical issues
 There is no lien on an expensive vehicle
 Driver is young and vehicle is expensive
 vehicle is an unpopular model that may also be expensive to operate, with a scarcity of parts or
poor safety reports
 an endorsement limiting depreciation on a newer vehicle is about to expire
 vehicle has a private lienholder
 details of vehicle purchase are unclear, or the vehicle was bought for cash
 VIN It shows previous claim for theft
 VIN search does not match insured description of the vehicle
 Vehicle is lowly valued but its equipment is highly valued
 car payments are in arrears

It is important to note that these red flags do not equate to fraud-there are indicators that need to be
investigated and known should any other red flags arise. When there is a red flag, the intermediary
should connect with the client and discuss the application. The intermediary will always ask open-ended
questions to gain greater knowledge so both physical and moral hazards are understood. Advance all
information is gathered and checked, it is important for the intermediary to document everything to
protect both the insurer and the brokerage. A fraudster will realize the intermediary suspicious and will
withdraw the application. If a client remains evasive or provides conflicting information, the
intermediary must be honest and refused to offer coverage based on information that does not make
sense.

Describe how falsified claim fraud and supplier fraud are detected in property insurance claims?

Ans- types of property insurance fraud:

Inflating claims and claiming for non existent items occur when insured exaggerate the extent of losses
quite fraudulently claim for an item they do not own. Submitting false or misleading claim information to
receive undeserved compensation is considered falsified claim fraud.

Supplier fraud occurs when contractors and restoration companies overbilled for their work on a
damaged property. Restoration companies sometimes submit claims for work they have not done.

Inflating claims

Inflating a claim occurs when someone knowingly submits a claim on his or her homeowners or tenant
policy for more than the actual value of the loss or damage. When asked to submit a list of damaged or
stolen property, the insured may purposely inflate an item's value and/or claim for an item he or she
does not own.

Insureds engaging in fraudulent activity over state the value of items stolen in a burglary of a home or
vehicle. They lie about details pertaining to the claim such as date, location and cause. Some insureds
damaged property or stage a break in and then file a claim. During the claims process, they may fabricate
evidence like repair bills, receipts, and appraisals. In certain instances, a forensic expert may be hired by
an insurer to review these receipts and check for discrepancies. These experts may also be called upon
to give testimony in court.

Catastrophic events like floods and fires can be chaotic and consequently a perfect opportunity for
fraudsters. Some see this as an opportunity to file claims that are either exaggerated or false. People
may intentionally create further damage on property after a disaster to receive a higher pay out. Ask
Canadian catastrophic weather claims increase both in frequency and severity, more people may
attempt to benefit from higher claim payouts when disaster strikes. Insurers also use forensic
meteorologists to verify weather conditions for an exact time and location in an effort to combat fraud.

Theft claims make it easy to claim for unowned item because the items are not available and a gesture or
claims expert does not have the opportunity to assess the property. When items are stolen, proof must
be submitted to establish their value, existence, and ownership.

Receipts, canceled cheques, photos, videos and credit card or bank statements can all be used to prove
that an item exists and confirm it's ownership. Probing for proof is necessary to verify a theft claim. An
adjuster should carefully review receipts to ensure they are valid.

Like other property claims, theft claims are subject to statutory conditions that state that a willfully false
statement will render a claim invalid, and no payments will be made. This provision applies not only to
fabricated claims but also to claims in which the values or the quantity lost are significantly exaggerated.
Restoration fraud

in property claims, adjusters arrange for repairs to be made. It is important for adjusters to be aware of
restoration fraud when insurance companies pay contractors to fix damage to a home. A vendor may
overbill for work, assuming the insurer will pay the full amount without question.

Contractors may be supporting service partners of the insurer or they may be hired by the insurer to be
paid with the claims settlement. The adjuster should be an active project manager then overseeing
repairs after a loss. Estimating repair costs is somewhat of an art. Differences of opinions are inevitable.
Each case is unique, to certain degree, and this affects how repairs are done.

To reduce the margin of discrepancy, it is important for the adjuster to clearly set the scope of repairs
and determine the quality of materials. To prevent fraud in any claim, all estimates must be well
organized and detailed. It is also vital to ensure that the damage being repaired is from the insured peril
and not another incident. There are times the insured will try to get a contractor to repair several items
and bill the insurer. An adjuster must review all invoices and check all reports from contractors, looking
at labour hours, repair costs, and cost of materials. Add adjuster must also never pay for anything he or
she did not approve in the first place. Collusion between an insured and a service provider is a possibility
that should not be ignored.

They just should check for other insurance policies in force on the location, and if there is other
insurance, calculate and only pay the apportionment. Any additional costs regarding a claim are to be
noted and the following questions should be asked to ensure the restoration company is not defrauding
the insurer:

 did the contractor underpriced the job at the estimate stage, perhaps to secure the job
 was there a change in the scope of damage
 was there damage that was not initially seen
 should the hidden damage have been anticipated
 did some items not respond to cleaning or repairs, resulting in the need of replacements

Any additional bills must be reviewed carefully to ensure that only relevant and proper costs are paid.

Arson