In January 2013, the Insurance Regulatory and Development Authority of India (IRDAI) came up with a comprehensive Insurance Fraud Monitoring Framework (IFMF) for dealing with rising number of fraud cases in the sector. The regulatory body asked insurers in the life, health and general categories to put in place a robust mechanism to revive consumers’ confidence and trust.
The IRDAI asked companies to work towards building a system wherein early monitoring and quick detection of frauds could be made a reality. Through a circular, the regulator wanted companies to put in place strict rules for appointment of agents, corporate agents, intermediaries and Third Party Administrators (TPAs). In short, IRDAI asked companies to enhance their risk management capabilities.
Sharing his views on the act, Sanjeev Pujari, President, Actuarial and Risk Management, SBI Life Insurance stated, “adoption of the framework has ensured that genuine customers are protected while the fraudulent ones are identified and appropriately treated. It also ensures that financial leakages are minimised and customers get more value for money.”
On the other hand, Prakash Subbarayan, Joint MD, Star Health and Allied Insurance, feels that technology should be leveraged. “Use of advanced technology is very important. Block-chain can be helpful in preventing insurance frauds,” he said.
But, how can block chain help?
Subbarayan explained, “When fresh policies come, companies ask for disclosures. There may not be honest disclosures like revealing of pre-existing diseases, history of previous treatment or surgery. All thIS information is very vital for either accepting a risk or declining it. In such a situation block-chain will help identify these non-disclosures.”
Commenting on minimising frauds, Bikash Choudhary, Appointed Actuary and Chief Risk Officer, Future Generali India Life Insurance said, “Most insurance companies are aware of the potential frauds from the beginning. The effort is to try and minimise it from the issuance stage itself.”
The framework states the industry needs to be more vigilant and have systems in place such as: procedure for fraud monitoring, identifying potential areas and co-ordination with law enforcement agencies. All these systems will enable a company in solving frauds. The industry is also taking help of the Insurance Information Bureau (IIB) to have a repository of frauds.
Insurance companies and customers both face issues when fraud claims increase. Especially it hits the customers in more ways than one. Fraudulent claims dents reputation of the insurer due to high rejection rate of claims, which further creates loss of trust amongst customers. This unarguably creates a bad atmosphere for everyone.
“Another fact is that the cost of fraudulent claims is borne by other policyholders – as the protection costs increase with increasing frauds due to pooling of risks. Also, at times, customers are denied certain facilities given the high risk. This may be an unnecessary harassment to genuine customers, if their application technically suggests a potential fraud needed further due diligence,” Choudhary said.
As fraud claims are rising, insurers are wary of introducing new policies to address frauds and also protect the image of insurance companies.