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Organised crime in the insurance industry with respect to fraudulent claims being filed, impersonating other people for claims and cause of death being changed for accidental death claims has reached an all-time high.
With about 300 organised gangs operating in this space, tougher underwriting norms are being adopted.
Gangs have been operational in the insurance space for a long time. However, insurers said that their activities are getting murkier and they have begun to cause physical harm to investigating officers at time of death claim.
A senior insurance official explained that often bodyguards are now being sent with these officers, so that they are not threatened to word their report in a particular way. In some cases, the officer was even kidnapped so that the report is not sent.
Now with the Insurance Act also disallowing any claim rejections after three years of the policy term, even fraudulent claims or those where facts have been mis-stated would have to be passed. Insurers had sought a five-year period beyond which claim rejections could be disallowed.
Often, these gangs tie-up with former insurance sector employees to understand how the process exactly works. In some cases of health insurance, even hospitals collaborate to bring out exaggerated bills for the insurance companies. Sometimes, the claim amount for the mentioned ailment is seen to be higher than the usual amount due to which investigations are carried out by insurers.
"There are several organised persons who take fake insurance either on the names of people who do not exist or on dead persons. Now since no claim can be rejected after three years, we as a industry will face major losses," said a senior private life insurance executive.
Industry sources said there were several cartels operating in this space that take up policies and make fraudulent claims. They are said to remove all evidence so that a claim is not rejected for fraud. Some of them even apply for a policy during the end of a quarter at the last hour so that the official in charge simply accepts the proposal.
With law getting stringent on claims rejection, insurers are using analytics and also tougher underwriting to deal with this matter. For instance, credit information company Experian India has launched Hunter Fraud Management Services for the life insurance sector in India. The offering will help life insurance companies to be a part of the Hunter Closed User Group (CUG) for detection of life insurance frauds.
Life insurance companies who join the CUG will share with Experian any data relating to new policy proposals and claims. The credit information company Experian is looking to offer similar services to general insurers as well. In India, Experian is the only provider of application fraud detection services using National Hunter.
With 15 life insurance companies already a part of this platform, this repository could help in reducing premium rates as insurers need not buffer for such losses, improving operational efficiency & bottom-line of insurers and in keeping bad elements out of the system.
Data from life insurers show there is an at least a 20% rise year-on-year in fraudulent claims, including claims in the name of non-existent people. With the new system coming in place, these fraudsters would not be given insurance policies.
According to industry estimates, hundreds of thousands of claims are getting fraudulently passed by these cartels, which operate in gangs in select pockets across India. They pose as relatives of customers and get a policy issued. Usually, they also have a doctor as part of the group to issue fake death certificates.
Going forward, insurers are looking at either heavily cutting down on policies with sum assured of Rs 2 lakh to Rs 5 lakh or will make the underwriting very strict to go and physically verify the individual's credentials and would also insist on medical tests in suspicious cases.