Praveen Thakwani, a 47-year-old businessman from Kanpur, was in trouble. All his business ventures were feeling the stress of accumulating debt, and he was being chased by banks for repayments.
This was when he and his wife hatched a plan to earn fast cash and pay off the loans.
His wife paid Rs 20,000 to a local doctor to get a death certificate in Thakwani's name. Next, they staged a fire in the house and produced a charred body from the morgue. The insurance claim of Rs 2 crore from his insurance products wascleared and Thakwani avoided the crisis in his business.
But the entrepreneur got greedy, and tried to repeat the trick in another city. This time, Thakwani was caught and arrested.
The Kanpur businessman is one among the hundreds of fraudsters who are keeping insurance companies on their heels. And the insurers put the blame at an amendment that has helped the likes of Thakwani is executing the deceit.
When the Insurance Laws (Amendment) Act 2015 was passed, Section 45 of the Act was partially amended to say that no claim can be rejected after three years. This means that once a policy has completed a three-year period, any claim arising out of it will have to be passed.
Thakwani made the most of this amendment. It was only after his insurance policies completed three years, did he and his wife execute the plot. Insurance companies didn't have any choice but to pay the claim.
Incidents like these have made insurance companies extra careful when they sign up new customers.
That's why, next time you contact your insurance company for buying a policy, don't be surprised if the agent insists that a full length photograph of yours is taken, as against a passport size photograph taken usually.
Not just that. Insurance companies may insist video recording as you fill up the proposal form. And some agents may even ask for a selfie with you. It's just for the record.
V Viswanand, Senior Director and Chief Operations Officer, Max Life Insurance said that there is an increasing in non-disclosures/frauds as well as delayed intimation of claims taking advantage of the three-year window.
"Typically the frauds in life insurance usually fake death certificates, fraudulently obtained death certificate from competent authority, forgery/ altering date of death, death certificate issued for persons who are alive and policies with major non-disclosure on serious medical conditions and/ or socioeconomic profile," says Viswanand.
These frauds cost insurance companies a lot of money. According to estimates, the industry loses up to Rs 100 crore on fraudulent claims.
And because insurance works on a pool concept, genuine customers also lose out. More of that later.
Law being adversely used
The Section 45 that mandates insurers to pay all claims beyond three years has been a debated part of the law. While some insurers maintain that they will continue to reject claims that have an element of fraud in it, the fact is that the law has not stated anywhere that fraudulent claims can be excluded.
While the three-year clause was there in the earlier form of the law too, the rule then also allowed insurance companies to investigate claims they suspect for fraud. Not anymore.
The law was later amended after pressure from some political parties which claimed that 'fraud' was being used as an excuse by insurance companies to deny genuine claims.
The insurance companies now find themselves in a fix, as Thakwani-kind of cases are piling up. Thoughinsurance companies have tried to alert the police, the organised gangs aredeftand quickly move to a different city, or a state.
Creating a defense
Insurance companies though haven't given in.
Max Life, for instance, has a three-line defence framework to counter such frauds. The first line is addressed by trend-specific field underwriting including on-ground intelligence.
The second line of defence is through technological solutions for contact point and socio-economic status verification. Finally, the third level is an analytical model with self-learning capabilities which augment their pre-issuance and post issuance verifications.
Insurers are also marking out pin codes from where a trend of frauds emerges. Ifa policy is being sourced from that location, it is subject to a deeper scrutiny. Several regions in Andhra Pradesh, Telangana, Uttar Pradesh, Gujarat and Jharkhand are under the insurer's radar. Some have even found police colluding with fraudsters in a few cases.
Insurers also want to make sure that the policy is being brought by the person in whose name the proposal form is bought.
Tarun Chugh, MD and CEO, Bajaj Allianz Life Insurance said that in some cases they seek a full-size photograph and even insist on a medical test to be done to ensure that no frauds take place. "Some people are taking undue advantage of the laws and we are exercising caution while writing some such policies," he added.
Often, fraudster - like Thakwani's wife - also collude with doctors to procure fake medical certificates or even death certificates in the name of an insured person that is produced to claim insurance benefits. For this, companies are conducting a deeper due-diligence rather than taking the documents at face value.
Among the life insurance companies, death claims account for the majority of the claims payment. And that is where the maximum frauds are existing.
Sandeep Batra, ED, said that the company has enhanced pro-active risk controls and implemented deterrent measures to mitigate the risk of frauds.
For example, at the underwriting stage risk triggers are built in for additional checks of information, medical tests, customer verification among others.
"Industry players have collaborated to protect the interests of policyholders and claimants. As what is good for the customer is good for the industry in the long run," said Batra.
DHFL Pramerica Life Insurance has implemented EDD (Extra Due Diligence) for the identified red flag areas, includingidentity theft and proposal forms submitted for non-existent profiles.
There is also an elaborate process of vendor due diligence and on-boarding of medical centers as well as third party administrators, saysAnoop Pabby, MD & CEO, DHFL Pramerica Life Insurance.
Insurance companies are also making use of the fraud repository. This is being used for sharing of information amongst industry underwriting and claims forum with respect to geography and segments.
Despite these steps, the challenge remains. Many a time, it's a tough taks to even identify which policy is genuine, and which have been brought only to claim insurance money.
The general insurance story
Even as the life insurers cope up with the surmounting challenges, their peers in the general insurance industry have their own challenges.
Imagine this. Conmen first buy a personal accident insurance policy online that don't require KYC norms. They smuggle a body from a morgue.The body is run over by a heavy vehicle multiple times so that the individual can no longer be identified. This is then presented as evidence for claiming personal accident claims.
Others are not so gruesome.
At an individual level in the health segment, frauds like non-disclosure, hiding of material facts (pre-existing diseases or other policies bought) or fabrication, manipulation of documents have been witnessed.
Since India does not have a healthcare regulator, there is rampant fraud in health insurance that is often out of the control of the insurers.
Frauds like fabricated claims, inflated bills for services not provided, and additional procedures conducted only for insured patients have been unearthed.
In many cases diseases beyond the purview of the coverage too, are treated and substituted with those that are covered under the policy. Moreover, cases of fake or non-existent hospitals scamming consumer and insurers are being noticed.
Sometimes both the medical practitioner and the insured are hand-in-glove in perpetration of the fraud. Agents also play a part in this by discouraging customers from disclosing lifestyle behaviour like smoking and drinking alcohol.
Mayank Bathwal, CEO Aditya Birla Health Insurance said that according to the IRDAI data, the Indian health insurance industry witnessed high claims ratio at 101.05 in 2016-17, whereas this ratio was 98.4 in 2015-16.
Bathwal said that there have also been cases where even without any hospitalisation, a totally fake claim has been presented. To deal with this, the company uses predictive analysis as well as cross verifies fraud data of the industry.
The maximum frauds have historically been observed in the motor insurance segment which have resulted in huge premium losses.
While technology has helped, it can also be used to perpetuate cheating.
Take HDFC ERGO General Insurance for instance. The general insurer said that the demand for new kinds of products like cyber insurance has also led to a fraud in the segment. This has led to fraudsters procuring data from customers and use it to lure them to port policies.Here, in the name of porting, fraudsters ask them to transfer the money to them.
"Organisations today are moving towards automation and embracing new technology to gather data in order to offer new and better products and services to consumers. But, this has also led to the rise in cyber frauds, which are targeting companies to procure data," said the HDFC ERGO spokesperson.
Fraudsters use this data to lure policyholders to port policies for commissions or peddling fake insurance policies which leads to issuance of fake policies or services in the market.
"At HDFC ERGO, we detect fraudulent claims through automated fraud trigger systems, documents or the inputs from the surveyors," said the company spokesperson.
Genuine customers affected
All this trickery though impact the genuine customer the most.
Insurance premium is collected and maintained in the policyholder's account. Whenever a claim arises, the money is drawn from the account and paid to the claimant. However, when insurance companies are forced to pay for wrong claims, funds for genuine claims get depleted.
Further, to deal with the rising incidents of fraud, insurance companies have also begun to increase premiums. So even if you are a regular policyholder, you could be impacted by the move.
Also, underwriting is getting tougher. This means that a regular policy that would earlier take 3-4 days to be issued could take a week or even more. Insurers do this to ensure that bad risks are not underwritten into the system.
This means additional disclosures, medical examinations as well as telephonic interviews to make sure the policyholder is genuine.
Need of the hour
At a time when insurance companies are pulling all stops to ensure that customers are sold the right products, a stronger fraud detection by the industry is the need of the hour.
In a bid to weed out criminals from the system, insurance companies could also be losing out genuine customers in the process.
Insurance still being a push product already needs a strong push for any individual to buy it. Simplification of the process and automation to trigger fraud-sensing at time of underwriting is a good start.What will be closely watched is whether insurers are successful in eliminating country-wide fraud through this process.