Insurance is a business that is built on risk analysis and probabilities. And, fraud risk poses a very big challenge for the insurance sector. Although business leaders are aware of the need to address this risk, but lack of a comprehensive and integrated approach to fraud risk management continues to be a concern. Every instance of insurance fraud exerts pressure on the business, whether seller or buyer fraud. Although the new insurance rule brings in relief for the customers as life insurance companies must pay all claims compulsorily within three years after the date of policy commencement, proposers are worried since fraudulent practices are on a rise and policies are bought with an intention to commit fraud.
Fraud risk management is going to be one of the most important concerns as the Indian insurance industry matures. Companies continuously need to reassess their policies to mitigate the risk of fraud.
Usually, the most common fraud instances are:
- Policies bought on behalf of deceased person and fake names.
- Falsifying or misrepresenting medical history such as omitting details like smoking or a pre-existing condition in order to get a cheaper insurance policy
- Instances where a healthier family member provides medical samples instead of the proposer, thereby defrauding insurance companies.
- Post-sale, since proposer KYC details are photocopied and possibly in possession of agents and employees of insurer, such records can be tampered to cancel policies or make adverse changes without customer consent.
The ever increasing incidents of fraudulent practices necessitates that insurance companies regularly review their policies, build in checks and introduce advanced technology to avoid such issues. These risks in the insurance value chain emerge from internal as well as external factors. It has been found that internal employees are misusing confidential information and collaborating with fraudsters is on the rise and therefore a comprehensive checks and balance mechanism must be set up to minimize these issues. External fraud risk however can arise at various stages – registration of clients, underwriting, reinsurance and the claim process.
The intent to deceive and desire to extract more money from an organization is the prime component of committing fraud. Insurers certainly need to set up credible investigation teams and law enforcement agencies to work together in order to weed out fraudulent claims. They are also entering an expansive era in their use of anti-fraud tech weaponry. Significant investments in technology are growing and insurers appear to be getting positive returns on those investments. Life insurance enterprises are significantly shifting focus to an encompassing assurance with respect to customers, KYC and related fraudulent practices. We strongly believe that KYC should not be limited to a legal compliance matter but extended to understand customer lifestyle, behavior and risks associated with each customer extensively.
In an attempt to combat fraud at sector level, it is therefore important for the industry to build a shared or centralized database to share information related to frauds that help them identify transactions and patterns that look unusual and warrant closer scrutiny.