Imagine taking life insurance cover for an entity well after his death. A few years ago, a case surfaced where three policies with a total sum assured of Rs. 17 lacs were issued for the same person. However, the claim made was within a span of roughly two weeks from the date of policy issuance. As a practice, such close proximity of dates with respect to policy issuance and claim is a trigger of suspicion, leading to an investigation. Upon investigation, it was observed that the policies were taken in the name of a pre-deceased entity, where every document submitted to the insurer was fabricated.
Statistics show that a magnitude of all insurance frauds takes place in life insurance, and the increase in the percentage of frauds has more than doubled in the last 5 years. A common perception that it is always the customer who gets duped in fraud cases, however, fact is that insurance companies are also victims of such fraudulent cases from time to time. This is increasingly true for times when people are affected by a visible economic slowdown. The downside of such a malpractice is that it not only affects the insurer, but also the large portion of innocent, unsuspecting policyholders.
A visible trend in life insurance related frauds are pre-meditated scams like taking insurance on pre-deceased or uninsurable lives, using forged identity, financial & medical documents. It has also been noticed that most of these frauds are committed through a group of individuals, limited to certain geographical areas. These individuals usually enter the insurance system with the motive of committing these frauds.
Keeping with the fraud scenario, the most essential requirement in the insurance industry is the detection and prevention of frauds, before it goes too far. A large chunk of fraudulent cases come to the forefront at the claims stage, rather than the proposal stage, hence a majority of checks and investigation are conducted at this stage. However, there is also a growing need for active control and management of these issues, from the initial stages itself. This need is making fraud management an increasingly common and much adhered to practice across the industry. An important step that should be taken at the sourcing stage is that of additional steps of verification as well as better scrutiny of any new business coming in. Besides this, verification of antecedents of feet on street should also be made a common practice. These steps could lead towards reduction of any possible malpractice. It is also crucial that insurers across the industry take a keen step forward towards putting a rein on the occurrence of frauds. One common and stringent practice that must be taken up is initiation of legal options/action for situations where sustainable evidence is found in a certain case.
Introduction of a dedicated team and enabling technology to support fraud detection activities is yet another effective method to reduce the possibilities of frauds. Activities such as providing adequate and authentic information to suspect/detect potential frauds would help streamline the fraud detection process. Moreover, incidents must also be tracked from the past experience of policy issuance to claims by identifying fraud patterns, fraud locations, and fraudulent entities positioned in the system. This entire exercise would serve as an effective tool of detection and prevention of frauds.
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