Thursday, March 8, 2012


Frauds in of insurance have a huge social and economical cost!

The frauds in the insurance are nothing new but what is new is the alarming rate at which it has been growing over the past few years. The frauds range from clients’ registration through reinsurance to claims – which at times have been engineered by causing intentional loss of insured assets. The bottom line is that these frauds cost the insurance companies more than otherwise.

According to the research done by a Pune-based company called Indiaforensic – the total loss by all the players put together is a substantial Rs.30,401 crores during 2011, which is about 9 per cent of the industry size! IRDA facts show that sum total of premium received by the industry (all segments of insurance put together) in 2011 has been Rs.3.5 lac crores. The bulk of the brunt has been borne by life insurance sector with 86 per cent of the accumulated fraud, while the remaining is tagged to general insurance segment. Th e last 5 years witnessed increase of massive proportion that has doubled for life insurance and 70 per cent rise for general insurance – as 5 years ago total loss for life insurance companies was a staggering Rs.13,148 crores while for general insurance, it was Rs.2,140 crores.

There is no doubt that fraud in insurance is increasing which is reinstated by Ernst & Young survey as well. The survey findings have narrowed down the key exposures of fraud to 5 major ones. Out of all manipulations, fraudulent claims top the list with 27.3 per cent cases followed by frauds practiced during payment of premiums which was found in more than 21 per cent cases. In general insurance, the majority of the fraud revolves around health. As much as 25 per cent of health insurance cost is driven from manipulated claims. Insurance industry as a whole is plagued by usual malpractices that include commission rebating, fake documentations and collusion between parties. The mean ticket size of each fraud to an insurance company oscillates between Rs.25,000 to Rs.75,000. There is no doubt that the increased cost for insurance companies discreetly done by fraud is generally passed on to the policy holders. Whatever be the real figure, intense competition in the sector is always exerting downward pressure for the premiums even post factoring of the cost of fraud. However, in spite of these revealing data; IRDA, at least as of now, is refusing to take it seriously.

On the one hand, when 40 per cent of families in India is pushed below the poverty line due to out-of-pocket expenditure on health and where road accidents costs India 3 per cent of the GDP, then on the other, such fraudulent cases not only increase this economical and social loss but also robs many from genuine claims.

IRDA should urgently roll out guidelines catering to more transparency and simplicity in documentation. Besides, the insurance companies too should actively pursue anti-corruption strategies and techniques to arrest this problem. Government should further make the system electronic and automatic, with less human intervention, which in long run would speed up the process and reduce undercutting and pass backs. Cases of frauds in insurance sector not only are a cost to the nation but are a burden that is eventually borne by the stakeholders. It is time for government not only to secure all, but also make the system free from all rust.


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