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Fraud is defined as misrepresentation of a fact by the perpetrator of fraud knowing it to be false and the person “Victim” believing it to be true and acting on such belief and incurs monetary and financial losses while the fraud perpetrator gains at the cost of the “Victim”.
There are multiple types of Frauds and one of the most recent recurring frauds is Insurance Frauds.
An Insurance fraud occurs when a claimant puts up a false or wrongful claim in order to gain monetary advantage fraudulently, to which, otherwise he is not entitled.
These frauds are perpetrated either by the insured or employee of the insurance company.
Thus, false insurance claims are filed to defraud the insurance companies. It is estimated that about $80 Billion are lost each year due to Insurance Frauds in USA alone and the losses in turn are passed on to the insured persons premiums. Insurance frauds are another category of white collar crimes. In a majority of cases, the fraud perpetrators include professionals like doctors and lawyers etc. Insurance frauds continue to cause lot of losses and costs which in turn burden the consumers who end up paying higher insurance premiums. Insurance business comprises of a vast variety of aspects, as categorised under and thus gives scope for lot of insurance frauds -white collar crimes. 1.Life Insurance 2. General Insurance.
General Insurance Comprises of:
1. Motor Insurance
2. Property Insurance
3. Employee Liability
4. Professional indemnity
5. Personal & Health Insurance.
Property Insurance includes:
A. Fire Insurance B. Marine Insurance. Marine Insurance Includes: a. Ocean Marine 2. Inland Marine.
Insurance frauds may be committed at the time of assessment or underwriting.
These frauds may be perpetrated by:
B. Insurance Brokers
C. Insurance Surveyors
Some areas of how Fraud is perpetrated by various Insurance fraudsters:
1.Misrepresentation of facts to the detriment of the insured persons.
3. Sliding: Additional charges in the policy without the knowledge of the insured.
4.Twisting: To get more commissions on new policies, the agents try to convince the insured to take new policies instead of renewing the old policy.
5.Churning: Agents try to manipulate the insured that the latter can buy additional insurance with no extra cost.
6. Fictitious Policies: Agents, underwriters, brokers submit fictitious policies to improve rankings and commissions.
Health care Insurance Frauds:
There are various Health Care Programmes under which insurance is provided.
They may be: a. State run Insurance companies b. Corporate Sector c. Public Sector d. Community based etc.
Health care fraud is also intentional deceiving, misrepresenting, concealing facts that results in payment of Health care benefits paid to a group of individuals or a single person.
These frauds include claims submitted by bogus physicians, wrong billings, wrong information regarding diagnosis etc.
In such cases the concerned physician cert Some doctors involve themselves in double billings and claiming charges for some treatments that never occurred.
Health care providers also indulge in frauds in several cases.
Referring patients to specialists though not required. Ordering tests that are not required.
Even insurance companies indulge in fraudulent practices by deleting the claims and not paying or delaying the claim payments.
Frauds by employees of Insurance companies:
1.Mishandling of claims
2.Failure or delay in settling the claims
3.Deceptive sales practices
6.Frauds by Hospitals & Doctors and staff
7.Fraud by Insurer by Misstatements
8.Fraud by collusion between the insured and agents, brokers, employees.
Frauds in Motor Vehicle Insurance:
1.Abandonment of vehicles and claiming insurance
2. Delayed schemes – (Taking policy after the accident and manipulating)
3. Vehicle repairs -Over stating the expenses estimates and false claims.
4.Vehicle smuggling frauds
5.Fictiious claims: Fraudsters get hold of certificate of title fraudulently without the actual possession of the vehicle physically.
6. Staged accidents: Deliberately damaging the vehicle and claiming insurance
7.Collusion between the insurer or his agents and the insured and claim inflated insurance compensation.
Frauds of Life Insurance:
There are instances where the insured faked his Death through an “accident” and after successfully getting the claims turning up alive and pretending that he has no memory of what happened during his absence.
The following instances show how “death” is faked and false claims made by wards.
Fire Insurance Frauds:
False and fraudulent fire insurance claims are common too by burning down houses, stocks or godowns and claiming huge claims from the Insurance companies. This type of fraud is committed mainly by persons who are in deep debt and indulge in such fraudulent means to claims for repaying their debts. In such instances the owner will be away from his home and has an alibi as he may hire criminals to set fire to the house and though all valuables are removed and the owner puts up claims for all the insured items along with house destruction.
Similarly, a business man may set up a fire of his shop or godowns without any stocks and put a fraudulent claim.
Detection of fraudulent claims:
A right combination of technology and tools and usage of data mining techniques will help in detection and prevention of false and fictitious claims.
Due to the usage of latest technology and implementation of fool proof software or ERP systems there has been a decline in insurance frauds in 2016 as compared to 2014, but still persists causing at times huge losses to the insurers.
However, the insurer has to invest heavily on software and technology and also make sure they don’t get false results by continuous updating etc that cuts into their bottom-line.
Fraud is perceived in the full cycle of insurance starting from application for insurance to the claims and their settlement and payment.
Despite the usage of latest technology still many a fraud goes undetected and the fraud fight continues.
Appropriate controls should be initiated to prevent or reduce cyber fraud, misappropriations, online frauds and also money laundering through insurance frauds. There should be in place strict business rules and red flags to prevent a fraud from occurring.
Case management systems and data visualization methods help in detecting and preventing frauds and reduce losses.
Data has many sources which can be used in detecting & prevention:
1. Internal data
2. Third party data
3.social media news
4. Industry Alerts
5. Data from public records and Governments and finally
6. Unstructured data sources.
There should also be in place policies to deal with frauds statutory regulations to punish for false claims together with fines and penalties but also imprisonment for fraudulent practices will act as a deterrent to prevent frauds.
For some Insurances cases refer to the following Link: