Frauds in Insurance Industry in India is not new. It has been a part and parcel of the Industry. According to a research, the Insurance Sector in India loses 30401 crore of rupees every year due to frauds! which means the insurance companies are losing 8.5% of its revenues to the frauds.
According to Deloitte’s Insurance Fraud Survey 2023, there have been more cases of fraud against insurance companies in India involving life and health insurance.”An interesting insight from the survey pointed to the weakness in controls to prevent and/or detect frauds as one of the reasons for increased fraud incidents. A weakening of controls over time may have been caused by the introduction of new technology and changes in working methods, particularly in light of the pandemic. This gives fraudsters a chance to take advantage of the system’s flaws.
In addition to having an impact on policyholders due to higher claim costs, fraudulent activities within or against insurance companies can have a negative impact on their financial stability and reputation. The organizational system/controls’ flaw, which gives fraudsters the chance to commit fraud, is a significant factor why fraud occurs. This condition can primarily be managed by creating and implementing a controlled environment that stops, detects, and discourages fraudulent behaviour from intermediaries, vendors, or employees.
This amount of fraud is mind boggling. Have our Insurance Regulators, Insurance Companies have thought of what can we achieve from this amount lost to fraud.
If we take the case of Pradhan Mantri Suraksha Bima Yojana where the risk coverage under the scheme is Rs.2 lakh for accidental death and full disability and Rs. 1 lakh for partial disability for a premium of Rs.20 per person annually. If we were to cover the whole 140 crore population of India with this insurance scheme the total outgo will be Rs. 2800 crore.(app)
Similarly under Pradhan Mantri Jeevan Jyoti Bima Yojana, there is a life cover of Rs. 2 lakhs for one year period and risk coverage under this scheme is for Rs. 2 Lakh in case of death of the insured. The annual premium is Rs. 436 per annum. If all 140 crore population were to be insured the total outgo would be around 61000 crores. Almost half the amount can be funded from the amount lost through insurance frauds.
The amount of money lost through frauds is capable to provide insurance cover to entire population. So what we have done till date to stop the insurance fraud. Practically speaking we are far behind in taking any concrete action to stop the fraud and take firm action against the fraud perpetrators. In most of the fraud cases I have seen that the Insurance companies simply reject the claim and no action is taken against the people involved in fraud.
The biggest drawback of the Industry has been lack of master database of fraudulent transaction to identify the potential and habitual fraudsters. Why can’t our regulators take this as utmost top priority in implementing a system to exchange data among insurers and stop future frauds.
With new technological advancements, use of Artificial intelligence and blockchain technologies must be implemented in systems of all insurers to raise a flag in case of suspicious transaction and share data to stop the menace of fraud. Also all the authorities like regulators, insurance council, ministry of finance, police from various states, Insurance companies must have joint awareness campaign so that this loss can be prevented. The person responsible must be booked and strict action must be taken under laws of the land so that they do not think of defrauding the Insurers and consumers.