Over the last 10 years, the Indian insurance industry has grown at a compounded annual growth rate of around 20%. However, with the exponential growth in the industry, there has also been an increased incidence of frauds. Insurance fraud encompasses a wide range of illicit practices and illegal acts involving intentional deception or misrepresentation.
The industry has witnessed an increase in the number of fraud cases in the last one year. Organizations are waking up to the fact that frauds are driving up the overall costs of insurers and premiums for policyholders, which may threaten their viability and also have a bearing on their profitability. Hence, companies need a more vigorous fraud management framework. Although this survey focuses on retail insurance, frauds related to commercial insurance claims and third-party claims are also on the rise. The sophistication of fraudsters in the area of commercial insurance claims and third-party claims makes it all the more difficult for organizations to detect and control fraud in time.
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While the monetary loss due to fraud is significant, the full impact of fraud on an organization can be staggering. Its loss of reputation, goodwill and customer relations can be devastating. As fraud can be perpetrated by any employee within an organization or by those outside it, it is important for companies to have an effective fraud management programme in place.
The findings in this report are derived from responses to a questionnaire sent to individuals representing India’s largest public and private insurance companies, both life and non-life. The questionnaire sought the views and opinions of the top management of these companies on various issues ranging from identification of fraud areas, impact of fraud, areas that needed anti-fraud regulation to methods of fraud detection in the industry.
The key motive for all insurance crimes is financial profit. Insurance contracts provide the insured and the insurer with opportunities for exploitation. According to the survey, 40% of the respondents felt that fraud cases in insurance companies have gone up substantially in the last one year. Further, among the respondents who felt there has been a rise in fraud cases, almost 56% thought that they had gone up by up to 20% during the period. Another 22% indicated that fraud cases have increased by 31-40% during the last one year.
There are three broad categories of fraud, according to the survey. One, fraud against the insurer by policyholder and/or other parties in the purchase and/or execution of an insurance product. Two, fraud by intermediaries against insurer and/or policyholders. Three, fraud against insurer by employee on his/her own volition or in collusion with parties that are internal or external to the insurer.
Edited excerpts from a report by Ernst & Young. Your comments are welcome at email@example.com
Graphic by Yogesh Kumar/Mint