What’s so special about Panipat or Noida, or some parts of Punjab? For some it is home, for others these may be places they pass through, the same old crowded roads with slow moving haphazard traffic, the livestock on the roads. Still others may place them vaguely in north India. Others couldn’t care less. But there is something about these places, and several others across India, that is throwing up red flag after red flag. Take the case of Panipat. Some life insurance firms subject proposals for this (and many other identified cities and districts) with extra care when issuing policies. Say the word Indore and the capital market regulator sits up to notice investment advisor activity with greater scrutiny.
Even as the financialisation of Indian household savings is slow and spasmodic, the great Indian minds have figured out ways to defraud both clients and firms. Retail investors have traditionally been at the receiving end of fraudulent sales and products, but with insurance, the fraud comes against the insurance firms themselves. Both life insurance and distribution firms I spoke to break down life insurance frauds into two categories. One, the Robin Hood fraud. This has the local mastermind who is in cahoots with a cancer (or any other disease that kills) patient, his family, the local doctor and the police. A term life insurance policy, usually for ₹30-50 lakh is bought from three or four life insurance firms each. The premium is a few thousand rupees. The cancer patient dies. The death is shown as an accident, the cancer is undisclosed. The insurance money is collected and shared across all the participants. Robin Hood—because rich insurance firms paid up to all the poor guys—at least that’s what the fraudsters tell themselves.
Two, the Bahu Bali fraud. Don’t read this as baahubali, the strong man, read this as daughter-in-law or wife and sacrifice—bahu ki bali—where bali is sacrifice. Several high-value policies are bought for the housewife. She dies in a year. Large life insurance payout collected across the various policies bought. Of course, she doesn’t “die" but is killed. In a mofussil Indian patriarchal town, who raises an eyebrow at another dowry death? The juicy internal rate of return on a term insurance policy of a thousand or two thousand times is triggering fraud and crime. Buy a term cover for ₹10,000 and collect over a crore in a few months. Underwriting, or the due diligence done by the insurance firm at the time of policy issuance, is clearly the weak link, but there are other parts of the system that are not working as well. Insurers speak of the huge damage done by the withdrawal of Aadhaar as the biometric identifier of the life assured. When the courts ruled in favour of privacy, they may have opened the door to insurance fraud a bit wider. Insurers are trying to use big data, data sharing and patterns to identify and curb such frauds. When a certain city has an unusually high claims being filed, or when a married woman with limited income becomes the life assured for a high-value policy, or when the agents seem to bring clients who seem to die quickly, the bells of fraud begin to ring for the firms.
While the return on investment is the highest in a term life plan for the fraudsters, medical insurance too comes close. The medical insurance fraud again has the whole system participating in procedures that did not happen, in stents that were never put, in medical bills that are fully forged. Not just the insurance firms, the Ayushman Bharat Scheme too is battling this fraud. While firms are being defrauded in insurance, is it the customers who are being cheated by some investment advisors according to the capital market regulator. Its March order against Indore-based Zoid Research finds a stock market product that promises assured returns to clients and money extraction from clients once they are hooked by the deal offered.
Fraud is bad for the entire system. It causes people to lose trust, encourages crime and makes products more expensive for genuine investors. Regulators need to set aside their turf issues and invest in a joint big data venture that will work to identify and catch this fraud. There needs to be far better co-ordination so that data is shared and metrics developed to catch this fraud. Courts need to take another look at the use of Aadhaar in the financial sector. In a country the size (both geographically and population wise) of India, a biometric identifier is a key piece in the anti-fraud measures that regulators and firms can take.
Monika Halan is consulting editor at Mint and writes on household finance, policy and regulation