Insurance Frauds and Remedies in India

Insurance frauds generally refer to the frauds relating to insurance Sector, particularly the frauds being committed with Insurance Companies. The insurance frauds are committed in health sector insurance, automobile insurance frauds and insurance frauds in other sectors.  There is a growing concern among the insurance industry about the increasing incidence of frauds.

Insurance fraud is any act committed to defraud an insurance process. This occurs when a claimant attempts to obtain some benefit or advantage they are not entitled to, or when an insurer knowingly denies some benefit that is due.

The Federation of Indian Chambers of Commerce & Industry define insurance fraud as, “The act of making a statement known to be false and used to induce another party to issue a contract or pay a claim. This act must be willful and deliberate, involve financial gain, done under false pretenses and is illegal.”

It is a matter of concern that 'insurance fraud' is not defined under the Indian Insurance Act. IRDA recently quoted the definition provided by the International Association of Insurance Supervisors (IAIS) which defines fraud as "an act or omission intended to gain dishonest or unlawful advantage for a party committing the fraud or for other related parties." Other instruments within the Indian legal system, such as the Indian Penal Code (IPC) or Indian Contract Act, also do not offer specific laws. Sections of the IPC which deal with issues of fraudulent act, forgery, cheating etc. are sometimes applied but none of them are specifically targeted at insurance fraud and are inadequate for purpose of acting as an effective deterrent.

Fraud is willful and deliberate, involves financial gain, done under false pretense and is illegal. A hard fraud occurs when someone deliberately plans or invents a loss such as a theft of a motor vehicle or setting fire to property covered by an insurance policy. Soft frauds are more common and include exaggeration of legitimate claims by policyholders. They are also referred to as opportunistic frauds. The Insurance Regulatory and Development Authority (IRDA) has on several occasions taken up the  International Association of Insurance Supervisors’ (IAIS) definition, “an act or omission intended to gain dishonest or unlawful advantage for a party committing the fraud or for other related parties.

Insurance fraud refers to any duplicitous act performed with the intent to obtain an improper payment from an insurer. Insurance fraud is committed by individuals from all walks of life.

Types of Insurance Fraud: The Insurance Regulatory and Development Authority of India which is the apex body and overseeing the business of Insurance in India sets out these 3 broad categories of fraud –

1. Policyholder Fraud and/or Claims Fraud – Fraud against the company in the purchase and/or execution of an insurance product, including fraud at the time of making a claim.
2. Intermediary Fraud – Fraud perpetuated by an insurance agent/Corporate Agent/intermediary/Third Party Administrators (TPAs) against the company and/or policyholders.
3. Internal Fraud – Fraud/ misappropriation against the company by its Director, Manager and/or any other officer or staff member (by whatever name called).

Claims Related Fraud: Policy holders may generally commit these kinds of frauds:

• Hiding a pre-existing condition: most individual health policies give a definite waiting period for a pre-existing condition/disease. The policyholder by falsifying the report of a pre-policy health check-up, conceal this fact.
• Fabricated documents to meet terms and conditions of the Insurance: Youthful and Healthy people are an obvious choice for insurance by the companies. Any person with a different attribute, for example, a person aged, may not necessarily face rejection of his application but may be charged more premiums. In this case people try to conceal age or chronic diseases. Faking disability also comes under this.
• Duplicate bills of exchange: Submission of forged or inflated bills is also fraud, especially when no expenses have been undertaken. The objective of health insurance, to cover the medical expenses incurred when one has diseases or requires surgery, is defeated then. An insurance policy is not supposed to be profitable.
• Withholding information of multiple policies: It is the responsibility of the insured to inform all the other insurers of the existing policies whether group, individual to prevent the making of multiple claims on an issue and make a profit out of it
• Participating in fraud rings: A person might collude with another like an agent or doctor or providers to make a false claim, for example, alter information at their bequest to make a claim.
• Orchestrated accident: A person might stage an accident so that they can call for compensation for their medical and hospital expenses.

Remedies are available in Indian Penal Code, Indian Contract etc.