Automobile insurance is referred to a agreement between you (“you" which is referred as INSURED and the insurance company (which is referred as INSURER). INSURER protects the INSURED against financial losses covering various events as per the policies available. In contract, insurer indemnifies insured against losses, damages or liability from unknown event.
Fraud is the intentional perversion of truth in order to induce another to part with something of value or to surrender a legal right. According to the Insurance Information Institute (III), Insurance fraud is a deliberate deception perpetrated against or by an insurance company or agent for the purpose of financial gain. It may be committed at any different stage of transaction or by any involver i.e. by applicants, policyholders, third-party claimants or the surveyors. These types of frauds entail someone to deceive an insurance company about a claim involving their personal or commercial motor vehicle. In a simplest form possible, the best way to look at insurance fraud is that it is an intentional creation of a false-scenario with an ill-motive to gain the insurance settlement.
Insurance frauds exist when individuals attempt to profit by failing to comply with the terms of the insurance agreement. Perpetrators of insurance frauds try to create losses or damage rather than joining others who have no losses but wish to keep themselves protected in case any unknown event occurs. Large accumulation of business assets make insurance companies attractive for take over and loot schemes.
Frauds usually can occur at any stage of insurance transaction: individuals applying for insurance, policyholders, third-party claimants, or through the professionals who provide service to claimants.
Types of Insurance Frauds
Insurance frauds include tempering, ‘padding’ or inflating claims, misrepresenting of facts on an insurance application, submitting claims for injuries or damage that never incurred or caused and staging accidents. Automobile insurance are sometimes considered as felony due to its serious nature of crime.
Policies, Regulations and Investigations Agencies
IRDAI (Insurance regulatory and development authority of India), holds the total control over the policies, regulations and investigations agencies which is referred as a surveyor under the norms of Indian Institute of Insurance Surveyors and Loss Assessors (IISLA).
A surveyor is essentially a professional link between the insured and the insurer. They are either appointed by any of the parties. He is expected to submit the report to the insurer within 30 days of being appointed and a copy of the report to the insured as well with his comments on the assessment of loss.
Auto Insurance companies usually provides insurance coverage for:
Property - Such as damage or theft claimed by the insured.
Liability - Legal responsibilities for physical injuries to 3rd person or property damage.
Medical – Expenses for medical treatments, sometimes funeral expenses also.
As per the policies motor insurance covers: Fire explosions, self ignition, burglary/theft, riots and strikes, earthquake, land slide, terror attack, floods, accidental conditions, while in transit by various means.
Many factors determine the premium which you pay, depending upon the insurance company and the coverage claimed. Insurance companies only register the claims if the motor falls under their consideration and fulfil all the minimum requisites.
Dubious automobile claims are investigated by the insurance companies for which they had contracts with various investigations agencies which identifies the claim lodge by the insured. While investigating a claim, follow-up procedure may include: documents verification, automobile verification, spot verification or spot of accident if any, any criminal act committed by insured from the vehicle is also an important factor to be investigated. There are certain factors which plays an important role like, falsification by insured, frauds committed by insurance agents, the transporter and by the automobile dealers. Moving forward, various types of frauds are there which are meant to be investigated:
1. Organized fraud
Organized crime exclusively focuses on planning, rational acts that reflect the effort of group of conspired individuals. It is a continuing criminal enterprise that rationally works to profit from illicit activities that are often in great public demand. Companies and individuals indulge in a purposeful corruption of public officials and use intimidation threats or force to protect its operations. It is referred to the claim which is organized in nature, where either the driver has pre-planned for the loss or a whole pre-planned conspiracy act. Some of the ways by which this fraud can be organized include:
Pre-determined accident in which the drivers deliberately and intentionally performs an accidental collisions and lodge the FIR for the fake accident. FIR makes their claim more effective.
In theft, the owner knowingly perform the false robbery.
Decorated or stage managed accident is one in which transporters exaggerate the loss by removing various parts of the vehicles
During sleaze, the employee of the insurance companies willingly plot and design the accident or theft for their under-table commissions from the transporter.
2. Decorated or Stage Managed Accident
While applying for insurance claims, the people purposefully and illegally exaggerate the loss amount by increasing the default number of parts and their invoice amount or even by increasing the number of accidents. This active participation between management and participants can be carried out in many ways:
By Owners Involvement: In these types of frauds, owners try to dump the vehicles or burn them claiming to as an accident. They even try to dismantle the components by selling them in the markets.
False Registration: The premium of the vehicle insurance depends upon the areas of registration. If the owner is residing in the place where stolen rate is higher then, their premiums will tend to rise higher. But by registering the vehicle from the false address where stolen rates is low insured, and then they save their premiums from the policy.
Components Replacement: Replacing the original working components with the faulty components such as replacing faulty airbags, wind shields, engines, and carboraters. In such cases generally mechanics of the showrooms or garages are involved in the fraud playing.
Costing Rate: After claiming the accident, the owner falsely exaggerates the repair costs and components values so as to provide the faulty invoices to the insurance companies and claim for higher and raised amount.
How the Claim Settlement takes place?
Insurance companies settle the claims by replacing the claimed vehicle or by providing the market value of the vehicle. They can also deduct the amount if the owner or transporter fails to provide the satisfactory documentation. Insurance companies only rejects the claims under certain conditions like, when the driver fails to produce the license or who is under aged.
How to Investigate the Fraud Claims?
Verification of all the documents belonging to the vehicle and driver must be done properly through the verified and professionalised investigating agency because insurance employees can false play by becoming a part of organized crime.
Spot survey should be performed within the 12hrs of the accident.
Also, the insurance representatives should visit the garage where the vehicle is going for the repair and recheck the claim.
Most importantly, in cases of goods-carrying vehicle insurance claim, a proper thorough investigation must be done and claiming weight must be rechecked in order to minimise the chances of unfair weightment. A gradual difference between claimed and standard weight must be considered as a false play.
Must check the track record of the insured claims. If the frequency of the claims is high, then it makes an ultimate doubtful situation which must be investigated beforehand.
IRDAI Policy to Reduce Frauds
As per the IRDAI classification, the frauds are claim fraud, intermediate frauds and internal frauds. IRDAI has asked insurers to follow stringent due diligence process for staff and agents besides identification of vulnerable areas within organisation. Anti-fraud policy must include procedures for fraud monitoring, identifying potential areas of frauds, co-ordination among law enforcement agencies, framework for exchange of information, due diligence, urgent need of repairing communication channels and related fraud monitoring functions.
Manner of Operation of Frauds
Initial stage after the registration of the claim, is that the insurance representatives will track and check the validity of the premiums of the policy.
After the commencement of the claim, the representative will analyze the fitness certificate of the vehicle.
At the time of the initial investigation, the representatives can easily misguide the investigation and act for bribe and corruption by demanding huge expenses from the ‘insured’ in return of adding false claim-information and approving the false documents.
Within the 24hours of registration, the co-ordinators will send the appointed surveyors to the nearest branches to conduct the personal verification and surveys.
Surveyor is deployed to collect the damage scales, approximate loss of the insured material, identifying the cost of the components, visit to be conducted at the workshop where the repair work is to be done. Invoices for the repair works are also collected.
At the second stage of investigation, while conducting the survey, surveyors may play the false role will accepting the commission amount from the insured. Suggestions for the second stage investigation: there must be a panel for investigating the surveyors if they found playing frauds their licences must black listed or cancelled.
At the final and third stage of investigation the collected data and photographs which has to be taken by the surveyor, is needed to be verified by the claim handlers. If they found previous damages has included in the on-going claim, then they should have the authority to reject the claim.
During the final stage, when the investigation is completed then comes the costing phenomena in which the selling value must be calculated and if they found any evidence on previous damages then their cost must be excluded out from the total costs.
Reasons for Rejection of Insurance Claim
Invalid Documents: Automobile insurer insist on complete and right information from customers. However, many individuals tend to ignore this fact and miss out to provide essential information. As a result, auto insurance company may reject the claim if the details mentioned in the application are incomplete, incorrect or falsely presented.
Under Unacceptable Situations: In case, where vehicle meets an accident because of driving under influence of alcohol/drug, driving without valid licence or any illegal means.
Using Vehicle for Different Purposes: Automobile insurance claim may also get rejected if you have brought auto-insurance policy for a normal private car, and instead vehicle was used for commercial purposes. A relevant insurance policy is most needed.
Demanding Bribe: Corruption can also play an important role towards rejection of insurance policy. Officials and members of organised groups tend to grab money from the claimers in a return to falsify the claim-information.
How to Combat Auto-insurance Frauds?
During investigation driver statement plays an important role. If their statement mismatches the incident, they should provide the direct authority to surveyor for rejecting the claim and save the time.
Sometimes in the absence of the driver or if the driver has left the vehicle without holding the responsibility then the claim must be rejected due to unavailability of claimers.
Panel investigation must take place in order to prevent any chances of forgery and criminal illegal act.
During the spot- survey, the surveyor must be allowed to cover the CCTV footage as part of evidence.
Fighting against insurance fraud is a challenging both technically and operationally. Approximately 21%- 36% auto-insurance claims contain elements of suspected fraud but only less than 3% of the suspected fraud is prosecuted. Insurance frauds mainly rely on auditing and expert inspection. According to the regulatory it is necessary to understand the nature of frauds prevailing in large scale and to take steps against it.
DRASInt Risk Alliance Private Limited focuses on investigating the Insurance Fraud. We try to analyse each accident and carry out the gap analysis to minimise the chances of any fraudulent activity. A passionate eye to spot the signs of forgery and study the accompanying documents while investigation, lead to reducing the forgeries in insurance claims. With due compliance to law and a matter of privacy, we provide with better assessments and investigation. Our experts have a profound knowledge in combating the insurance frauds and are capable enough to investigate them.
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