How to identify and avoid life insurance fraud

Industry experts share action points and signs to look out for in life insurance frauds

The fact that India is one of the largest insurance marketplaces in the world makes it more profitable for fraudsters to exploit insurance coverage. With digital gaining traction in the Banking, financial services, and insurance (BFSI) sector and the onset of COVID-19, we are also observing an increase in online insurance fraud.

Life insurance fraud includes purposefully falsifying application information, such as submitting claims for injuries or damage that never occurred, staging accidents to gain a lower price, or altering another person’s policy without their consent.

Types of life insurance fraud
Some of the most common types of life insurance fraud in our country are:

Policyholder fraud: This sort of fraud occurs during the purchase and/or execution of an insurance product. To obtain insurance coverage or reduce life insurance rates, the applicant knowingly conceals information on an insurance application or claim form, such as by lying about their medical history.

  • Fake policy fraud: In this scam, scammers posing as insurance salespeople for well-known companies ask for cash or direct payments, then sell you a bogus policy while pocketing the premiums you pay.
  • Claims fraud: This is a type of fraud that involves faking a death. People often fake their own death or the death of a family member in order to collect life insurance payouts. In rare cases, someone plans or commits a murder with the goal of getting money from the victim’s life insurance policy.
  • Mis-selling fraud: This sort of insurance fraud involves offering a product to a consumer that turns out to be unsuitable for them. The final insurance benefits are not the same as those promised at the time of sale, and the policy does not suit the customer’s needs.

Thoughts from industry experts
1) Anil PM, President – Legal, Compliance, and Fraud Prevention Unit, Bajaj Allianz Life Insurance, explained how fraudsters use the beneficiary payout option to con gullible customers.

” One of the most prevalent fraudulent activities within life insurance is the ‘beneficiary payout’ fraud. Here, fraudsters call customers, text them, or email them, informing them about being beneficiaries under the life insurance policy of a relative. To receive the benefits of the policy, customers are asked to pay a nominal fee. Similarly, one may receive links on SMS or WhatsApp asking for sensitive information that can be used to do fraudulent withdrawals from the customers’ bank accounts,” stated Anil PM.

The digital footprint in the BFSI industry has seen an increase in the number of online frauds committed within the category, according to Anil PM.

Anil believes that raising awareness of fraud dangers can help. He elaborates that customers should know that no life insurance provider would ever ask for payment to process a claim. The provision of essential documents is the bare minimum that is required. Therefore, policyholders who get such calls should promptly report them to the relevant life insurance company.

“It’s essential that organisations and customers, both, increase their awareness of such activities and do their best to prevent them from happening,” added Anil PM.

2) Atri Chakraborty, Chief Operating Officer of IndiaFirst Life Insurance Company Ltd., says that insurance companies have ways to find out if a claim is fake.

“Insurance companies have processes in place to identify “insurance shopping,”  which is an attempt by the insured to get more cover than the human life value and often involves organised teams that would “invest” largely in “substandard lives” leading to quick returns by means of death claims, ” said Chakraborty.

He continued by explaining how the IIB (Indian Insurance Bureau) is a valuable resource for detecting insurance shopping fraud because of the availability of customer policy data across businesses. Insurance companies also detect fraud in certain locations and sourcing channels across the country, resulting in increased claim experiences and compromised sourcing.

“In such cases, specific focus on investigation is given to all these flagged off locations, channels, agents, etc., at customer onboarding and at the claim stage.”

“Companies also ensure that frauds perpetuated by tampering with documents (KYC, death certificates, age proof, etc.) are prevented through rigorous control checks and through validation with government sources where possible,” cited Chakraborty.

He added that, because life insurance is often a long-term contract, any early claim (within a stipulated period of risk commencement date) is rigorously reviewed by insurance firms to rule out fraud or non-disclosure of material information.

Concluding thoughts
You can avoid these frauds by implementing the precautions indicated by the experts and by being attentive and vigilant. Insurance policies should ideally be purchased from IRDAI registered insurance companies. The list of insurance companies is available on the IRDAI website.

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of ET Edge Insights, its management, or its members

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