What is Insurance Fraud and its Types in India?

What is Insurance Fraud?

Insurance fraud refers to any deliberate act committed by an insurance provider or a policyholder with the intent to cheat and receive a financial benefit that would not otherwise be authorised. Fraud and scams in health insurance can occur in various forms and involve misrepresentation, concealment of facts, or manipulation of claims or policies.

On the insurance provider's side, this could include selling policies from fake companies, withholding premium payments, or manipulating policies to earn extra commissions. Policyholders, on the other hand, may commit fraud by raising fake claims, lying about medical histories, faking death to receive payouts, etc.

Types of Insurance Frauds in India

Check out the various types of insurance frauds in India that policyholders, insurance companies and insurance providers may commit:

Frauds Policyholders May Commit:

• False Claims: In this type of fraud, policyholders can create fake bills or documents to show that they underwent medical treatments that never actually happened. This causes financial losses to the insurer.
• Exaggerated Claims: Policyholders may claim that the cost of their medical treatment was higher than it actually was. For example, they might increase the amount of medical bills or include additional expenses that were not part of the treatment. This allows them to receive a higher pay out than they are entitled to.
• Hiding Pre-Existing Conditions: When applying for a mediclaim insurance policy, some individuals do not disclose their pre-existing diseases, such as diabetes or heart problems. This way, they pay lower premiums initially. However, when they later claim costs for treatments related to these conditions, it becomes an act of fraud because the policy terms were violated.
• Submitting Multiple Claims: In this type of insurance fraud in India, policyholders might submit the same claim to multiple health insurance companies to obtain reimbursement for a single medical expense multiple times.
• Unnecessary Medical Treatments: Some policyholders undergo treatments or surgeries that are not medically required. They do this with the intention of claiming mediclaim insurance payouts.
• Fake Death Claim: It is a form of insurance fraud where a policyholder or the beneficiary creates a fake death scenario of a covered individual to claim death benefit. This fraudulent activity typically involves creating false evidence, such as forged death certificates, or planned accidents, to convince the insurer that the policyholder has passed away.

Frauds Insurance Companies May Commit:

• Delaying Claim Settlement: Insurance companies may sometimes delay the claim settlement process unnecessarily. These delays can be frustrating for policyholders who need immediate financial support to pay for their medical treatments.
• Rejecting Genuine Claims: Some insurance companies might reject valid claims by finding minor faults in the submitted documents. This does not allow policyholders to get the financial support they deserve.

Frauds Insurance Agents May Commit:

• Selling Fake Policies: Fraudulent agents may sell fake health insurance policies and disappear after collecting premiums. This creates a loss for the policyholders and leaves them without coverage.
• Misleading Policy Terms: Agents may provide false or incomplete information about the policy terms, which causes policyholders to invest in plans that do not meet their needs. This leaves them at a loss during medical emergencies.
• Overcharging Premiums: Some insurance agents charge policyholders more than the agreed premium amount. This may involve hidden fees that the customer is unaware of until payment is made. Such practices are unethical and violate the trust of the policyholder.

Tips to Prevent Insurance Frauds and Scams in India

Listed below are some effective ways to ensure that both policyholders and insurance providers never fall victim to insurance frauds:

For Policyholders:

• Ask the insurance Agent for ID Proof- According to strict directives issued by the Insurance Regulatory and Development Authority of India (IRDAI) to insurance agencies, all agents working on behalf of insurance companies need to undergo stringent training and must have ID proof. So, policyholders should ask for the agent's ID, note down their details and call the customer care service number of the insurer to confirm their identity.
• Never Pay in Cash- No insurance agent will ever ask for cash. Also, in order to ensure that the policyholder is writing the cheque to the right account, he/she should call the customer care centre and confirm the details to be mentioned on the cheque. Even if an agent is representing a private firm, the details on the cheque should be for the insurance company and not for any such firm.
• Do Not Disclose Details of the Policy- Disclosing details of the policy documents to an unknown third party is a sure-fire way of attracting insurance fraud cases. Sometimes, a fraudster might pose as an insurance agent, asking policyholders for details about the policy. So, if policyholders receive any such fake call, they should not disclose any details related to their policy.
• Purchase Insurance Policies Online- To avoid the risk of insurance fraud and buy insurance policies without having to deal with an agent, people can purchase the policy online. This will not only cut out the middleman but also guarantee a safe and transparent transaction. Also, policyholders must only make payments on the insurance provider's recommended site.
• Immediately Report Loss of a Policy Document- Policyholders must immediately notify the insurance fraud investigator in case of policy document loss. Not doing so will allow fraudsters to gain access to policy documents and make a claim in the policyholder's name. Policyholders can either lodge an FIR, get an advertisement printed in the newspapers or provide an indemnity bond on stamp paper to the insurer.
• Fill Out Policy Documents Personally- When purchasing a health insurance plan offline, policyholders should ensure that they fill in the policy documents themselves to avoid insurance fraud cases. If an agent fills out the form on policyholder's behalf, he/she must carefully review the terms and conditions of the policy, and verify the information for spelling errors, missing details, or inaccuracies. In fact, they must read the policy documents thoroughly before signing them.
• Provide Identity Proofs Only to Reliable Personnel- Agents might take ID proofs and misuse them. Therefore, policyholders should ensure that they hand over their ID proofs only to reliable agencies, to prevent identity theft and insurance scams.
• Be Careful When Transacting- Electronically perpetrated insurance fraud cases are on the rise. Wi-Fi networks can be used by scammers to steal personal information. Therefore, policyholders must be careful while transacting via public networks or internet. In fact, they must remember to sign out of all public computers after using them and use encrypted connections when making payments online.

For Insurance Providers:

• Conduct Thorough Background Checks- Insurers must always verify the identity of policyholders before issuing a policy. This includes checking the documents provided, and conducting background checks to ensure no history of fraudulent activity.
• Verify Pre-Existing Conditions- During the policy application process, insurer must thoroughly check the applicant's medical history to identify any pre-existing conditions. This can involve requesting complete medical records, diagnostic test results, and consultation reports.
• Implement Robust Claim Verification Processes- Health insurance providers in India must establish a detailed and efficient system to verify claims. This includes requiring original documentation, cross-checking with medical records, conducting assessments, and ensuring that treatments or services claimed were indeed provided.
• Monitor Claim History for Patterns- It is important for insurers to regularly review the claim history of policyholders to spot any patterns that may indicate fraudulent behaviour, such as frequent small claims or repeated claims for similar treatments. Identifying patterns early can help detect fraud at the initial stage.
• Require Detailed Documentation for Claims- When processing health insurance claims, insurers should insist on complete and detailed documentation. This includes original medical bills, discharge summaries, prescriptions, diagnostic reports, and proof of payment. Detailed documentation reduces the chances of accepting fraudulent claims.

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