Motor insurance is the highest contributor which contributes more than 40 percent of the total gross written premium of the non-life insurance industry in India. This high premium volume is also due to the mandatory nature of motor third party liability (TPL) insurance which every vehicle may it be a bike, car or any other type need to carry if plying on roads of India. Among all lines of businesses in the general insurance segment motor and health insurance is growing at a very rapid pace.
With the automobile sector broadening its reach to the middle-class population into even the remotest parts of our country the demand of motor insurance will definitely grow in the future years. Although the written premium in this segment is huge, the claim ratios are equally on a higher side i.e. for every 10 rupees of premium written the general insurers in India are paying more than 20 rupees in claim in some years. Due to this bleeding nature of the motor insurance portfolio the regulator and the insurers have started paying increasing attention to find and treat insurance frauds.
Insurance fraud is definitely there and that too in huge proportions, this has been evident in many surveys, research reports and findings of the insurers in India and other developed insurance markets. As per a survey conducted in India motor TPL claims as high as 50% are bogus. In the own damage section claims also fraudulent methods like padding claim amounts, submitting bogus claims, faking bills, false statements, misrepresentations are commonly used by customers, intermediaries and other stakeholders to obtain undue benefit from insurance.
It is to be noted at this point that committing an insurance fraud is a criminal activity and if found guilty your policy will be considered void with all premium forfeited under the policy. Committing a Motor insurance frauds can be classified in different categories like:
Internal and external fraud: Fraud can be committed by insurers internal staff like claims handler, managers or other employees. It can be also committed by external parties like policyholders, intermediaries, loss adjusters and others. The fraud can also be committed by collusion of an internal or external party. This type of fraud can include submitting a fake bill by a policyholder and getting the same passed by a claim manager.
Underwriting and claim fraud: Underwriting fraud is perpetrated at the time of policy issuance or renewal like taking a policy for an already accidental car. This type of fraud can be typically committed by providing false information and not following the principle of utmost good faith. Claims fraud is the most prevalent type of fraud and is committed while filing the claim.
Opportunistic and planned fraud: Opportunistic fraud includes exaggerating the otherwise legitimate claim by padding or inflating the bill or otherwise. Planned fraud is a premeditated scam and will include a claim for an accident which may not have at all happened.
Motor Insurance fraud definitely impacts the insurer adversely and have a direct impact on the profitability but it also affects the customers and policyholders who even being innocent participate in the rising premium costs that insurer passes on to them on account on rising claim costs by fraud. Insurers making reserves for fraudulent claims also loose on the investment income which that may generate by employing that amount.
All insurance companies are coming forward to take war footing steps to detect, combat and control fraud, some of the steps for fraud prevention is summarized below. Technology and expertise are two hands of the insurer by which frauds can be detected timely and be eradicated to a great extent to save the insurer its burning motor insurance portfolio and convert it into a profitable one over a period of time.
- Setting up a team – A separate fraud management division with required training is essential and insurers have successfully set up the same working in conjunction with the claims handling team. An experienced fraud detection team who reviews suspected claims with increased scrutiny, asking proper questions and establishing fraud patterns can save a lot of money of an insurer.
- Database creation – Creating a fraud database by recording past frauds and its patterns will increase the expertise and know how of the insurer. Feeding the data accumulated over a period of time by cleaning and processing it in a technology system such as a fraud management system will help in flagging out probable fraud areas and parameters and will increase the chance for an effective fraud management.
- Fraud indicators and flagging – Indicators can help in scenarios like detecting unusually high claim amounts, repair or spare part costs not in sync with the severity of accident involved etc. Flagging of an area pin code or district from where frauds can possibly flow in, past customers who have already committed some sort of fraud, garages and service centres who have been found committing a dishonesty in past and even intermediaries like agents and brokers found to be involved in shady collusions can help insurers preventing future incidences.
- Predictive modelling is used to detect fraudulent patterns by easily identifiable characteristics of a fraudulent claims like close proximity. Modelling system can find unidentifiable fraud variables much earlier in the claim process than manual interventions. These systems has already done well in combating fraud in health insurance and the same can be replicated in motor insurance segment as well.