A week after a 55 year-old policyholder paid the third premium, a mid-sized life insurer received a death claim on his policy. The insurance company paid his family the Rs 7 lakh death claim.
Problem arose when a month later, another insurance company got a proposal form to buy insurance policy from the same ‘dead’ man. A sales executive was quick to spot the anomaly since the proposal form had the exact details.
“The policy term was five years and the sum assured was Rs 7 lakh. And similar to the past case, the family took the policy in the name of the insured. We realised that this person was dead years ago and that we would receive a claim after three years,” said the sales executive.
The policy proposal was declined, and the kin were caught red-handed.
The fraudsters had caught on to this key clause – all death claims filed three years after buying an insurance policy are payable by an insurer. Whether individual policyholders are aware of this or not, the conmen seem to have caught on this opportunity.
When the Insurance Laws (Amendment) Act 2015 was passed, Section 45 of the Act was partially amended to say that no claim can be rejected after three years. This means that once a policy has completed a three-year period, any claim arising out of it will have to be passed.
But given the rising number of fraud claims, life insurers are in active discussions with the Insurance Regulatory and Development Authority of India (IRDAI) to bring out possible solutions. Since it is part of the Insurance Act, any changes to the law will have to be cleared by both the houses of the Parliament.
Insurance sources told Moneycontrol that while there was a drop in fraudulent activity in 2016 and 2017, there was an increase in 2018. It is estimated that insurers lost almost Rs 250 crore in the last calendar year due to frauds.
The rise in frauds is also proportional to the change in the law. While the three-year clause was there in the earlier form of the law too, it allowed insurance companies to investigate/reject fraudulent claims. Not anymore.
While the insurance companies have tried to alert the police, the organised gangs are deft and quickly move to a different city, or a state. Further, a majority of these gangs operate in collusion with doctors, agents as well a few law enforcement officials. This makes it an almost impossible task to nab the culprits.
For genuine customers, it is no good news either. A rise in frauds means that insurers will either tighten underwriting making insurance-purchase a time-consuming process or ‘blacklist’ certain pincodes.
If a prospective policyholder belongs to that pincode, their policy proposal would be subject to deeper scrutiny and in case of any doubt, the policy would not be issued.
From a cost perspective, premiums could also increase if the cases of frauds increase. This would mean that the good customers would compensate or pay for the misdeeds of the bad customers.
Companies had also sought inclusion of ‘insurance fraud’ as a category in the Code of Criminal Procedure. However, no such move has been made on that front.