SHIVAM WAHI 6727 TYBBI

FRAUDS IN INSURANCE

INTRODUCTION:
The insurance business, by its very nature, is susceptible to fraud. Insurance is a risk distribution system that requires the accumulation of liquid assets in the form of reserve funds that are, in turn, available to pay loss claims. Insurance companies generate a large steady flow of cash through insurance premiums. Steady cash flow is an important economic resource that is very attractive and easily diverted. Large accumulations of liquid assets make insurance companies attractive for take over and loot schemes. Insurance companies are under great pressure to maximize the return on investing the reserve funds, thus making them vulnerable to high yielding investment schemes. Insurance fraud occurs when any act is committed with the intent to fraudulently obtain some benefit or advantage to which they are not otherwise entitled or someone knowingly denies some benefit that is due and to which someone is entitled. False insurance claims are insurance claims filed with the intent to defraud an insurance provider. Insurance fraud has existed ever since the beginning of insurance as a commercial enterprise.[1] Fraudulent claims account for a significant portion of all claims received by insurers, and cost billions of dollars annually. Types of insurance fraud are very diverse, and occur in all areas of insurance. Insurance crimes also range in severity, from slightly exaggerating claims to deliberately causing accidents or damage. Fraudulent activities also affect the lives of innocent people, both directly through accidental or purposeful injury or damage, and indirectly as these crimes cause insurance premiums to be higher. Insurance fraud poses a very significant problem, and governments and other organizations are making efforts to deter such activities.

CAUSES OF FRAUDS IN INSURANCE:

The chief motive in all insurance crimes is financial profit.[1] Insurance contracts provide both the insured and the insurer with opportunities for exploitation. According to the Coalition Against Insurance Fraud, the causes vary, but are usually centered on greed and holes in the fraud fight.[2] Often, those who commit insurance fraud view it as a low-risk, lucrative enterprise. Drug dealers who have entered insurance fraud [3] think its safer and more profitable than working street corners. Compared to other crimes, court sentences for insurance fraud can be lenient, so scammers may try to take advantage of the system. Though insurers try to fight fraud, some will pay suspicious claims, since settling such claims is often cheaper than legal action. Another reason that this opportunity arises is in the case of overinsurance, when the amount insured is greater than the actual value of the property insured.[1] This condition can be very difficult to avoid, especially since an insurance provider might sometimes encourage it in order to obtain greater profits.[1] This allows fraudsters to make profits by destroying their property because the payment they receive from their insurers is of greater value than the property they destroy. Insurance companies are also susceptible to fraud because false insurance claims can be made to appear like ordinary claims. This allows fraudsters to file claims for damages that never occurred, and so obtain payment with little or no initial cost. The most common form of insurance fraud is inflating of loss.

HARD FRAUD VS SOFT FRAUD:

Insurance fraud can be classified as either hard fraud or soft fraud. Hard fraud occurs when someone deliberately plans or invents a loss, such as a collision, auto theft, or fire that is covered by their insurance policy in order to receive payment for damages. Criminal rings are sometimes involved in hard fraud schemes that can steal millions of dollars.[11] Soft fraud, which is far more common than hard fraud, is sometimes also referred to as opportunistic fraud.[10] This type of fraud consists of policyholders exaggerating otherwise legitimate claims. For example, when involved in a collision an insured person might claim more damage than was really done to his or her car. Soft fraud can also occur when, while obtaining a new insurance policy, an individual misreports previous or existing conditions in order to obtain a lower premium on their insurance policy.

TYPES OF INSURANCE
AUTO INSURANCE
Vehicle insurance (also known as auto insurance, GAP insurance, car insurance, or motor insurance) is insurance purchased for cars, trucks, motorcycles, and other road vehicles. Its primary use is to provide financial protection against physical damage and/or bodily injury resulting from traffic collisions and against liability that could also arise there from. The specific terms of vehicle insurance vary with legal regulations in each region. To a lesser degree vehicle insurance may additionally offer financial protection against theft of the vehicle and possibly damage to the vehicle, sustained from things other than traffic collisions.

HEALTH INSURANCE
Health insurance is insurance against the risk of incurring medical expenses among individuals. By estimating the overall risk of health care and health system expenses among a targeted group, an insurer can develop a routine finance structure, such as a monthly premium or payroll tax, to ensure that money is available to pay for the health care benefits specified in the insurance agreement. The benefit is administered by a central organization such as a government agency, private business, or not-for-profit entity.

LIFE INSURANCE
Life insurance is a contract between an insured (insurance policy holder) and an insurer, where the insurer promises to pay a designated beneficiary a sum of money (the "benefits") upon the death of the insured person. Depending on the contract, other events such as terminal illness or critical illness may also trigger payment. The policy holder typically pays a premium, either regularly or as a lump sum. Other expenses (such as funeral expenses) are also sometimes included in the benefits. The advantage for the policy owner is "peace of mind", in knowing that the death of the insured person will not result in financial hardship for loved ones and lenders. It is possible for life insurance policy payouts to be made in order to help supplement retirement benefits; however, it should be carefully considered throughout the design and funding of the policy itself. Life policies are legal contracts and the terms of the contract describe the limitations of the insured events. Specific exclusions are often written into the contract to limit the liability of the insurer; common examples are claims relating to suicide, fraud, war, riot and civil commotion. Life-based contracts tend to fall into two major categories:

Protection policies designed to provide a benefit in the event of specified event, typically a lump sum payment. A common form of this design is term insurance. Investment policies where the main objective is to facilitate the growth of capital by regular or single premiums. Common forms (in the US) are whole life, universal life and variable life policies.

AGRICULTURAL INSURANCE
Agriculture in India is highly susceptible to risks like droughts and floods. It is necessary to protect the farmers from natural calamities and ensure their credit eligibility for the next season. For this purpose, the Government of India introduced many agricultural schemes throughout the country.

PROPERTY
Property insurance provides protection against risks to property, such as fire, theft or weather damage. This may include specialized forms of insurance such as fire insurance, flood insurance, earthquake insurance, home insurance, inland marine insurance or boiler insurance. The term property insurance may, like casualty insurance, be used as a broad category of various subtypes of insurance, some of which are listed below:

Aviation insurance protects aircraft hulls and spares, and associated liability risks, such as passenger and third-party liability. Airports may also appear under this subcategory, including air traffic control and refuelling operations for international airports through to smaller domestic exposures. Boiler insurance (also known as boiler and machinery insurance, or equipment breakdown insurance) insures against accidental physical damage to boilers, equipment or machinery. Builder's risk insurance insures against the risk of physical loss or damage to property during construction. Builder's risk insurance is typically written on an "all risk" basis covering damage arising from any cause (including the negligence of the insured) not otherwise expressly excluded. Builder's risk insurance is coverage that protects

a person's or organization's insurable interest in materials, fixtures and/or equipment being used in the construction or renovation of a building or structure should those items sustain physical loss or damage from an insured peril.[22]

Crop insurance may be purchased by farmers to reduce or manage various risks associated with growing crops. Such risks include crop loss or damage caused by weather, hail, drought, frost damage, insects, or disease.[23] Earthquake insurance is a form of property insurance that pays the policyholder in the event of an earthquake that causes damage to the property. Most ordinary home insurance policies do not cover earthquake damage. Earthquake insurance policies generally feature a high deductible. Rates depend on location and hence the likelihood of an earthquake, as well as the construction of the home. Fidelity bond is a form of casualty insurance that covers policyholders for losses incurred as a result of fraudulent acts by specified individuals. It usually insures a business for losses caused by the dishonest acts of its employees. Flood insurance protects against property loss due to flooding. Many insurers in the US do not provide flood insurance in some parts of the country. In response to this, the federal government created the National Flood Insurance Program which serves as the insurer of last resort. Home insurance, also commonly called hazard insurance or homeowners insurance (often abbreviated in the real estate industry as HOI),provides coverage for damage or destruction of the policyholder's home. In some geographical areas, the policy may exclude certain types of risks, such as flood or earthquake, that require additional coverage. Maintenance-related issues are typically the homeowner's responsibility. The policy may include inventory, or this can be bought as a separate policy, especially for people who rent

housing. In some countries, insurers offer a package which may include liability and legal responsibility for injuries and property damage caused by members of the household, including pets.[24]

Landlord insurance covers residential and commercial properties which are rented to others. Most homeowners' insurance covers only owner-occupied homes. Marine insurance and marine cargo insurance cover the loss or damage of vessels at sea or on inland waterways, and of cargo in transit, regardless of the method of transit. When the owner of the cargo and the carrier are separate corporations, marine cargo insurance typically compensates the owner of cargo for losses sustained from fire, shipwreck, etc., but excludes losses that can be recovered from the carrier or the carrier's insurance. Many marine insurance underwriters will include "time element" coverage in such policies, which extends the indemnity to cover loss of profit and other business expenses attributable to the delay caused by a covered loss.

Supplemental natural disaster insurance covers specified expenses after a natural disaster renders the policyholder's home uninhabitable. Periodic payments are made directly to the insured until the home is rebuilt or a specified time period has elapsed. Surety bond insurance is a three-party insurance guaranteeing the performance of the principal. Terrorism insurance provides protection against any loss or damage caused by terrorist activities. In the US in the wake of 9/11, the Terrorism Risk Insurance Act 2002 (TRIA) set up a federal Program providing a transparent system of shared public and private compensation for insured losses resulting from acts of terrorism. The program was extended until the end of 2014 by the Terrorism Risk Insurance Program Reauthorization Act 2007 (TRIPRA).

Volcano insurance is a specialized insurance protecting against damage arising specifically from volcanic eruptions. Windstorm insurance is an insurance covering the damage that can be caused by wind events such as hurricanes.

TYPES OF INSURANCE FRAUD:

This section will introduce you to some of the most common types of fraud involving the insurance industry.

Agent/Broker Fraud
Cash, Loan, and Dividend Checks A company employee without the knowledge of an insured or contract holder requests cash, a loan, or a dividend check, and deposits the check into either his bank account or a fictitious account. The employee, in order to minimize his chances of being detected committing a fraudulent act, might change the company policyholders address of record to either his address or a fictitious address. Once the check is issued, the address is then changed back to the previous address. Settlement Checks A company employee can misdirect settlement checks, such as for a matured endowment settlement, to the branch office, their home, or a fictitious address. The employee can easily create a check defalcation by changing the address of record prior to the settlement check issue date, thus misdirecting the check in question. Also, an orphan contract holder

might be transferred to his agency periodically, affording the opportunity to improperly request the issuance of a settlement check. An orphan contract holder is a policyholder or contract holder who has not been assigned to a servicing agent or the whereabouts of this individual is unknown. The servicing agent attempts to locate this family group and could influence them to purchase additional insurance. Premium Fraud The agent collects the premium, but doesnt remit the check to the insurance company. The insured has no coverage. Fictitious Payees An agent or a clerk can change the beneficiary of record to a fictitious person and subsequently submit the necessary papers to authorize the issuance of a check. Fictitious Death Claims An agent or employee obtains a fictitious death certificate and requests that a death claim check be issued. The agent receives the check and cashes it. The sales representative can also write a fictitious application and, after the contestable period (two years), submit a phony death claim form and obtain the proceeds. The agent, by investing a few thousand dollars, could receive $50,000 or more in misappropriated claims.

Underwriting Irregularities
Equity Funding Equity funding is the process of using existing premium/policy values to finance new businesses. So long as the insured is aware of what is being done by the agent and fully understands the long range method of payment on the new contract, there is no apparent underwriting irregularity. Equity funding techniques, also known as piggybacking, usually do not produce quality business. Furthermore, the company increases the amount of life insurance on the books but receives little or no new funds while incurring increased sales and administrative expenses associated with the issue of that new business. Misrepresentation Misrepresentation might occur if a sales representative makes a false statement with the intent to deceive the prospective insured in order to knowingly obtain an unlawful gain. False Information A company employee might submit the following false information to obtain unlawful financial gain: Improper medical information to obtain a better insurable rate for the prospective policy holder Improper date of birth to obtain a cheaper premium on the new policy Improper home address to obtain a cheaper premium for home or automobile insurance

 Improper driving history prior to purchasing automobile insurance to reduce the annual premium or obtain insurance where normally the individual would have to apply through the risk pool

Fictitious Policies A salesman, in order to keep his position, submits fictitious policies to improve his writing record. Or, prior to an individual leaving the company, he writes fictitious policies called tombstone cases to improve his commission pool so that his compensation will be greater. Tombstone means an agent literally takes names from tombstones in a cemetery and writes new policies. Surety and Performance Bond Schemes Surety and performance bonds guarantee that certain events will or will not occur. An agent may issue worthless bonds to the insured for highrisk coverage in hopes that a claim is never made. If a claim is made, the agent might pay it off from agency funds, delay the payment, or skip town. Sliding Sliding is the term used for including additional coverages in the insurance policy without the knowledge of the insured. The extra charges are hidden in the total premium and, since the insured is unaware of the coverage, few claims are ever filed. For example, motor club memberships, accidental death, and travel accident coverages can usually be slipped into the policy without the knowledge of the insured.

 Twisting Twisting is the replacement, usually by high pressure sales techniques,of existing policies for new ones. The primary reason, of course, is for the agent to profit, since first-year sales commissions are much higher than commissions for existing policies. Churning Churning occurs when agents falsely tell customers that they can buy additional insurance for no cost by using built-up value in their current policies. In reality, the cost of the new policies frequently exceeds the value of the old ones

Vehicle Insurance Schemes

Ditching Ditching, also known as owner give-up, is getting rid of a vehicle to cash in on an insurance policy or to settle an outstanding loan. The vehicle is normally expensive and purchased with a small down payment. The vehicle is reported stolen, although in some cases, the owner just abandons the vehicle, hoping that it will be stolen, stripped for parts, or taken to a pound and destroyed. The scheme sometimes involves homeowners insurance for the property that was stolen in the vehicle.

 Past Posting Past posting is a scheme in which a person becomes involved in an automobile accident, but doesnt have insurance. The person gets insurance, waits a little bit of time, reports the vehicle as being in an accident, and then collects for the damages. Vehicle Repair This scheme involves the billing of new parts on a vehicle when used parts were actually replaced in the vehicle. Sometimes this involves collusion between the adjuster and the body repair shop. Vehicle Smuggling This is a scheme that involves the purchase of a new vehicle with maximum financing. A counterfeit certificate of the vehicles title is made showing that it is free and clear. The vehicle is insured to the maximum, with minimum deductible theft coverage. It is then shipped to a foreign port and reported stolen. The car is sold at its new location and insurance is also collected for the theft. Phantom Vehicles The certificate of title is a document that shows the legal ownership of a vehicle. Even though it is not absolute proof that a vehicle exists, it is the basis for the issuance of insurance policies. Collecting on a phantom vehicle has been shown to be easy to do. Staged Accidents Staged accidents are schemes in which an accident is predetermined to occur on a vehicle. The schemes are organized by rings and the culprits move from one area to another. They often use the same vehicle over and over, which is sometimes what causes their scheme to be uncovered.

 Inflated Damages The business environment and competition for work in the automobile repair industry have caused the development of a scheme in which some establishments inflate estimated costs to cover deductibles. The insured is advised by the repair shop that the shop will accept whatever the company authorizes.

Vehicle Identification Number (VIN)-Switch A VIN-switch is a fraud scheme in which a wrecked vehicle is sold and reported as being repaired. The vehicle is not actually repaired; instead, the VIN plate is switched with that of a stolen vehicle of the same make and model. Rental Car Fraud A person doesnt need to own a vehicle to commit automobile fraud. There are several schemes that can be perpetrated using rental cars. The most prevalent involve property damage, bodily injury, and export fraud.

Property Schemes
Property schemes usually involve the filing of insurance claims for property that never existed or for inflated loss amounts. Inflated Inventory Property that is lost through fire is claimed on an insurance form. However, property that doesnt exist also finds its way onto an inventory of the property claimed. Property claimed might have been previously sold or never owned by the claimant.

 Phony or Inflated Thefts A home or car that has been burglarized is the basis for filing a claim for recoveries of monies lost. However, as with items destroyed by fire above, the items never existed or were previously sold. Paper Boats A claim is filed for a boat that sank, but the boat never actually existed. It is not difficult to register a boat based on a bill of sale. After a period of time, a loss is claimed for the sinking of the boat. It is difficult to prove that the boat didnt exist or was sunk intentionally. Arson for Profit Personal dwellings or commercial properties are destroyed by fire for the sole purpose of financial gain. Insureds may act alone or in concert with agents or highly organized crime rings specializing in arson.

Life Insurance Schemes

Fraudulent Death Claims To obtain reimbursement for life insurance, a death certificate is required. However, phony death certificates are not that difficult to obtain. The person might be very much alive and missing or the person might be dead, and the death is past posted. With small settlements, death claims arent closely scrutinized and are paid relatively easily.

 Murder for Profit This scheme involves the killing (or arranging for the killing) of a person in order to collect insurance. The death might be made to look like it was an accident or a random killing. Liability Schemes In a liability scheme the claimant has claimed an injury that did not occur. The slip and fall scam is the most common, and involves a person claiming to fall as the result of negligence on behalf of the insured.

Red Flags of Insurance Fraud

Red flags of insurance fraud may include any of the following: The claim is made a short time after inception of the policy, or after an increase or change in the coverage under which the claim is made. This could include the purchase of a scheduled property or jewelry floater policy, or more than one during the time before the loss. The insured has a history of many insurance claims and losses. Before the incident, the insured asked his insurance agent hypothetical questions about coverage in the event of a loss similar to the actual claim. The insured is very pushy and insistent about a fast settlement, and exhibits more than the usual amount of knowledge about insurance coverage and claims procedures, particularly if the claim is not well documented.

 In a burglary loss, the claim includes large, bulky property that is unusual for a burglary. In a theft or fire loss claim, the claim includes a lot of recently purchased, expensive property, or the insured insists that everything was the best or the most expensive model, especially if the insured cannot provide receipts, owners manuals, or other documentary proof of purchase. In a fire loss claim, property considered personal or sentimental to the insured and that you would expect to see among the lost property (such as photographs, family heirlooms, or pets) is conspicuous by its absence. A large amount of the property was purchased at garage and yard sales and flea markets, or otherwise for cash, and there are no receipts (the insured will be unable to recall exactly where these sales took place or by whom). The insured cannot remember, or does not know, where he or she acquired the claimed property, especially unusual items, and/or he cannot provide adequate descriptions. On the other hand, the insured already has receipts and other documentation, witnesses, and duplicate photographs for everything; the claim is too perfect. Documentation provided by the insured is irregular or questionable, such as: Numbered receipts are from the same store and dated differently or sequentially. Documents show signs of alteration in dates, descriptions, or amounts. Photocopies of documents are provided and the insured cannot produce the originals.

Handwriting or signatures are similar on different receipts, invoices, gift verifications, or appraisals. The amount of tax is wrong, either for the price of the property or for the date appearing on the receipt. Receipts, invoices, or shipping documents do not have paid, received, or other shipping stamps. In a theft or loss away from home, the insured waits an unusually long time before reporting the theft to the police. The insured is able to give the police a complete list of lost property on the day of the burglary or shortly after. The amount of the claim differs from the value given by the insured to the police. In a business inventory or income loss claim, the insured does not keep complete books, or the books do not follow accepted accounting principles. The physical evidence is inconsistent with the loss claimed by the insured. In a burglary loss, there is no physical evidence of breaking and entering, or a burglary could not have occurred unnoticed under the circumstances. In a fire loss: The apparent cause and origin of the fire is inconsistent with an accidental cause and origin, or there is evidence of the use of an accelerant. The remains of the property do not match the claimed property. The premises do not show signs of having contained the claimed property, or the amount of property would not fit into the space where the insured says it was. Physical damage to the insureds car is inconsistent with its having been in a collision with an uninsured car.

 The insured has discarded the claimed damaged property before the adjuster can examine it. The cost of the claimed property, over the period of time it allegedly was acquired, seems to exceed the insureds financial ability to purchase it. The insured refuses or is unable to answer routine questions. The insured provides supporting evidence and documentation that cannot be corroborated. Information on a life application is very vague or ambiguous as to the details of health history, such as dates, places of treatment, names of physicians or hospitals, or specific diagnoses. Applicant fails to sign and date the application. Pertinent questions on the application are not answered, such as income, other insurance carried, hazardous duties, or aviation or flying activity. The insured has excess insurance, either shown at the time of application or developed through an underwriting report of database information. Earned income does not warrant the amount of insurance being applied for. The applicants date of birth as shown on the application is much earlier than shown with other carriers or in previous applications or policies. The agent is putting on a great deal of pressure to have the policy issued because of the large amount applied for, but is going over the underwriters head in order to do so (working out of the system). The physicians report is very vague on details of past medical history and does not coincide with the information shown on the application.

 A death claim is presented in which the death has taken place outside of the country. The signature on the application for insurance does not appear to be the same signature as shown on an authorization at the time of the claim. A claimant or a claimants attorney attempts to limit the type of information to be related by a signed authorization, which is a standard authorization used by the company. An attorney is immediately brought into a contestable death claim, attempting to interfere with the investigation and to withhold information required by the company. A contestable death claim is reported as an accidental death, but could possibly be a suicide (such as a fatal accident involving only one vehicle, a hunting accident, or an accidental shooting while cleaning or repairing a weapon). An autopsy report discloses a different height and weight than what is shown on the recent application (auto or house fire death). Dental records do not match the dental findings in theautopsy report. Records are missing on a patient who was confined to a hospital, or a patients medical records are missing from the physicians office. The death claim package sent to the insurance company is too well packaged and complete in every detail with supportive documents. Documentation that was not initially asked for or required by the insurance company was voluntarily sent, such as newspaper reports, burial certificates, or shipment of the body from one country to another.

 The routine audit of a designated insured group shows a significant increase of added employees whose names do not show up on the payroll. Gunshot wounds or stabbings were inflicted by the insured as the aggressor or were self-inflicted. Police accident reports were submitted by the claimant. The claimant pushes for the claim to be handled quickly; for example, he wants to stop by the office to pick up his check as were leaving for vacation in the morning. Series of prescription numbers from the same drug store dont coincide chronologically with the dates of the prescriptions. An automobile was destroyed by a fire in a very remote rural area with no witnesses; the driver claims an electrical shortage in the engine compartment caused the fire. Preliminary information for a business fire loss or home fire loss indicates considerable financial difficulties and financial pressures being brought upon the owner and the fire is suspicious in nature and/or origin. An employee within the claims operations of an insurance company is known to have a drinking ordrug problem, financial pressures, serious marital difficulties, or an affair and irregularities start to appear. On burglary losses from a business or especially a home, the investigator observes that the remaining contents at the scene are of much inferior quality than those reported stolen. There is no indication of indentation in the piling of the carpet where heavy items of furniture or equipment were to have been placed. There are no hooks or nails on the walls where valuable pictures might have been hung. Entrances or exits are too small to take a large item through without laboriously disassembling it.

 A claim contains false statements or it has been determined that there has been a deliberate coverup. A disability income protection claim is filed and it is determined that the claimant had recently purchased numerous expensive items on credit and had them all covered by credit A&H insurance coverage. Public transportation accidents in which there are more passenger claims filed than there were passengers at the time of the accident. A witness to an accident or incident deliberately tries to hide from investigators rather than come forth and tell the truth. An official document of findings is in complete conflict with the facts in the case and there is no explanation for this conflict of facts. Photographs or other documents do not substantiate the reported findings.

Workers Compensation Fraud

Workers compensation laws require employers or their insurance plans to reimburse employees (or on their behalf) for injuries that occurred on the job regardless of who is at fault and without delay of legal proceedings to determine fault. The injury may be physical, such as a broken limb, or mental, such as stress. Common Schemes Schemes are generally broken into four categories: premium fraud, agent fraud, claimant fraud, and organized fraud schemes. PREMIUM FRAUD This entails misrepresenting information to the insurer by employers to lower the cost of workers compensation premiums.

 AGENT FRAUD Agents issue certificates of coverage indicating the customer is insured, but never forward the premium to the insurance company. An agent may alter the application for coverage completed by the employer in order to be able to offer a lower premium to his client. CLAIMANT FRAUD Misrepresenting the circumstances of any injury or fabricating an injury. ORGANIZED FRAUD Organized fraud schemes are composed of the united efforts of a lawyer, a capper, a doctor, and the claimant. This scheme is used not only in workers compensation cases, but also in other medical frauds,such as automobile injuries. THE LAWYER The lawyer is usually the organizer of the scheme and the one who will profit the most. The lawyer will entice the claimant into securing his services by promising a large settlement from the insurance company. The claimant may or may not have to undergo medical tests, since the only requirement of the claimant is that he be insured. The lawyer will then refer the injured party to a doctor for treatment. THE CAPPER A capper, also known as a runner, is used to recruit patients for the scheme. He may be employed by either the attorney or the doctor, and is paid, either a percentage of the total take or per person, for bringing in patients.

 THE DOCTOR The doctor may be one of the organizers or a player in the scheme, but must be a part of it in order for it to work properly. The doctor is used to lend authenticity to the scheme, and he is well compensated for his efforts. The doctor bills for services that he may or may not render as well as for unnecessary services. In addition, if the patient has regular health insurance, the doctor may double bill for the services. If the injury occurred as the result of an automobile accident while the patient was on the job, the doctor may bill all three insurance companies: the workers compensation carrier, the employees health insurance, and the automobile carrier.

LEGISLATION:
National and local governments, especially in the last half of the twentieth century, have recognized insurance fraud as a serious crime, and have made efforts to punish and prevent this practice. Some major developments are listed below:

United States

Insurance Fraud is specifically classified as a crime in all states, though a minority of states only criminalize certain types (i.e. Oregon only outlaws Worker Compensation and Property Claim fraud).[10] 19 states require mandatory insurer fraud plans. This requires companies to form programs to combat fraud and in some cases to develop investigation units to detect fraud.

41 states have fraud bureaus. These are law enforcement agencies where investigators review fraud reports and begin the prosecution process.[10] Section 1347 of Title 18 of the United States Code states that whoever attempts or carries out a scheme or artifice to defraud a health care benefit program will be fined under this title or imprisoned not more than 10 years, or both. If this scheme results in bodily injury, the violator may be imprisoned up to 20 years, and if the scheme results in death the violator may be imprisoned for life.[43]

Canada

The Insurance Crime Prevention Bureau was founded in 1973 to help fight insurance fraud. This organization collects information on insurance fraud, and also carries out investigations. Approximately one third of these investigations result in criminal conviction, one third result in denial of the claim, and one third result in payment of the claim.[44] British Columbias Traffic Safety Statutes Amendment Act of 1997 states that any person who submits a motor vehicle insurance claim that contains false or misleading information may on the first offence be fined C$25,000, imprisoned for two years, or both. On the second offense, that person may be fined C$50,000, imprisoned for two years, or both.[45]

United Kingdom

A major portion of the Financial Services Act of 1986 was intended to help prevent fraud.[46] The Serious Fraud Office, set up in 1987 under the Criminal Justice Act, was established to improve the investigation and prosecution of serious and complex fraud.[46] The Fraud Act 2006 specifically defines fraud as a crime. This act defines fraud as being committed when a person makes a false representation, fails to disclose to another person information which he is under a legal duty to disclose, or abuses a position in which he or she is expected to safeguard, or not to act against, the financial interests of another person. This act also defines the penalties for fraud as imprisonment up to ten years, a fine, or both.

CASE STUDY
Maulana Azad Charitable Trust (MACT) - Motor TP Claims A senior assistant in one of the Divisional Offices of a General Insurance Company has been working in Motor Third Party Claims Department for a long time. His wife was working in the Account Department of the same office. In the compound where Motor Accident Claim Tribunal was situated, there was a branch of a nationalized bank. The tribunal has its account also in the same branch. The insurance company has its payment account in the same bank. This particular senior assistant, over a period of time became very friendly with some of the advocates in MACT as also some assistants in the Bank. This was made possible because of his regular visit to MACT to meet advocates in his official capacity as also to the Bank where the company was having the payment account. In collaboration with some advocates and Bank employees, he floated a charitable trust called Maulana Azad Charitable Trust (MACT)and managed to open an account in the bank in the name of the same trust which was existing on paper only. Against the award passed by the tribunal, cheques used to be prepared in settlement of the award. As per the usual practice, the cheques were prepared in the name of MACT and the same, instead of being deposited in the tribunal, were deposited in the trust account. His wife being in the accounts department made his task easier. His advocate friends and friends in bank were helpful in ensuring that proceeds are transferred to the trust without any problem. A situation started developing wherein the claim file status in insurance company's office showed that award has been satisfied where as in court's record settlement was still awaited.

This resulted in starting of execution proceedings against the insurance company. The senior assistant would then remove the office note sheet and the original judgment from the file and would prepare a fresh notesheet seeking permission for immediate settlement of award to avoid execution. He used to wait for the Divisional Manager to be on tour or leave and would go to the person officiating in the absence of Divisional Manager. The amount of second cheque would be different from the original cheque in satisfaction of the award because of interest part on account of delayed settlement. This continued for quite some time and by the time it was detected more than 26 lakh of rupees had been siphoned. Why did it happen and how was it detected? It happened because of the personal greed of the senior assistant. In most of the fraudulent claims, somebody's greed is involved. It happened also because of concentration of the entire procedure of T.P. Claims processing in the Senior Assistant's hands. He had been very hard working and never gave any chance to his superiors for any complaint. Nobody even thought that he could indulge in such malpractice. It never came to light whether he was able to entice the advocates and bank people or it was other way round. The Detection was late because the bank reconciliation was not done regularly. It came to light at the time of annual accounts finalization. The full dimension could be understood only after a team of officers conducted a thorough enquiry. The developments taking place in the court on compensation claim files were being conveyed by the advocates on regular basis to the senior assistant in insurance company. In view of the likely involvement of advocates and bank people, the company decided to entrust the case to the CBI. The case is now going on in the court. The Senior Assistant involved committed suicide.

The lessons to be learnt are: Never say good-bye to established system and procedures. Some times, it may involve delay. But it is worth it. Bank reconciliation must be done on a regular basis as per the norms. Ethical values are important and a culture based on ethics and professionalism must been couraged in organization. Even if going is very good in any department, the in charge of office must maintain good vigil and supervision so that he knows what is happening in any department and should intervention be required, the same is taken in time. Outsider must not have direct access to any claim file of the office even if he is our own advocate / surveyor. Spouses working in the same offices in sensitive department can sometimes create problems. It should be noted that the senior assistant was financially well off and has no financialcompulsion for him to indulge in such act.

Frauds blow a hole in insurance firms

Indian insurance companies have collectively lost a whoppingRs.30,401 crore due to various frauds which have taken place in the life and general insurance segments during the year, according to a study. The losses work out to about nine per cent of the total estimated size of the insurance industry in 2011, the study carried out by Pune-based company India forensic states said. The total premium income of the insurance industry, comprising life, non-life and health, is around Rs.3.5 lakh crore, according to the figures by Insurance Regulatory and Development Authority (IRDA). The company has identified collusion between employees of insurance companies and beneficiaries furnishing false documents, and manipulation in citing the cause of death as part of the modus operandi adopted by fraudsters to claim undue insurance benefits. India forensic carries out regular studies in examining frauds, security, risk management and forensic accounting and claims to have assisted the Central Bureau of Investigation (CBI) in the multi-crore Satyam scam. The life insurance segment accounted for as much as 86 per cent of the frauds while remaining 14 per cent took place in the general insurance sector, which includes false claims for cars, houses and accidents, the report showed. The study also highlighted that the frauds in the life insurance segment had more than doubled in the last five years while those related to general insurance sector increased by 70 per cent. In 2007, insurance firms had lost as much asRs.15,288 crore, of which life insurance accounted for `13,148 crore while the general insurance segment lostRs.2,140 crore. The insurance sector is susceptible to various frauds in the country. There is an urgent need to have strict measures, including setting up of a dedicated unit to detect and check frauds in the companies, said anti-fraud and money laundering expert Mayur Joshi, who is a founder member of India forensic. However, insurance experts assert that while it is true that insurance companies are cheated, the quantum of losses is not as high as the study claims.

IRDA chairman J. Harinarayan brushed aside the study. He said the insurance firms are capable enough to protect their interests. However, he admitted that insurance companies were not reporting scams or other malpractices in the insurance industry. "It is just a sensational claim. I do not think so. Insurance companies have not reported to me about such frauds. Let me see the report first and what it says and how it claims that a `30,000-crore fraud was committed in 2012 in the insurance sector. Insurance companies are capable enough to protect their interest," Harinarayan told Mail Today on Sunday. LIFE Insurance Council secretary general S.B. Mathur said, "I think the figures of fraud as claimed are unrealistic. The fraud committed could be higher in non-life insurance compared to life insurance companies. However, the total figure for fraud cannot be as high asRs.30,000 crore. "I went through reports submitted by the respective insurance companies to their audit committees which are not open documents. But I have not come across such mind-boggling figures. It is next to impossible. The internal laws are not so lax." The study said that clients were defrauding the insurance companies by not disclosing existing diseases. This was being done by manipulating the impaneled doctors while applying for the policy. False age certificates are also being submitted to become eligible for insurance. The forging of medical bills are the most common fraud that affect the health insurance sector. In as many as 31 per cent of the total falsified documentation, medical bills were the common target of the frauds by external parties. Travel abroad for surgery without disclosing it, or getting a damaged vehicle insured without disclosing the accident are some of the common methods of cheating insurance companies, the report states as examples of frauds in the general insurance sector.

CONCLUSION
Soft frauds are increasingly becoming cause of concern for general insurance companies in India. Because of dishonest acts of few, all other stakeholders have to pay a price. This must stop. All fraudulent claims whether soft or hard must be curbed for it is in the best interest of everybody concerned. In case of organized fraudulent claims racket (MACT,Health etc.) there is need for national level information gathering and strong mechanism and a collective effort to minimize fraudulent claims. Ultimately, honest customers have to pay for fraudsters. There is need to declare a war against the "fraud." According to a report published by the Association of British Insurers (ABI) the cost of insurance fraud is now estimated to be 5.2 million ($ 8.48 million) everyday. Back in India, if newspaper reports are to be believed, then according to a recent survey conducted by India Forensic Research (Pune based consultancy) the insurance industry in India is loosing around Rs.15000 crores in a year due to fraudulent claims on health and motor portfolio. Judiciary unfortunately takes a different attitude to fraudulent claims as compared to other fraudulent civil suit. Public attitude towards insurance fraud is also a cause of concern for insurance companies. Majority of the people do not see anything wrong in inflating the claim. This has been confirmed in an independent opinion research into public attitude towards insurance frauds commissioned by ABI. If such an opinion poll is conducted in India the result will not be any different. There is a need to create awareness.