Frauds in Insurance Sector 3

Frauds in Insurance 2014-15
INTRODUCTION TO INSURANCE
What Is Insurance?
Insurance is a form of risk management in which the insured transfers the cost of potential
loss to another entity in exchange for monetary compensation known as the premium.
Insurance allows individuals, businesses and other entities to protect themselves against
significant potential losses and financial hardship at a reasonably affordable rate. We say
"significant" because if the potential loss is small, then it doesn't make sense to pay a
premium to protect against the loss. After all, you would not pay a monthly premium to
protect against a $50 loss because this would not be considered a financial hardship for most.
Insurance is appropriate when you want to protect against a significant monetary loss. Take
life insurance as an example. If you are the primary breadwinner in your home, the loss of
income that your family would experience as a result of our premature death is considered a
significant loss and hardship that you should protect them against. It would be very difficult
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for your family to replace your income, so the monthly premiums ensure that if you die, your
income will be replaced by the insured amount. The same principle applies to many other
forms of insurance. If the potential loss will have a detrimental effect on the person or entity,
insurance makes sense.
Everyone that wants to protect themselves or someone else against financial hardship should
consider insurance. This may include:
 Protecting family after one's death from loss of income
 Ensuring debt repayment after death
 Covering contingent liability
 Protecting against the death of a key employee or person in your business
 Buying out a partner or co-shareholder after his or her death
 Protecting your business from business interruption and loss of income
 Protecting yourself against unforeseeable health expenses
 Protecting your home against theft, fire, flood and other hazards
 Protecting yourself against lawsuits
 Protecting yourself in the event of disability
 Protecting your car against theft or losses incurred because of accidents
 And many more
Insurance works by pooling risk. What does this mean? It simply means that a large group of
people who want to insure against a particular loss pay their premiums into what we will call
the insurance bucket, or pool. Because the number of insured individuals is so large,
insurance companies can use statistical analysis to project what their actual losses will be
within the given class. They know that not all insured individuals will suffer losses at the
same time or at all. This allows the insurance companies to operate profitably and at the same
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time pay for claims that may arise. For instance, most people have auto insurance but only a
few actually get into an accident. You pay for the probability of the loss and for the
protection that you will be paid for losses in the event they occur.
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TYPES OF INSURANCE
Insurance is a way of protecting yourself from any costs that may arise from damage to your
property or your health.
Insurance works when you agree to transfer risk by paying specified amounts of money,
called premiums. A premium is the amount of money you pay to an insurance company to
have an insurance policy. These premiums create a pool of money that guarantees the person
holding the policy will be compensated for losses caused by occurrences such as fire,
accident, illness, or death. Insurance companies decide what the risk is on a particular policy
and then charge the appropriate premium. You can pay a premium monthly or annually.
Insurance policies are generally renewed annually so you should shop around at this stage to
see if you are getting the best value for your money.
Different policies have different terms and conditions so make sure you know what the terms
and conditions of your policy are. It is important to understand exactly what your insurance
policy covers when you buy it.
Home insurance
Home insurance will generally pay for any damage caused to your home by accident or by
bad weather.You are not obliged by law to insure your home but if you have a mortgage,
most lenders will insist that your house is appropriately insured. In general your home should
be insured for damage to contents and for damage to the structure of your home
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Mortgage protection insurance
When taking out a mortgage, you need to consider how it will be paid off in the event of your
death. You may also consider how to continue repayments if your income falls, due to illness,
unemployment or other reasons.
Motor insurance
It is a criminal offence for drivers to drive uninsured on public roads in Ireland
Health insurance
Health insurance is used to pay for private care in hospital or from various health
professionals in hospitals or in their practices. There are a number of health insurers in
Ireland.
Travel insurance
Travel insurance can cover you if you become ill or have an accident while you are on
holidays or travelling. If you are travelling within the EU/EEA you should have a European
health insurance card which allows you to access health care services. In general travel
insurance should supplement the services available to people with a European Health
Insurance Card
Life insurance
A life insurance policy provides money for defendants if you die. Life insurance policies are
important if you have dependents such as a partner or children.
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PRINCIPLES OF INSURANCE
The main objective of every insurance contract is to give financial security and protection to
the insured from any future uncertainties. Insured must never ever try to misuse this safe
financial cover.
Seeking profit opportunities by reporting false occurrences violates the terms and conditions
of an insurance contract. This breaks trust, results in breaching of a contract and invites legal
penalties.
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An insurer must always investigate any doubtable insurance claims. It is also a duty of the
insurer to accept and approve all genuine insurance claims made, as early as possible without
any further delays and annoying hindrances.
1. Principle of Utmost Good Faith
Principle of Uberrimae fidei (a Latin phrase), or in simple english words, the Principle of
Utmost Good Faith, is a very basic and first primary principle of insurance. According to
this principle, the insurance contract must be signed by both parties (i.e insurer and insured)
in an absolute good faith or belief or trust.
The person getting insured must willingly disclose and surrender to the insurer his complete
true information regarding the subject matter of insurance. The insurer's liability gets void (i.e
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legally revoked or cancelled) if any facts, about the subject matter of insurance are either
omitted, hidden, falsified or presented in a wrong manner by the insured.
2. Principle of Insurable Interest
The principle of insurable interest states that the person getting insured must have insurable
interest in the object of insurance. A person has an insurable interest when the physical
existence of the insured object gives him some gain but its non-existence will give him a loss.
In simple words, the insured person must suffer some financial loss by the damage of the
insured object.
For example :- The owner of a taxicab has insurable interest in the taxicab because he is
getting income from it. But, if he sells it, he will not have an insurable interest left in that
taxicab.
3. Principle of Indemnity
Indemnity means security, protection and compensation given against damage, loss or injury.
According to the principle of indemnity, an insurance contract is signed only for getting
protection against unpredicted financial losses arising due to future uncertainties. Insurance
contract is not made for making profit else its sole purpose is to give compensation in case of
any damage or loss.
In an insurance contract, the amount of compensations paid is in proportion to the incurred
losses. The amount of compensations is limited to the amount assured or the actual losses,
whichever is less. The compensation must not be less or more than the actual damage.
Compensation is not paid if the specified loss does not happen due to a particular reason
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during a specific time period. Thus, insurance is only for giving protection against losses and
not for making profit.
However, in case of life insurance, the principle of indemnity does not apply because the
value of human life cannot be measured in terms of money
4. Principle of Contribution
Principle of Contribution is a corollary of the principle of indemnity. It applies to all contracts
of indemnity, if the insured has taken out more than one policy on the same subject matter.
According to this principle, the insured can claim the compensation only to the extent of
actual loss either from all insurers or from any one insurer. If one insurer pays full
compensation then that insurer can claim proportionate claim from the other insurers.
For example :- Mr. John insures his property worth $ 100,000 with two insurers "AIG
Ltd." for $ 90,000 and "MetLife Ltd." for $ 60,000. John's actual property destroyed is worth
$ 60,000, then Mr. John can claim the full loss of $ 60,000 either from AIG Ltd. or MetLife
Ltd., or he can claim $ 36,000 from AIG Ltd. and $ 24,000 from Metlife Ltd.
So, if the insured claims full amount of compensation from one insurer then he cannot claim
the same compensation from other insurer and make a profit. Secondly, if one insurance
company pays the full compensation then it can recover the proportionate contribution from
the other insurance company
5. Principle of Subrogation
Subrogation means substituting one creditor for another.
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Principle of Subrogation is an extension and another corollary of the principle of indemnity.
It also applies to all contracts of indemnity.
According to the principle of subrogation, when the insured is compensated for the losses due
to damage to his insured property, then the ownership right of such property shifts to the
insurer.
This principle is applicable only when the damaged property has any value after the event
causing the damage. The insurer can benefit out of subrogation rights only to the extent of the
amount he has paid to the insured as compensation.
For example :- Mr. John insures his house for $ 1 million. The house is totally destroyed
by the negligence of his neighbour Mr.Tom. The insurance company shall settle the claim of
Mr. John for $ 1 million. At the same time, it can file a law suit against Mr.Tom for $ 1.2
million, the market value of the house. If insurance company wins the case and collects $ 1.2
million from Mr. Tom, then the insurance company will retain $ 1 million (which it has
already paid to Mr. John) plus other expenses such as court fees. The balance amount, if any
will be given to Mr. John, the insured.
6. Principle of Loss Minimization
According to the Principle of Loss Minimization, insured must always try his level best to
minimize the loss of his insured property, in case of uncertain events like a fire outbreak or
blast, etc. The insured must take all possible measures and necessary steps to control and
reduce the losses in such a scenario. The insured must not neglect and behave irresponsibly
during such events just because the property is insured. Hence it is a responsibility of the
insured to protect his insured property and avoid further losses.
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For example :- Assume, Mr. John's house is set on fire due to an electric short-circuit. In
this tragic scenario, Mr. John must try his level best to stop fire by all possible means, like
first calling nearest fire department office, asking neighbours for emergency fire
extinguishers, etc. He must not remain inactive and watch his house burning hoping, "Why
should I worry? I've insured my house."
7. Principle of Causa Proxima (Nearest Cause)
Principle of Causa Proxima (a Latin phrase), or in simple english words, the Principle of
Proximate (i.e Nearest) Cause, means when a loss is caused by more than one causes, the
proximate or the nearest or the closest cause should be taken into consideration to decide the
liability of the insurer.
The principle states that to find out whether the insurer is liable for the loss or not, the
proximate (closest) and not the remote (farest) must be looked into.
For example:- A cargo ship's base was punctured due to rats and so sea water entered and
cargo was damaged. Here there are two causes for the damage of the cargo ship - (i) The
cargo ship getting punctured beacuse of rats, and (ii) The sea water entering ship through
puncture. The risk of sea water is insured but the first cause is not. The nearest cause of
damage is sea water which is insured and therefore the insurer must pay the compensation.
However, in case of life insurance, the principle of Causa Proxima does not apply. Whatever
may be the reason of death (whether a natural death or an unnatural death) the insurer is
liable to pay the amount of insurance.
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INSURANCE FRAUDS
What Are Frauds?
In a broad strokes definition, fraud is a deliberate misrepresentation which causes another
person to suffer damages, usually monetary losses. Most people consider the act of lying to
be fraud, but in a legal sense lying is only one small element of actual fraud.
A salesman may lie about his name, eye color, place of birth and family, but as long as he
remains truthful about the product he sells, he will not be found guilty of fraud. There must
be a deliberate misrepresentation of the product's condition and actual monetary damages
must occur.
Many fraud cases involve complicated financial transactions conducted by 'white collar
criminals', business professionals with specialized knowledge and criminal intent. An
unscrupulous investment broker may present clients with an opportunity to purchase shares in
precious metal repositories.
For example, His status as a professional investor gives him credibility, which can lead to a
justified believability among potential clients. Those who believe the opportunity to be
legitimate contribute substantial amounts of cash and receive authentic-looking bonds in
return. If the investment broker knew that no such repositories existed and still received
payments for worthless bonds, then victims may sue him for fraud.
Fraud is not easily proven in a court of law. Laws concerning fraud may vary from state to
state, but in general several different conditions must be met.
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Another important element to prove in a fraud case is justifiable or actual reliance on the
expertise of the accused. If a stranger approached you and asked for ten thousand dollars to
invest in a vending machine business, you would most likely walk away. But if a well-
dressed man held an investment seminar and mentioned his success in the vending machine
world, you might rely on his expertise and perceived success to decide to invest in his
proposal. After a few months have elapsed without further contact or delivery of the vending
machines, you might reasonably assume fraud has occurred. In court, you would have to
testify that your investment decision was partially based on a reliance on his expertise and
experience.
Once a party enters into a legally binding contract, remorse over the terms of the deal is not
the same as frauds
WHAT ARE INSURANCE FRAUDS?
“Insurance fraud is any act committed with the intent to fraudulently obtain payment from an
insurer.”
Insurance fraud has existed ever since the beginning of insurance as a commercial enterprise.
Fraudulent claims account for a significant portion of all claims received by insurers and cost
billions of dollars annually. Types of insurance trades are very diverse and occur in all areas
of insurance. Insurance crimes also range severity, from slightly exaggerating claims to
deliberately causing accidents or damage. Fraudulent activities many times affect the lives of
innocent people, both directly through accidental or purposeful injury or damage and
indirectly as their crimes cause insurance premium to be higher. Investment fraud pose a
very significant problem and government and other organization are making efforts to do
defer such activities.
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CAUSES OF INSURANCE FRAUDS
 The chief motive in all insurance crimes is financial profit.
 Many times it is observed that false insurance claims can be made to appear like
ordinary claims. This allows fraudster to file claims for damages that never occurred
and so obtain payment with little or no initial cost.
 To attract maximum customers towards the insurer than competitors.
 With intention, of concealing true information w.r.t. age, disease, etc.
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TYPES OF INSURANCE FRAUDS
Many times insurance frauds exist from scamming whether it is auto insurance, life property.
All types of insurance frauds divided into:
 Hard Fraud
 Soft Fraud
 Automobile Insurance Fraud
 Life Insurance Fraud
 Health Insurance Fraud
 Property Insurance Fraud
 Internal Fraud
 External Fraud
Hard Fraud:
Hard fraud includes someone staging a car accident, injury, arson, loss, break-in or someone
writing false bills to Medicare to illegally receive money from their insurance company. This
type of frauds often receives more media attention and it is easier to detect. Hard fraud often
involves criminal activities of insurance company. But, an individual can also be found guilty
of hard fraud.
Soft Fraud:
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It happens when a person pads their insurance claims by telling “White lies”, such as, they
are feeling, too ill to come to work, so they can receive workers compensation benefits that
they wouldn’t have otherwise. This is more difficult to detect.
Automobile Insurance Fraud:
Fraud rings or groups may fake traffic deaths or stage collisions to make false insurance or
exaggerated claims and collect insurance money. The ring may involve insurance claims
adjusters and other people who create phony police reports to process claims.
Life Insurance Fraud:
Life insurance fraud may involve faking death to claim life insurance. Fraudsters may
sometimes turn up a few years after disappearing, claiming a loss of memory. Another
example is former British Government minister John Stonehouse who went missing in 1974
from a beach in Miami. He was discovered living under an assumed name in Australia,
extradited to Britain and jailed for seven years for fraud, theft and forgery.
Health Insurance Fraud:
Health insurance fraud is described as an intentional act of deceiving, concealing, or
misrepresenting information that results in health care benefits being paid to an individual or
group. Fraud can be committed by both a member and a provider. Member fraud consists of
ineligible members and/or dependents, alterations on enrollment forms, concealing pre-
existing conditions, failure to report other coverage, prescription drug fraud, and failure to
disclose claims that were a result of a work related injury. Independent medical examinations
are used to debunk false insurance claims and allow the insurance company or claimant to
seek a non-partial medical view for injury related cases.
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Property Insurance Fraud:
Possible motivations for this can include obtaining payment that is worth more than the value
of the property destroyed, or to destroy and subsequently receive payment for goods that
could not otherwise be sold. According to Alfred Manes, the majority of property insurance
crimes involve arson.
Internal Fraud:
There are those perpetrated against insurance companies or its policyholders by agents,
managers, executives or other employees.
External Fraud:
There are direct against insurance by individuals or entities as divers an policy holders
provides, beneficiaries, vendors, etc.
AUTOMOBILE INSURANCE FRAUDS:
Insurance fraud w.r.t. Automobiles is widespread, automobiles are supposed to be insured
everywhere. There are numerous types to automobile fraud claims such as:
 Filing a false theft report
 Filing a false injury report
 Filing a false accident report
 Filing a false damage report
 Filing a claim that the automobile was wrecked.
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In additions to individuals i.e. policyholders, the automobile frauds can be committed by
insurance adjusters repair shops, dealership and other co –conspirators
LIFE INSURANCE FRAUDS:
Life insurance fraud is very specific. It refers to act of international deception on the part of
those selling life insurance. Following are the ways through which fraudsters commit frauds
in life insurance:
 Some life Insurance fraud is committed by people buying insurance or who already
possess it. The m
 Common kind is making deliberate misstatements on applications for insurance.
 It is observed that many times the information provides by the policy holder are fake
or incomplete whit the information of hiding truth. E.g. existing disease, age factor
hereditary problems etc.
 Many times, the police holders have faked death so that family members can claim
policies.
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 Few doctors can get involved in life insurance fraud by acting as medical examiners
that certify the health of people applying. Whit the person seeking health insurance,
they deliberately information on medical exams.
 Vertical frauds: In this agents recruit people whit terminal illnesses to buy numerous
policies, all of which will have an annuity. The person gets some money to make it to
the end of his or life, but the majority of the funds will end up in the pockets of third-
party investor’s sifter the person s death.
HEALTH INSURANCE FRAUD:
Fraudulent behavior designed to solicit money which a person or groups is not entitled is
called as health insurance funds involving, in this are perpetuated by verity of sources ,
including health insurance companies ,insurance brokers, unscrupulous doctors ,allied health
professionals, medical institution and patients.
Following are the few examples to commits frauds:
 Falsification of information on forms.
 Filling of false claims, claims treatments for patients that never occurred.
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 Filling of prescription under patients names and then sell them in the black market.
 Diagnose diseases that not exists and order unnecessary testing,
 Frauds are committed by health insurance companies also such as:
 Companies are not paying on legitimate claims.
 Some companies may intentionally deny payment in the hopes that claimants
will not protest the treatment.
 Selling insurance in a state in which a company is not licensed to operate is
fraud too.
PROPERTY INSURANCE FRAUD:
This is a wider area of insurance frauds different losses i.e. fire, marine, burglary, theft,
accidents w.r.t. property are utilized to commit fraud by fraudsters. Possible areas include
 Obtaining payment that is worth more than the value of the property destroyed or to
destroy and subsequently receive payment for goods that could not otherwise be sold.
 Concealing of the information by the insurance company at the time of insurance
contract.
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 Payment of exorbitant commission to the agents for heavy sales and advertisement of
the policies by the insurance companies.
 Intentionally damaging the property and asking for insurance claim by the policy
holders
INTERNAL FRAUDS:
There are those perpetrated against insurance companies or its policyholders by agents,
managers, executives or other insurance employees.
It includes:
I. Fake /False Documents: Agents or insurer issuing fake policies, certificates,
insurance identifications cards or binders.
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II. False Statement: Agents or insurer making false statement on a filling with the
department and insurance.
III. Pocketing Premiums: Agents or insurer pocketing premiums, then issuing a
fairy policy or none at all.
EXTERNAL FRAUD:
There are direct against insurance by individuals or entities as diverse as policy holder’s
medical provides, beneficiaries vendors, etc.
It includes:
ARSON-FOR –PROFIT:
An owner or someone hires the vehicle to collect insurance money.
DISASTER FRAUD :
Unscrupulous operations persuade disaster fraud victims to claim more damages than actually
occurred, or they collect money to repair damage’s property but never complete the work.
CREATING A FRAUDULENT CLAIM:
It may include:
A. Staged or caused auto –accidents.
B. Staged slip and fall accidents.
C. False claim of foreign object in food or rink.
D. Taking a dearth to collect benefits.
E. Murder-for –profit etc.
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EXAGGERATED CLAIMS [OVERSTATING THE AMOUNT OF
LOSS] :
The most common examples are:
A. Inflating bodily injuries from auto accidents.
B. Inflating value of items taken during a bulglary or theft.
C. Inflating a physical billing damage claim form a minor tender bender.
D. Medical providers inflating billing or upcoming of medical procedures to name a few
FALSIFYING A THEFT REPORTS:
A property owner falsely reports items stolen or exaggerates the values of items taken in a
burglary to collect insurance money.
MEDICAL FRAUD:
Unethical medical; practitioners or providers work in concert with scheming patient, to create
fictitious, accident related injuries to collect or fraudulently disability workers compensation
and personal injury claims. There provides usually work through middlemen who recruit
patients for their scams. The doctors often bull insurers for multiple office visiting and which
never take place.
MISREPRESENTING FACTS TO RECEIVE PAYMENT:
Claiming prior damage occurred in the current accident claiming a injury created a partial or
total disability elsewhere conducting the same or some or work, duties etc.
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SCHEMES, SCAMS, SCAMMED
Property/casualty insurance fraud cost insurers about $30 billion in 2004. Fraud may be
committed at different points in the insurance transaction by different parties: applicants for
insurance, policyholders, third-party claimants and professionals who provide services to
claimants.
Common frauds include "padding," or inflating actual claims; misrepresenting facts on an
insurance application; submitting claims for injuries or damage that never occurred; and
"staging" accidents. Prompted by the incidence of insurance fraud, about 40 states have set up
fraud bureaus. These agencies are reporting a record number of new investigations,
significant increases in referrals — tip about suspected fraud — and cases brought to
prosecution.
RECENT DEVELOPMENTS
 The hurricanes of 2005, especially Hurricane Katrina, are likely to result in a surge in
insurance fraud. In addition to the usual schemes, where homeowners or renters make
claims for stereos, televisions or other expensive items they never purchased, and
inflate claims for items actually destroyed, home arsons are on the rise. Since many
homeowners in the Gulf areas did not have flood insurance, they may not be covered
for some or all of the damage caused by the hurricanes. Dozens of fires have broken
out in many affected communities, some of which may be the result of arson.
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 The National Insurance Crime Bureau (NICB) says that by November 2005, there
were 160,000 vehicles in its flooded motor vehicle and boat database, which was set
up by catastrophes teams to combat title fraud in the hurricane-affected states. The
NICB warns that flooded vehicles may be cleaned up, moved and sold in other areas
of the country by unscrupulous operators. Although the vehicles were totaled by
insurance companies and identified as “salvage” on their titles, which means they are
not fit for any use except for scrap or parts, they could end up on the market in states
where it is relatively easy to apply for a regular title. A database was created in which
vehicle identification numbers (VINs) and boat hull identification numbers (HINs)
from flooded vehicles and boats could be stored and made available to law enforcers,
state fraud bureaus, insurers and state departments of motor vehicles.
 One in 10 paid bodily injury liability (BI) auto claims in California had the
appearance of fraud or misrepresented the facts of the claim, according to the
Insurance Research Council’s Fraud. More common is the appearance of buildup, or
the padding of claims, which was found in one in five claims. The study, released in
January 2006, examined about 73,000 claims closed with payment in 2002. It found
that between $319 and $432 million in BI payments were attributable to fraud and
buildup.
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15 MOST FAMOUS CASES OF INSURANCE FRAUD
Insurance fraud seems like it might be an easy thing to do. Insurance companies are often so
huge, one wonders how they might not even notice a few mistakes in your favor. But the fact
is that insurance companies have people who make it their full time job to sniff out fraud,
ensuring that they keep a tight bottom line. And while they may not catch every tiny little
fudge, you can be sure they are on the hunt for major offenders such as the ones on this list.
Check out these famous insurance fraud cases that surely carried a huge bounty.
1. HCA/Medicare: In 2000 and 2002, HCA pleaded guilty to 14 felonies, including
fraudulently billing Medicare as well as other programs. HCA had inflated the
seriousness of diagnoses, filed false cost reports, and paid kickbacks to doctors to
refer patients. HCA had to pay the US government $631 million plus interest, as well
as $17.5 million to state Medicaid agencies, on top of $250 million already paid to
Medicare for outstanding expense claims. It was the largest fraud settlement in US
history, with law suits reaching $2 billion in total.
2. John Darwin's Death: John Darwin faked his death in a canoeing accident,
turning up five years later. He'd been secretly living in his house and the house next
door, while his wife claimed the money on his life insurance. They were both
sentenced to six years in prison, but released on probation. BBC created a TV drama
about their story called Canoe Man.
3. The horse murders scandal: Between the mid 1970s and mid 1990s many
expensive horses were involved in insurance fraud. These expensive horses, often
show jumpers, were placed on insurance for accident or death, and killed for the
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insurance money. The number of horses killed in this manner is believed to be at least
50 and possibly as high as 100. It was the biggest scandal in equestrian sports,
resulting in the death of a whistleblower, Helen Brach, in addition to the horses.
4. John Mango's fire: A Toronto businessman, John Mango hired someone to set
fire to his business for the insurance money. Things got quite out of hand, killing one
person during the fire and forcing many families to leave the area until the fire could
be put out. Mango was charged with second degree murder on top of his fraud
charges.
5. Swoop and squat: In the 90s, car insurance fraud ran rampant. Cars would
purposely get into accidents with innocent people on the road, hoping to score
insurance money, and often, they did. These accidents frequently injured drivers, and
some were even fatal. These accidents usually earned the orchestrators about $20,000
each.
6. Michael Jackson's prescriptions: Lloyds of London has recently filed suit to
invalidate an insurance policy taken out by Michael Jackson. The policy covered his
"This Is It" tour in the event that it was not successful. The payout was to be $17.5
million, but Lloyds argues that it is invalid because Michael Jackson did not disclose
prescription drugs on his application. As Jackson died from an overdose, Lloyds is
claiming deception.
7. The Titanic: Everyone knows the story of the Titanic, but not everyone realizes
that some believe its part of a conspiracy to pull off a huge insurance fraud. The
Olympic, Titanic's sister ship, was damaged and rendered useless during one of its
voyages-and some believe that the Titanic as it sunk was actually the Olympic.
Conspiracy theorists note several inconsistencies in the performance and construction
of the "Titanic" that indicate the Titanic sinking was a case of swapped ships.
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8. Cooperman art theft hoax: Would you steal your own art for money? LA
ophthalmologist Steven Cooperman did. He arranged for a Picasso and a Monet to be
stolen from his home in an attempt to collect $17.5 million in insurance money. He
was convicted in July 1999.
9. Martin Frankel: Martin Frankel's insurance fraud is just one in a long list of
financial crimes. He was sentenced to 200 months in prison due to over $200 million
in losses to insurance companies. He eventually plead guilty to 24 federal counts of
racketeering and conspiracy, securities fraud, and wire fraud.
10. Bristol-Myers Squibb kickbacks: Regulators in California have gone after
Bristol-Myers Squibb for insurance fraud, among other offenses. The lawsuit accuses
Bristol-Myers of making payments to high-prescribing physicians, targeting and
profiting on the private insurance industry. It is the largest health insurance fraud to
be pursued by a California state agency. Additionally, in 2007, the pharmaceutical
company paid $515 million to settle with federal and state governments against
allegations of kickbacks to defraud Medicare and Medicaid.
11. Dr. Gupta's mystery procedures: There's a nationwide manhunt launched by
the FBI looking for Dr. Gautam Gupta. The complaint against him alleges that he
submitted claims to Blue Cross/Blue Shield and Medicaid for unnecessary
procedures, and even ones that were never performed. The fraudulent insurance
claims from Dr. Gupta reached nearly $25 million.
12. Millionaire insurance fraud: Charles Ingram was first made famous as a fraud
when he cheated on Who Wants To Be A Millionaire?, using coded coughs to win.
But his deception was further exposed when he was convicted of insurance fraud as
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well. He placed a suspicious £30,000 burglary claim, and was found to be dishonest,
ultimately winning two guilty charges for his fraud.
13. TAP Pharmaceuticals fraud: The Department of Justice got involved with this
pharmaceutical insurance fraud case. TAP Pharmaceuticals engaged in fraudulent
drug pricing and marketing conduct, as well as filing fraudulent claims with Medicare
and Medicaid. They agreed to pay $559 million to the government for those claims, as
part of an $875 million settlement for all criminal charges and civil liabilities.
14. I get knocked down, but I get up again…and knocked down again 48
more times: With 49 cases, Isabel Parker earned her title as the queen of the slip
and fall scam. During her career, she received claims totaling $500,000.
15.Torching the Malibu: What do you do if you don't want to pay on your car
anymore? If you're teacher Tramesha Lashon Fox, you get your students to set your
car on fire in exchange for passing grades. She'd hoped to get insurance money, but
instead lost her job and served 90 days in jail.
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DIVISION OF INSURANCE FRAUD
The Division of Insurance Fraud was originally formed in 1976 to investigate only fraudulent
automobile tort claims. In the early years, investigators had arrest powers but could not carry
firearms. Today, the division investigates all types of insurance fraud crimes.
Investigators are assigned to work general fraud cases, workers’ compensation fraud, medical
and health-care fraud, and agent and company fraud. Areas of assignment may include:
→Insolvency - Fraud committed by insurance companies that fail financially due to
internal fraud by owners and corporate officers.
→Unauthorized Entities - fraud, both criminal and civil, committed by insurance
companies operating illegally in the state.
→Health Care Fraud - focuses on organized medical and health care scams.
→Workers’ Compensation - investigates employers for workers’ compensation
premium fraud.
→Public Employee Fraud - investigates state and local government employees for
workers’ compensation claimant fraud.
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MEASURES TO PREVENT INSURANCE FRAUDS
It is necessary to adopt “proper fraud prevention programs me” to control the rising insurance
frauds:
General measures:
Role of the government:
Government should take lead in prevention of fraudulent activities in the main important
sector of insurance, strict actions must be taken against the fraudsters
Awareness among the consumers:
Through proper training programs, street plays, consumer fares the awareness can be created
w.r.t. understanding of fraudulent areas in insurance and necessary actions towards it.
Strengthening of low:
Fraud is a crime. The low and administration must be strengthened to take strict and quick
action against fraudsters. This will help to decline the no. of fraudulent cases in future.
Role of media:
Media can play important role in spreading of awareness and knowledge w.r.t. fraud
prevention programs through newspaper, magazine, t. v. radio, information for fraud phones
areas and necessary help towards it can be provide
Role of supervisory authorities:
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IRDA, SEB should prepare an action plan to combat with the serious issue of frauds.
Track down the cheaters:
Police authorities, CBI should take action lead in tracking down the cheaters.
Increasing value Bases approach in the society:
The citizens should believe and follow value based approach in their day-to-day life. They
must be able to differentiate between need and greed. Measures to prevent frauds in insurance
Specific measures
I. It requires high standard of integrity form director’s management and employees of
insurance organizations.
II. It is necessary to set realistic goals and objectives for best use of resources.
III. It is necessary to organize, collect and evaluate the effectiveness of information so
that the management may avoid frauds.
IV. To prevent frauds in insurance the audit function must be carried out in proper
manner.
Measures by IRDA
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There is a need for a uniform policy and standard which will guide action of employees
within an insurance company. They are the guidelines for professional conduct. It also states
what the insurance company stands for and is committed to which values. There should also
be a reward and punishment for any other behavior than that is prescribed. The code helps in
achieving organizations goals in socially acceptable manner. In case of any dilemma, it
prescribes solution and thus helps perform their routine activities.
Sec 14 of Act, 1998 lays down the duties, powers and functions of IRDA :
1. Subject to the provisions of this act and any other law for the time being in force the
authority shall have duty to regulate, promote and ensure orderly growth of the
insurance business and re-insurance business?
2. Without prejudice to the generality of the provisions contained in sub-section
The powers and functions of the authority shall include:
a. Issue to the applicant a certificate of registrations, renew, modify withdraw, suspend
or cancel such registration;
b. Protection of the investment of the policy holders in matters concerning assigning of
policy, nomination by policyholders, insurance claim, surrender value of policy and
other terms and conditions of insurance;
c. Specifying the code of conduct for surveyors and loss assessors;
d. Promoting efficiency in the conduct of insurance business;
e. Levying fees and other charges for carrying out the purposes of the act;
f. Promoting and regulating professional organization connected with the investment
and with business.
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g. Calling for information form, undertaking inspect of, conducting enquiries and
investigations including audit of insurers, intermediaries, insurance intermediaries and
other organization connect with insurance business.
h. Specifying the form and manner in which books of A\c shall be maintained and
statement of A\c shall be rendered by insurers another insurance intermediacies.
i. Specifying the form manner in which books of A/c shall be maintained and statement
of A/c shall be rendered by insurers other insurance intermediacies;
j. Regulating investment of funds by insurance companies;
k. Regulating maintenance of margin of solvency;
l. Adjudication of disputes between insurers and intermediaries of insurance
intermediaries,
m. Supervising the functioning of the tariff Advisory committee:
n. Specifying the %of premium income of the insurer to finance schemes for promoting
and regulating professional organizations
o. Specifying the % of life insurance business and general insurance business to be
undertaken by the insurer in the rural of social and
p. Exercising such power as my be prescribed
IRDA’s code of conduct for agents
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Proposals seeking insurance cover should be filled in inly the person/S seeking to be insured,
as per the code of conduct being formulated by the IRDA for insurance agents.
The provision in the code to mainly avoid complaints at later stage, especially form the
nominees of the insured who at the time claim say that discrepancies could have been
avoided if the insured had filled in the application on their own.
As per the code, it would be necessary for those availing insurance to fill in the applications
themselves. And it would also be made mandatory for the agents to disclose on demand the
commission that they would be entitled to form the proposal.
The code to govern the intermediaries in insurance companies in the country is like to direct
the agents to provide a copy of the filled –in proposal –application to the client, before
submitting it the company.
For prospective insurance agents, the code is likely to recommend an examination and a 100
hour training course. Additionally, all agents-present future will be issued with identify cards
by the IRDA.
Major Activities
a. Promotion of a better understanding of non-life insurance amongst the public:
providing inputs to the media about the developments in the non-life insurance.
b. Promotion of sound development and maintenance of the reliability of the non-life
insurance industry: Developing codes of conduct for meter companies, strengthening
non-life insurance companies’ disclosure, developing compliance programmers to
observe laws and regulations, etc.
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REAL EYES...REALIZE...REAL LIES…
Short History of Antifraud Efforts
Fraud in insurance has undoubtedly existed since the industry's beginnings in the seventeenth
century, but it received little attention until the 1980s because law enforcement agencies had
other priorities and were reluctant to provide the training needed to investigate and prosecute
cases of insurance fraud. And, given the fine line between investigating suspicious claims and
harassing legitimate claimants, some insurers were afraid that a concerted effort to eradicate
fraud might be perceived as an anti-consumer move. In addition, the need to comply with the
time requirements for paying claims imposed by fair claim practice regulations in many states
made it difficult to adequately investigate suspicious claims.
But by the mid-1980s the rising price of insurance, particularly auto and health insurance,
together with the growth in fraud committed by organized criminals, prompted many insurers
to reexamine the issue. Gradually, insurers began to see the benefit of strengthening antifraud
laws and more stringent enforcement as a means of controlling escalating costs — a pro-
consumer move — and they found ready allies among those who been adversely affected by
fraud. These included consumers, who were paying for fraud through their insurance
premiums; the people used by organized fraud groups to file false claims, often the poor, who
sometimes found themselves on the wrong side of the law; and chiropractors and other
medical professionals who were concerned that their reputation as a group was being
tarnished by organized fraud ringleaders who had recruited their members to make fraudulent
claims for treatment. In their fight against fraud, insurers have also been hampered by public
attitudes. Ongoing studies by the Insurance Research Council show that significant numbers
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of Americans think it is all right to inflate their insurance claims to make up for all the
insurance premiums they have paid in previous years when they have had no claims, or to
pad a claim to make up for the deductible they would have to pay.
Antifraud activity on the part of state fraud bureaus and SIUs (special investigative units
within insurance companies) increased in the 1990s. Heightened antifraud activity along with
growth in funding for fraud-fighting personnel resulted in increased prosecutions. Successful
prosecution not only blocks future fraudulent activities by individuals who are repeat
offenders, but news of prosecutions also acts as a deterrent to others who may be
contemplating committing fraudulent acts.
While the focus initially was on auto insurance fraud, antifraud efforts also encompass
workers compensation fraud, where investigations are directed toward employers who, to
obtain a lower premium, misrepresent their payroll or the type of work carried out by their
employees. These two factors impact premiums. Payroll is important because workers
compensation insurance provides for lost wages and insurers need to know the maximum
they would have to pay if all employees were injured in the same accident; the type of work
carried out by the firm affects the likelihood of injuries. Workers that use cutting tools, for
example, are more likely to get injured on the job than office workers. Some employers also
apply for coverage under different names to foil attempts to recover monies owed on previous
policies or to avoid detection of their poor claim record, which would put them in a higher
rating category.
Fraud and abuse take place at many points in the health care system. Doctors, hospitals,
nursing homes, diagnostic facilities and attorneys have been cited in scams to defraud the
system. One huge area of fraud is the Medicare and Medicaid systems. Health care is
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especially susceptible to electronic data interchange (EDI) fraud. EDI is direct filing of
claims — computer to computer — and is widely used for Medicare claims.
In 1999, the Government Accounting Office released a study of the Medicare, Medicaid and
private health insurance sectors that confirmed that organized crime is heavily involved in
health care fraud. The investigation found that in seven cases of health care fraud studied,
about 160 health related groups — medical clinics, physician groups, labs or medical
suppliers — had submitted fraudulent claims. The criminals identified in the report were not
health care workers but criminals already prosecuted for securities fraud, forgery and auto
theft. Apparently, these criminals had moved to health care because fraud was relatively easy
to accomplish.
Anti-Fraud Programs
Several large insurance companies have joined forces through the National Health Care Anti-
Fraud Association to develop sophisticated computer systems to detect suspicious billing
patterns. The Federal Bureau of Investigation (FBI) and the Office of the Inspector General
(OIG) each have assigned hundreds of special agents to health-fraud projects. The Coalition
Against Insurance Fraud, a public advocacy and educational organization founded in 1993,
includes consumers as well as government agencies and insurers.
The Omnibus Consolidated Appropriation Act of 1997 authorized a Health Care Anti-Fraud,
Waste, and Abuse Community Volunteer Demonstration Program to further reduce fraud and
abuse in the Medicare and Medicaid programs. The program enrolled thousands of retired
accountants, health professionals, investigators, teachers, and other community volunteers to
help Medicare beneficiaries and others to detect and report fraud, waste, and abuse.
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The Inspector General's office has recovered over a billion dollars through fines and
settlements. Its Operation Restore Trust, which began in 1995, was a joint federal-state
program aimed at fraud, waste, and abuse in three high-growth areas of Medicare and
Medicaid: home health agencies, nursing homes, and durable medical equipment suppliers.
The questionable activities included:
 Billing for advanced life support services when basic life support was provided.
Documentation may be falsified to indicate a patient needed oxygen—which is a key
indicator in establishing medical necessity for advanced life support.
 Billing for larger amounts of drugs than are dispensed; or billing for brand-name
drugs when less expensive generic versions are dispensed.
 Billing for more miles than traveled for transportation.
 Falsification of documentation to substantiate the need for a transport from a hospital
back to the patient's home. Medicare will only cover transport from hospital to home
if the patient could not go by any other means.
Insurers’ Antifraud Measures
Insurance companies are not law enforcement agencies. They can only identify suspicious
claims, withhold payment where fraud is suspected and to justify their actions by collecting
the necessary evidence to use in a court. The success of the battle against insurance fraud
therefore depends on two elements: the resources devoted by the insurance industry itself to
detecting fraud and the level of priority assigned by legislators, regulators, law enforcement
agencies and society as a whole to eradicating it.
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Many insurance companies have established special investigation units (SIUs) to help
identify and investigate suspicious claims; some insurance companies outsource their units to
other insurers.
These units range from a small team, whose primary role is to train claim representatives to
deal with the more routine kinds of fraud cases, to teams of trained investigators, including
former law enforcement officers, attorneys, accountants and claim experts to thoroughly
investigate fraudulent activities. More complex cases, involving large scale criminal
operations or individuals that repeatedly stage accidents, may be turned over to the National
Insurance Crime Bureau (NICB). This insurance industry-sponsored organization has special
expertise in preparing fraud cases for trial and serves as a liaison between the insurance
industry and law enforcement agencies. In addition, it publicizes the arrest and conviction of
the perpetrators of insurance fraud to help deter future criminal activities. Insurance company
surveys confirm that SIUs dramatically impact the bottom line of many insurance companies.
In the mid-1990s insurers said that for every dollar they invested in antifraud efforts,
including SIUs, they got up to $27 back, but these returns have become harder to achieve as
the more apparent fraud schemes have been uncovered and more effort is necessary to ferret
out the sophisticated fraud that remains. A 2000 study by Conning Research & Consulting
suggests that results vary widely. Using the ratio of “claims exposure reduction” to the
expense of running SIUs, the study found ratios ranging from a low of 3 to 1 to a high of 27
to 1, depending on the year and line of insurance. Although some insurers are cutting back on
fraud investigation by outsourcing investigations and dissolving their fraud units, advances in
software technology, especially programs that sift though the millions of claims that large
health insurers process annually, are proving effective in fighting fraud. These “data mining”
programs can uncover repetitions and anomalies and analyze links to fraudulent activities or
entities.
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The consolidation of insurance industry claims databases has put a valuable new tool in the
hands of investigators. The Insurance Services Office Inc.'s system, known as Claim Search,
utilizes a data-mining program. Claim Search is the world’s largest comprehensive database
of claims information. The NICB has developed a program called Predictive Knowledge that
collects and analyzes information which can be disseminated to insurers and law enforcement
agencies to detect, investigate and prevent insurance fraud. In addition, the NICB, in
partnership with iMapData Inc., introduced CAT fraud, to identify potentially fraudulent
catastrophe/weather-related insurance claims.
A national fraud academy — a joint initiative of the Property Casualty Association of
America, the FBI, NICB and the International Association of Special Investigating Units —
was designed to fight insurance claims fraud by educating and training fraud investigators. It
offers online classes under the leadership of the NICB.
An emerging issue for insurers using data sharing services is their impact on privacy.
Financial institutions, including insurers, must respect the privacy of their customers and
protect their personal information, a practice that may deter efforts to combat fraud.
Insurers may also file civil lawsuits under the federal Racketeering Influenced and Corrupt
Organizations Act (RICO), which requires proving a preponderance of evidence rather than
the stricter rules of evidence required in criminal actions and allows for triple damages. Since
1997, some of the largest insurers in the country, especially auto insurers, have been filing
and winning lawsuits against individuals and organized rings that perpetrate insurance fraud.
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WHAT YOU NEED TO KNOW ABOUT INSURANCE FRAUD
Almost everyone is familiar with insurance fraud. We've all heard the stories of people
who received millions after a car accident or the heartless insurance firm refusing to
pay out to a widow on a technicality. Insurance fraud is one of the oldest types of fraud
ever recorded, dating back to 300 B.C., when a Greek merchant sunk his own ship, in
an attempt to cash in on the insurance, and drowned in the attempt.
Whether you are a policyholder or a shareholder in an insurance company, insurance fraud
affects you. The field of insurance is wide and fraud exists in every area. Therefore, in this
article we are going to focus in on one of the most important types of insurance – life
insurance. We will look at the major types of life insurance fraud and how they affect your
bottomline.
It Takes Two to Tango
Insurance fraud comes in two main categories: seller fraud and buyer fraud. Seller fraud
occurs when the seller of a policy hijacks the usual process, in a way that maximizes his or
her profit. Buyer fraud occurs when the buyer bends the process to obtain more coverage, or
claim more cash, than he or she is rightly entitled to.
Types of Seller Fraud
There are many variations of seller fraud, but they all center around four basic types. These
are:
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 Ghost Companies: In the ghost company scenario, policies are issued and
premiums accepted from policyholders, but the company underwriting the policy isn't
legitimate and often doesn't exist. These outright frauds are a type of boiler room
operation, where a team of high-pressure scam artists dial likely victims to sell them
false policies. Unfortunately, the fraud isn't usually discovered until someone tries to
file a claim on the policy their family member thought was in effect, in the event of
his or her death.
 Premium Theft: The premium theft scenario is when the insurance rep accepts
premiums, but doesn't submit them to the company underwriting the policy, thus
invalidating the policy. In this case, the agent essentially pockets the money. Premium
theft has become less of an issue as more companies have moved towards direct
deposit models, but it is still possible in some cases.
 Churning: Churning refers to a situation where the insurance rep advises the
customer to cancel, renew and open new policies in a way that is beneficial to him or
her, instead of beneficial to the client. This type of insurance fraud often targets
seniors and is driven by the agent's desire for larger commissions. Churning keeps a
portfolio constantly in flux, with the primary purpose of lining the advisor's pockets.
 Over or Under Coverage: Similar to churning, under or over coverage occurs
when an insurance rep convinces customers to buy coverage they don't need, or sells a
lesser policy and represents it as a complete policy. In either case, the rep is trying to
maximize commissions and ensure the sale, rather than focusing on meeting the
client's needs.
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Types of Buyer Fraud:
Buyer fraud also comes in a number of different flavors, but they all center around a theme of
dishonesty. Basic types of buyer fraud include:
 Post-Dated Life Insurance: Post-dated life insurance refers to a policy that has
been arranged after the death of the person being insured, but appears to have been
issued before death. This type of fraud is usually carried out with the help of an
insurance agent. It is also one of the easier types of fraud for insurance companies to
detect, because record keeping has become more stringent.
 False Medical History: Falsifying medical history is one of the most common
types of insurance fraud. By omitting details such as a smoking habit or a pre-existing
condition, the buyer hopes to get the insurance policy for cheaper than he or she
would have otherwise been able.
 Murder for Proceeds: There are two versions of the murder for proceeds fraud.
In the first, the insured doesn't know they are insured and are understandably
surprised to be murdered. In the second, the policy is legitimate and was taken out in
better times, however, financial hardships lead the perpetrator to decide that killing
his or her spouse/family member/business partner, for the money, is the best way out
of the problem.
 Lack of Insurable Interest: As with murder for proceeds, insuring people you
shouldn't be insuring, in hopes that they will die, constitutes fraud. Insurance is
founded on the idea of protecting people from financial loss, so using it to gamble on
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lives for a financial gain is a perversion of the system. This includes vertical
settlements, which combine non-insurable interest with falsified policies taken out on
the terminally ill.
 Suicidal Accidents: Just as financial hardship can lead otherwise rational people
towards murder, the same factors can lead people to commit suicide in a way so it
looks accidental. This constitutes fraud in that it is an intentional act for the purpose
of collecting the insurance proceeds, and would not have occurred if those proceeds
did not exist. This can be a very difficult one to detect, as the medical examiner has
final say in accidental death. Even if it is clearly a suicide, the claim centers on the
state of mind, rational or not, at the time of suicide.
 Faking Death or Disability: Many life insurance policies have riders for
disability, creating the temptation to fake one to get the payout. However, some
people take it a step further and fake their own deaths. In both cases, the fraudster has
to deal with the possibility of being discovered through an investigation.
The Cost of Insurance Fraud
Just as there are two main types of life insurance fraud, there are also two consequences.
When people engage in buyer fraud, it raises the cost of insurance. The reason for this is very
simple; insurance companies are really good at modeling, so they tweak their models to
account for buyer fraud and then spread that cost across all their policyholders. In a very real
way, every person who tries to stick it to the insurance company ultimately makes your
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policy cost more.
In contrast, seller fraud can potentially hurt just the select few that experience it. It is, in
every essence of the word, bad luck. However, on the whole, every time the insurance
company you invest in treats someone badly, it loses business to a company with a better
reputation and controls on the agents. As an investor, you will be tempted to move your
capital to the better performing company, thus punishing seller fraud in a roundabout way.
The internet has also helped reduce seller fraud, as many shady outfits and practices become
exposed sooner in the game.
The Bottom Line
Insurance is a business that is built on risk analysis and probabilities. Every instance of
insurance fraud puts pressure on the business, whether seller or buyer fraud. For this reason,
many companies build generous contingency funds to protect them against fraud, as well as
other unforeseen events. While this is good from the investor's perspective, it does
unfortunately lead to your personal life insurance premiums being higher than they otherwise
would have been, in a more honest world.
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HOW TO DETECT AUTO INSURANCE FRAUD
Investigators use public and private information to detect potential auto insurance fraud.
Claims adjusters and data experts at insurance companies and law enforcement organizations
detect fraud in several ways. Suspicious claims are identified according to the company's
proprietary statistical methods. Specialists review suspicious claims for more clues. Private
Citizens, usually unrelated to the insured, might suspect fraud and report it to police, fraud tip
lines or fraud-focused organizations, such as the National Insurance Crime Bureau and the
Coalition Against Insurance Fraud. Fraud raises auto insurance costs by at least 16 percent,
according to author Saul W. Seidman in his book "Trillion Dollar Scam: Exploding Health
Care Fraud."
Instructions
1. Use sophisticated computer programs and computing methods to detect fraud, according to
"Surveillance Technologies and Early Warning Systems: Data Mining Applications Methods
for Risk Detection." Investigators also use data to identify suspicious relationships associated
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with the insured. They review financial statements for unusual cash flows. They look for
associations with known insurance crime rings, according to author Pamela Meyer in
"Liespotting: Proven Methods to Detect Deception."
2. Evaluate supervised and nonsupervised potential fraud claims, according to the "Handbook
of Statistical Analysis and Data Mining Applications" by Robert Nisbet, John Elder, John
Fletcher Elder and Gary Miner. Investigators use both supervised and nonsupervised methods
to evaluate the suspicious claim. Insurers develop fraud-detection models based on
demographic, attitudinal and business data information. Supervised claims involve analysis of
historical claim values to the insured's claim values. A suspicious claim is compared to
previously identified frauds. Unsupervised analysis involves statistical identification of
unusual amounts, repairs, medical care and other red flags. Unsupervised analysis also
connects abnormal values in current claims to previously known fraud cases. Neither method
absolutely confirms fraud. Additional analysis helps to identify higher probabilities of
insurance fraud.
3. Recognize common auto insurance fraud. According to author Saul W. Sideman, fraud
costs other insured’s higher insurance premiums. Fraud costs of $1.05 for faked thefts, $2.15
for previous damages, $2.20 for overcharges from body repair shops and $3.00 in staged car
accidents for every $100 in paid claims. Auto theft continues to increase in the United States.
According to the National Insurance Crime Bureau, more than 57 percent of stolen cars
disappear. Professional crime rings ship stolen cars overseas or sell the car for parts.
However, some stolen cars are resold in the U.S. to unsuspecting consumers. The NICB's
VIN Check helps prospective owners to check vehicle identification numbers for free.
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HOW TO DETECT HEALTH INSURANCE CLAIM FRAUD
Health insurance claim fraud is the process in which a medical provider bills for services that
were never delivered or received. It's a way for medical providers to dishonestly increase
their payment. Health care fraud accounts for nearly $70 billion of all health care spending in
the United States. It's big business for unscrupulous providers that translate to highepremium
payments for consumers.
Instruction
1. Keep good records of the medical services that you received. Document all procedures and
tests performed dates of visits and tests, and providers who performed them. Retain
copayment receipts.
2. Compare your medical service records against your billing statement from your insurance
company. Contact your insurance company for a copy of your bill if one wasn't sent to you.
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3. Review your insurance plan benefit manual, so you know what's covered by your
insurance plan.
4. Note any billing discrepancies you find, such as an added charge for a procedure you don't
recall receiving, double billing for the same procedure when it was only completed once,
and/or charges for procedures your provider indicated were free.
5. Contact your insurance company right away when you suspect you're a victim of fraud.
6. Report billing discrepancies to your state's Department of Insurance or the attorney
general's office. Someone from one or both agencies may ask questions about your claim and
request you submit to them copies of your medical records, including receipts and other
billing documentation. This will allow them to conduct an investigation.
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HOW TO REPORT INSURANCE FRAUD
Fraud can cost the insurance industry billions of dollars each year, which is ultimately passed
on to the insured as increased premiums. Insurance fraud can be reported anonymously and
easily.
According to insurancefraud.org, most states have their own fraud bureau that can investigate
insurance scams. Whistleblowers might even be able to collect a reward for information
leading to a conviction. Insurancefraud.org provides a list of states that have an established
fraud bureau. You can also contact the insurance company, the National Insurance Crime
Bureau, Medicaid and Medicare, and the social security administration among others.
Instructions
Hotlines Available
1. Many insurance carriers offer a fraud hotline. If you suspect someone has committed fraud,
look up that carrier's information online and don't hesitate to give them a call. Some of the
more common acts of fraud toward an insurance carrier might include destroying your own
car, claiming lost or stolen personal items, or claiming injuries that did not occur. The
National Insurance Crime Bureau can also be found online. This organization is operated by
insurance carriers and will investigate auto, liability, homeowners', and workers' comp fraud.
2. Social Security fraud occurs when someone is collecting benefits when they are not
eligible, collecting someone else's benefits such as a deceased party, or working under the
table for compensation above what is allowed by social security guidelines. Fraud can also
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occur if an individual is reporting a child that is not their own, or by collecting benefits when
they live overseas. Call 1-800-269-0271 to report this type of fraud or report it online at
ssa.gov.
3. The types of fraud committed against Medicaid and Medicare involve doctors,
pharmacists, and other health care providers. Doctors may report patients or groups of
patients that did not visit their office, double bill for procedures, bill for procedures that did
not occur, or use false credentials when submitting claims. Fraud can be reported at your
local state Medicaid agency or by calling the OIG hotline at 1-800-447-8477.
4. The USDA Office of the Inspector General offers a hotline at 1-800-424-9121 during
regular business hours. Their email address, as well as an address for writing a letter, can be
found on rma.usda.gov. Types of crop insurance fraud might include filing claims against
fields that were never planted or crops that were not harvested.
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DEALING WITH FRAUD ON THE NET
As time goes on, the number of attacks will only increase and network forensics will become
a part of our lives, who could put you on the track by helping record and analyse previous
security threats.
In a perfect world, network security wouldn’t be required. Unfortunately this isn’t a perfect
world, and even if there are many who will throw up a firewall and other such security
measures as solutions, this doesn’t stop the problem. No firewall is impenetrable and there’s
no such thing as a perfect security measure. There’s always a way to get around them, and the
number of people trying to do that keeps increasing.
According to the US General Accounting Office, approximately 250,000 break-ins were
attempted into Federal computer systems alone in 1995 and this number gets bigger every
year. Only one to four per cent of these attacks ever get detected.
Network forensics is the capture, recording, and analysis of network events in order to
discover the source of security attacks or other problem incidents. It attempts to prevent
hackers from attacking a system, and searches for evidence after an attack has occurred.
There are three parts to network forensics: intrusion detection; logging (the best way to track
down a hacker is to keep vast records of activity on a network with the help of an intrusion
detection system); correlating intrusion detection and logging.
The ultimate goal of network forensics is to provide sufficient evidence to allow the criminal
perpetrator to be successfully prosecuted. The practical applications could be in areas such as
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hacking, fraud, insurance companies, data theft—industrial espionage, defamation, narcotics
trafficking, credit card cloning, software piracy, electoral law, obscene publication, perjury,
murder, sexual harassment, and discrimination.
Technical Challenges
IT managers, network consultants, auditors, software developers, and analysts would all like
to understand the data that is sent over their corporate networks. Network monitoring is an
essential tool for network optimization and security. How much data was sent? When? What
was sent? Current tools only answer the first two questions, and have trouble with the third.
The tools base their analysis primarily on IP and TCP headers, which can be misleading or
intentionally falsified.
This leaves security consultants and network managers to manually sift through raw network
packet dumps, piece together data streams and undo transfer encoding, and seek to
understand the significance of a single connection. This is tremendously time-consuming and
since networks deal with one packet at a time, this isn’t very useful or complete to someone
trying to get a big picture view of an employee’s suspected network abuse, or a deep-level
view of an intrusion attempt.
And yet the internet is critical, and we haven’t a choice but to connect internal networks to
the rest of the world — to link with customers, suppliers, partners, and their own employees.
Even if that connection brings in threats of malicious hackers, criminals, and industrial spies.
These network predators regularly steal corporate assets and intellectual property, cause
service breaks and system failures, sully corporate brands, and frighten customers. Unless
companies can successfully navigate around them, they will not be able to unlock the full
business potential of the internet.
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Even enterprises with exceptional security have their front doors open to employees sending
and receiving data. Is there a user abusing the system for personal reasons, or accidentally or
maliciously releasing confidential information? Unfortunately, the variety of data formats and
sheer volume of traffic make detailed network monitoring a major technical challenge.
Traffic monitors focus on bandwidth. Although some go so far as to keep basic statistics such
as web page hits and average visit length, they’re mostly useful for capacity planning and
simple web marketing. Port scans allow network security specialists to find some
vulnerability.
Intrusion detection systems scan traffic for known attack signatures. However, because these
tools base their analysis primarily on the IP and TCP headers, which can be intentionally
falsified or misleading, they are subject to incorrect analysis and spoofing. Current tools can’t
provide the information that IT managers, network consultants, auditors, software developers,
and analysts need to know:
“Who is running an unauthorized web server on a non-standard port?”
“How long is it taking our e-commerce system to process a customer order from start to
finish?”
“What generated that huge spike of traffic between 5:35am and 5:40am this morning?”
“Exactly what happened during – and before – last night’s attempted break-in?”
The fleeting nature of any kind of electronic data is such that its preservation, is required
especially for legal proceedings — the methodology can be broken down into two key
elements: acquiring evidence and analyzing evidence. This information is required for
dealing with a law enforcement investigation. It involves capturing and storing every packet
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passing through wires and then regenerating the sequence flow for analysis. If we are able to
regenerate the attack it can now be treated as evidence.
Full-content network monitoring is no longer the province of spooks and spies — it’s
increasingly a practice that is an integral part of a multilayered defense system that serves a
variety of goals for both computer security and overall network policy.
The solution is to follow a multi-layered security approach and a system that can perform the
following tasks: integrated network IDS/ anomaly detection /forensic analysis; capture data at
high speeds; run invisibly and capture packets from the monitored network; assemble the
collected packets into connection streams; read the actual data in packets and categorizes it
by type, rather than make assumptions based on packet headers and port numbers;
automatically determine key connection attributes; operates at the level of complete,
assembled data streams, rather than arbitrarily mixed-together packets; search capability
through network traffic by keyword; protocol recognition capability and correlation
functionality.
As time goes on, the number of attacks will only increase and network forensics will become
a part of our lives. It has an ability to strengthen our securities, check compliance against
policies, and punish those that attempt to disrupt our IT infrastructure. The future of
information security lies in an organisation ability
to not only prevent malicious activity, but also investigate and prosecute the perpetrators
whether internal or external.
Page 59
INSURANCE COMPANIES CONCERNED ABOUT RISING
INCIDENTS OF FRAUD
Ernst & Young’s insurance fraud survey: frauds are driving up overall
costs for insurance companies
Mumbai, 2 June 2011 – Ernst & Young's insurance fraud survey has revealed that the
rising incidence of fraud is driving up costs for insurance companies and premiums for policy
holders. Insurance companies are waking up to this grim reality, which may threaten their
viability and profitability. According to 80% of the survey respondents, representing India's
largest public and private insurance companies, fraud in insurance can increase costs for
insurers by at least 1% and can rise by more than 5% in certain cases. Further, more than 50%
of the respondents believe that fraud directly impacts premium, in some cases increasing
premiums by more than 3%. This adversely affects innocent consumers who end up paying a
higher premium.
The survey was conducted to assess the fraud scenario in the Indian insurance industry, the
potential risk exposure, the economic impact of rising incidents of fraud, and industry
practices to counter fraud. Of the survey’s respondents, 50% expressed the need for
heightened and more stringent anti-fraud regulations in the area of claims and surrender. This
area is most prone to fraud, with nearly 27% respondents rating it among the topmost fraud
risks in the insurance sector.
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Insurance sector regulator, the Insurance Regulatory and Development Authority (IRDA),
appears to share the concern of most of the respondents. According to public media sources,
the IRDA has reportedly decided to appoint reputed firms to develop effective reporting on
industry-wide fraud within health care insurance.*
The survey findings should cause concern among insurance company directors. Complacency
around fraud, bribery and corruption, combined with cost-cutting initiatives at many
companies, creates additional exposure. With new legislation such as the UK Bribery Act
giving regulators stronger enforcement powers, management, in particular, should
demonstrate greater commitment to ethical conduct through their actions, including making
tough choices regarding departmental budgets and disciplinary measures.
As Arpinder Singh, Ernst & Young’s India Fraud Investigation & Disputes Services Leader
states, “It is management’s job to set the tone and frame the controls and programs to
mitigate the fraud risk.”
Companies: not prepared to counter fraud risks
Many companies have to do more to establish a robust and effective fraud risk management
process. As much as 40% of the respondents expressed concern that their organizations do
not have a dedicated anti-fraud department. Worse still, around 43% said that manual red
flags are used to detect fraud in their organizations. Given the quantum of data these
insurance companies have to handle, this method may not be effective enough as a measure.
Lack of third-party due diligence
The Indian insurance industry relies heavily on third parties, be it as a distribution channel for
selling its products or to conduct due diligence. As a result, the exposure to fraud risk
increases, which makes it imperative for a company to conduct due-diligence checks before
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associating itself with any third party for business. Yet, according to the survey, one-third of
the respondents reported that their company does not screen all key vendors and employees.
Arpinder Singh adds, “The survey provides a wake-up call for insurance companies. Lack of
third-party due diligence and focus on anti-fraud measures; and a continued reliance on
manual methods to detect fraud inevitably increases the risk exposure. The adoption of a
definite methodology and a comprehensive and integrated approach to fraud risk can help
companies address the rising risk of fraud in the insurance sector.”
Proactive fraud monitoring: the need of the hour
The results of the survey indicate that business leaders are aware of the need to address fraud
risk. Some of the more successful organizations have already begun focusing on this area and
have consequently benefitted from improved profitability.
Arpinder Singh concludes, “Some of the points that companies must include in their fight
against fraud are a well-defined whistle-blowing policy, periodic fraud risk assessment, third-
party due diligence, data analytics tools to identify red flags, and the automation of
processes.”
Page 62
INSURERS LOST OVER RS. 30,000 CRORE DUE TO FRAUDS
IN 2011: STUDY
New Delhi : Indian insurance companies have borne a loss of over Rs. 30,000 crore in 2011
due to different kinds of frauds, a study has claimed. It cited collusion between the
employees of insurers and private persons, document falsification and manipulation in citing
cause of death to claim insurance benefits, as some of the reasons behind these frauds.
"The losses caused to the insurance sector are Rs. 30,401 crore which is roughly 9 per cent of
the total estimated size of insurance industry in the year 2011," the report said.
The total premium income of the insurance industry comprising life, non-life and health, is
around Rs. 3.5 lakh crore, as per the Insurance Regulatory and Development Authority
(IRDA) data.The study was conducted by a Pune-based company Indiaforensic, which
conducts fraud examination, security, risk management and forensic accounting research. It
Page 63
has also helped the country's investigating agencies like CBI in several high profile cases
such as the multi-crore Satyam scam.Around 86 per cent of the frauds occurred in the Life
Insurance segment while the remaining 14 per cent took place in the General Insurance sector
(which includes risk of loss to assets like car, house, accidents), it said.
According to the study, in the last five years, the frauds in Life Insurance sector had more
than doubled (103 per cent) whereas the frauds in the General Insurance sector rose by 70 per
cent.A total of Rs. 15,288 crore (Rs. 13,148 cr in life insurance and Rs. 2,140 cr in general)
was the loss borne by the companies in 2007. In 2011, the loss was pegged at Rs. 30,441
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 founder
member of Indiaforensic.The study said that insurers were defrauding the companies by not
disclosing existing diseases by manipulating the empaneled doctor while applying for the
policy. "All insurance policies have an eligible age at which the policy can be taken. To
accommodate oneself in to the product or enjoy a lower premium, age proofs are modified to
show a reduced age. Some cases require medical tests to issue the policy. However, to
substantiate non-disclosed or misrepresented medical conditions, a different person may be
sent at the time of the tests. While this may work to get the policy, it would create
discrepancy at the time of claims," it said.There have been cases where the date of death was
on the death certificate has been fraudulently changed to a date before the actual death when
the policy was in force, so as to register a claim, the study said.
"Medical Bills forgery is the most common scheme of frauds which affect the Health
Insurance sector the most. In as many as 31 per cent of the total falsified documentation
schemes medical bills were the common target of the frauds by the external parties.
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"The second most common scheme of the frauds in the General Insurance space is the non-
disclosure of the facts. Travel abroad for the surgery without disclosing it or getting the
damaged vehicle insured without disclosing the accident are some of the common
schemes," it said giving examples of frauds in general insurance sector.
According to Ashish, a certified fraud examiner and investigator "there is a need to have
fraud control units in insurance sector to check losses. The study highlights a worrying trend"
Page 65
PRECAUTION IS BETTER THAN CURE
Insurance fraud is not typically a violent crime, just a lucrative one. As consumers, there are
several common-sense steps you can take to help reduce fraud and minimize its impact.
Be an Informed Consumer.
Insurance premiums are a significant expense for most of us. The premiums you pay are
based on your individual claims history and the degree of risk involved. Generally speaking,
the greater the risk, the higher the premium. For example, the theft premium for a Honda
Accord will be far higher than that of a Yugo quite simply because more Honda Accords are
stolen. Similarly, a tightrope walker will pay more for life insurance than a librarian, all else
being equal.
Comparison Shop.
Premiums can vary significantly from insurer to insurer so it pays to shop around. To make
comparison shopping a little easier, the Insurance Department publishes consumer guides for
auto, homeowners, long-term care and HMO/health insurance that provide sample premiums
for insurers that offer these coverage. In addition, the Insurance Department's Web site is also
the home of an Interactive Guide to HMOs, which allows consumers to find information
about HMOs operating within their home county.
Know Your Agent or Broker.
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Consumers can often be victimized by unscrupulous agents or brokers and discover only after
they file a claim that they are without coverage for their home or their car. If an uninsured
home is damaged by fire, the owner is solely responsible for restoring it and paying back any
mortgage holders. If a driver is involved in an accident while driving an uninsured vehicle,
any personal assets are subject to forfeiture if that driver is sued for damages. Deal only with
licensed agents and brokers. Agents and brokers must carry proof of licensure.
Where's the Proof?
Never pay for a premium in cash. Pay by check or a money order made out to the insurance
company directly or to the agency—not to the individual agent or broker. In addition, always
request a receipt.
Where's the Policy?
You should receive a copy of any type of insurance policy complete with endorsements and
declarations specifically outlining your coverage and its limitations within a reasonable
period after your purchase. If you do not receive it, question your agent or broker. If there is
no satisfactory explanation for the delay, contact the New York Insurance Department
immediately. You may not have the insurance coverage you paid for.
Are You Being Billed for Services You Have Not Received?
If you have received medical or dental treatment that is covered by an HMO or an insurance
company, you will receive an "Explanation of Benefits" statement listing the services for
which benefits have been paid. Review it carefully to ensure that your health care provider
has not "bumped up" your claim (i.e., overstated services provided in order to receive a
higher payment), or charged for services you did not receive. Contact your insurer
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immediately if you feel there are discrepancies. Fraudulent claims payments translate into
higher insurance premiums for all of us.
What If You’re Involved in an Automobile Accident?
Call the police to the scene and make sure that the details of the accident are documented and
the identities of the occupants of the other vehicle are verified. Be suspicious if the driver of
the other vehicle insists there is no need to call the police. That driver’s insurance card may
be fraudulent and his car uninsured.
Auto Insurance Fraud is a multi-billion-dollar problem nationwide. Watch out for these
common scams:
The staged accident – A vehicle filled with people will stop suddenly in front of you,
setting you up as the cause of a rear-end collision. The "victims" will then file costly multiple
medical and damage claims using doctors and lawyers who are part of the scam.
Steerers – These individuals will solicit the injured or allegedly injured parties and direct
them, for a "referral fee," to lawyers, doctors and/or medical facilities that are part of the
scheme. Be on the lookout for steerers at accident scenes and don’t become their victim.
Inflated claims – If you are in an automobile accident, be sure you know the extent of the
damages to your own car and the other vehicle and carefully review claims. Vehicle owners
and body shops frequently inflate estimates for damages and then either perform other repairs
not related to the accident or simply keep the extra money.
Be Alert! It’s Your Money.
Page 68
Think twice before replacing an existing life insurance policy with a new one. The new
policy may have exclusions or waiting periods for pre-existing conditions that are covered by
your current policy. And premiums are likely to be higher because you are older. The
Insurance Department protects consumers by requiring agents to provide prospective
purchasers with pertinent facts when that purchase will cause the buyer to surrender, lapse, or
in any way change the status of an existing life insurance policy. Department Regulation 60
requires this full disclosure so that prospective life insurance purchasers can make decisions
in their own best interest.
Don’t allow high-pressure salesmanship to persuade you to sign up for a type of policy or
certain coverage that you are not sure you need. Take time to decide what’s right for you.
Read your policy carefully before you sign. If you have questions, ask your agent or broker,
or your insurer. An additional source of information and help is the Insurance Department’s
Consumer Services Bureau
Page 69
CONCLUSION
What is insurance fraud?
Insurance fraud is an attempt to obtain money from insurance companies by arranging a loss
or accident or falsifying information on applications for insurance claims. Fraud can range
from large, organized operations involving hundreds of thousands of dollars to an otherwise
honest individual who overstates a legitimate claim.
What is the penalty for being found guilty of insurance fraud?
In most of its forms, insurance fraud is a felony. When caught, prosecuted and found guilty,
most fraud perpetrators are required to make restitution and jail time is also commonly
imposed.
What is the most common types of fraud cases?
Insurance fraud can be divided into three categories: false claims for injuries; arson for profit;
and false or intentional auto theft and physical damage.
What is the insurance industry doing to reduce fraud?
The insurance industry is committed to reducing fraud by teaching claims professionals how
to recognize suspicious claims and work with law enforcement and fir services. Insurance
companies have units trained to investigate fraud.People who want to fight back against this
crime can call their state department of insurance and report the crime.
What effect does fraud have on the average insurance policy holder?
The insurance industry estimates the size of insurance fraud to be about 10-15 percent of the
Page 70
premium dollar. This puts the yearly costs at an estimated $18 billion nationally. As fraud is
reduced or eliminated, clams costs can be lowers and those savings can be passed on to
policyholders.
Page 71
BIBLIOGRAPHY
BOOKS
1. Business Ethics And Corporate Governance
By-Anita Bobade, Vipul Prakashan
2. Business Ethics And Corporate Governance
By-Archana Prabhudesai, Seth Publication
3. Organisation of Commerce & Management
By-N.G. kale, Vipul Prakashan
WEBSITES
 www.irda.gov.in
 www.wikipedia.org
 www.rediffbusiness.com
 Scam alert.: Coalition Against Insurance Fraud Web site
 www.naic.org
 www.google.com
 www.yahoo.com
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insurance makes sense.

consider insurance. This may include:

 Protecting family after one's death from loss of income

 Ensuring debt repayment after death

 Covering contingent liability

 Protecting against the death of a key employee or person in your business

 Buying out a partner or co-shareholder after his or her death

 Protecting your business from business interruption and loss of income

 Protecting yourself against unforeseeable health expenses

 Protecting yourself against lawsuits

 Protecting yourself in the event of disability

 Protecting your car against theft or losses incurred because of accidents

 And many more

property or your health.

policy covers when you buy it.

Mortgage protection insurance

unemployment or other reasons.

It is a criminal offence for drivers to drive uninsured on public roads in Ireland

professionals in hospitals or in their practices. There are a number of health insurers in

important if you have dependents such as a partner or children.

any further delays and annoying hindrances.

1. Principle of Utmost Good Faith

in an absolute good faith or belief or trust.

omitted, hidden, falsified or presented in a wrong manner by the insured.

2. Principle of Insurable Interest

any damage or loss.

In an insurance contract, the amount of compensations paid is in proportion to the incurred

not for making profit.

value of human life cannot be measured in terms of money

Principle of Contribution is a corollary of the principle of indemnity. It applies to all contracts

the other insurance company

Subrogation means substituting one creditor for another.

Principle of Subrogation is an extension and another corollary of the principle of indemnity.

It also applies to all contracts of indemnity.

amount he has paid to the insured as compensation.

will be given to Mr. John, the insured.

6. Principle of Loss Minimization

insured to protect his insured property and avoid further losses.

should I worry? I've insured my house."

7. Principle of Causa Proxima (Nearest Cause)

liability of the insurer.

liable to pay the amount of insurance.

What Are Frauds?

In a broad strokes definition, fraud is a deliberate misrepresentation which causes another

be a deliberate misrepresentation of the product's condition and actual monetary damages

criminals', business professionals with specialized knowledge and criminal intent. An

precious metal repositories.

legitimate contribute substantial amounts of cash and receive authentic-looking bonds in

state, but in general several different conditions must be met.

the same as frauds

WHAT ARE INSURANCE FRAUDS?

defer such activities.

CAUSES OF INSURANCE FRAUDS

 The chief motive in all insurance crimes is financial profit.

and so obtain payment with little or no initial cost.

 To attract maximum customers towards the insurer than competitors.

 With intention, of concealing true information w.r.t. age, disease, etc.

TYPES OF INSURANCE FRAUDS

All types of insurance frauds divided into:

 Automobile Insurance Fraud

 Life Insurance Fraud

 Health Insurance Fraud