Blowing the cover

When a life insurance company began receiving a huge number of claims from Maharashtra’s Nandurbar, Dhule and Jalgaon regions, it was more than a little surprised. So many people dying in succession in the same places seemed unusual enough for it to hire an external investigating company.

What came to light was a fake death certificate racket involving several doctors and hospitals in these areas, as well as individuals masquerading as doctors to provide the insurers false information on policyholders.

Policies were fraudulently procured in the names of terminally-ill people, including many suffering from tuberculosis, HIV or cancer, and alcoholics who were dead or in poor health. Many of these unwitting ‘policyholders’ belonged to lower-income groups and neither they nor their families were aware of the life insurance policies existing in their names.

The racket — which involved paying the premiums and claiming the insurance amount on the death of the ‘insured’ — was subsequently busted, but not before there was substantial loss to the insurer.

In 2012, Bajaj Allianz General Insurance received a claim for ₹55,000 from a policyholder who was hospitalised for jaundice. Perplexed by the unusually high sum claimed for a disease like jaundice, the company tried to get in touch with the customer only to discover that the address provided was incorrect. On investigating further, the pathology test reports and medicine and hospitalisation bills too were found to be fake. Together with the police, a company-appointed investigator uncovered five similar claims from the same area.

After talking to about 300 locals, the company managed to get the mobile number of one of the fraudsters and laid a trap for him. On being caught, the man disclosed that three local doctors were among those involved in the insurance scam. All the accused soon found themselves behind bars.

Up north in Noida in the national capital region, a tele-calling centre was in the business of impersonating Max Life Insurance officials, collecting money and issuing fake policies. Many fell prey to this con agency until Max Life undertook an investigation and enlisted the help of the police to shut down the fraudulent call-centre.

Surge in numbers

As things stand, insurance frauds are rapidly outstripping the profitability of insurers. A study by India Forensic Center of Studies pegs insurance frauds in India at about $6.25 billion annually, or around 9 per cent of the industry’s revenues.

“Inherent fraud risks have always existed. However, frauds pertaining to spurious calling and claims have substantially increased over the last two to three years,” says Prashant Tripathy, senior director and chief financial officer at Max Life Insurance.

According to industry estimates, fraudulent claims eat up nearly 10 per cent of the overall claims paid out. And, more significantly, only one per cent is ever detected while the remaining fraudsters walk off with the money.

With criminals becoming more tech-savvy and inventive, nabbing them is proving near impossible.

Insurers are now hiring former officials from the CBI, army and police to bolster their fraud-detection capabilities.

“Previously, the nature of frauds was different — committed by individuals, usually involving forgery and manipulation of documents. Today, they are committed by expert masterminds, singly or in groups with professional assistance over wide networks…

It has become more challenging to obtain evidence and to crack cases,” says BS Powdwal, head of fraud prevention at Bajaj Allianz Life Insurance Company.

This is echoed by the ICICI Prudential Life Insurance Company executive director Sandeep Batra, who says, “Rapid advancements in technology are challenging the boundaries of fraud-risk management.”

Shreyas Mehta (name changed), an investigator with a private life insurance company, says there has been an alarming rise in the number of murders for insurance gains. “Fraudsters get a policy issued in the name of their target and then kill them to make large claims from insurers. The sum assured is high and taken from multiple life-insurers.”

These are well-planned crimes, he says, with hired killers on the job. “Relatives of the life insured, local governing bodies, hospitals, pathology labs are closely involved in such cases,” he adds. He is credited with cracking the Nandurbar and Dhule cases.

Mission fraud detection

Powdwal says there are gangs operating across the country, scouting for terminally-ill people, in whose names they buy policies and create a nominee.

In response, insurers such as Bajaj Allianz, Max Life and ICICI Prudential have set up dedicated fraud investigation units with legal and medical experts on board. In December 2012, HDFC ERGO General Insurance Company created a specialised unit to detect, investigate and report frauds.

“We are also developing a network of retired police officials in key states. Our team is provided training at the Department of Forensic Sciences in Ahmedabad. The department members are also periodically trained by experts,” says the company’s executive director Mukesh Kumar.

ICICI Prudential has a specialised risk control department to check frauds, says Batra. To make employees aware of the modus operandi of fraudsters, they are provided training through accredited professional courses.

Within the insurance business, the sectors more prone to frauds are motor, health, travel, marine and fidelity in that order. Sanjiv Dwivedi, head, Investigation and Loss Mitigation, Bajaj Allianz General Insurance, blames it on “the slow legal system, difficulty in verifying documents, absence of adequate control, and lack of fear among fraudsters”.

“In health insurance cases, typically, the entire billing amount is inflated if the insured has a health card. Or, an outpatient treatment is converted to an inpatient case. Forgery in diagnostic reports is another common modus operandi,” he adds.

Bajaj Allianz General Insurance has an inhouse team of 50 employees, apart from the medical and forensic investigators it works with, to combat frauds. These investigators have experience working with police and defence forces. The company also deploys software analytics to identify suspects.

Bouquet of insurance scams

The methods used to defraud insurance companies commonly range from taking policies in the name of deceased persons to surrendering policies without the knowledge of the policyholder and embezzlement of customers’ premium payments in cash. Additionally, there is spurious calling in the name of the insurance regulator IRDA, or as an insurance company selling policies or offering false benefits like policy bonus for a payment.

Certain regions in the country appear more fraud-prone — northern and southern Maharashtra, and parts of Uttar Pradesh, Gujarat, Rajasthan, Assam, Orissa, Karnataka and Andhra Pradesh.

When a fraudster strikes, apart from the loss to the insurer, customers too end up paying a price in the form of higher premiums to make good the insurer’s loss. According to a 2011 study by Ernst and Young, frauds lead to a three per cent rise in the premiums charged from policyholders.

The advent of tech-savvy scams is forcing insurance companies to invest in preventive data analytics. HDFC ERGO relies on advanced data analytics to detect fraudulent patterns. “Claim handlers refer all suspicious claims for investigation,” says Kumar.

Some of the advanced data analytics currently used by insurers include predictive modelling of claims by actuaries and statisticians, text mining from police reports and identification of anomalies in a large group of similar cases. Predictive modelling guesses the probability of an outcome given a set amount of input data, while text mining turns text into numbers or meaningful indices, which can then be incorporated into other analyses such police data, witness statements and so on.

“Fraud-risk propensity models are developed and implemented to conduct field verification of smartly selected policy applications, which carry a higher risk,” says Tripathy of Max Life Insurance, which has been investing 25 per cent more each year in its fraud monitoring activities.

ICICI Prudential’s Batra says his company is using fraud analytics, forensics, social media and CIBIL (Credit Information Bureau Ltd) checks to upgrade fraud-detection processes.

A shared fight

Recognising the scale of the problem, the insurance regulator is setting up a common fraud prevention centre and database, which is expected to start work by the end of this year. Insurance companies can share information and detect fraudulent multiple claims.

Additionally, insurance companies are sending in quarterly reports on fraudulent claims detected. Industry forums like the Life Insurance Council and General Insurance Council are proving handy platforms for information sharing and detection of crime patterns.

The quest is on for the best possible insurance against criminal minds.

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