“Fraud is nothing but dishonesty or deception, which is done deliberately with a purpose to benefit or gain”. Fraud is considered unethical, illegal, and immoral. Fraud is considered as a civil as well as criminal wrong and is punishable by the law. As we all know that the financial industry is prone to fraud. The insurance industry, which is a part of the financial industry, is the fertile ground for the perpetrators of fraud.
Motor insurance is one of the largest portfolios of business of any country. Hence the chances of fraud are more in the motor insurance sector. There are many parties involved in motor insurance such as insurers, insured, employers, loss adjusters, hospitals, garages, agencies, lawyers, third parties, etc. The involvement of so many parties in the motor insurance process gives scope for perpetrating fraud.
Federal Bureau of Investigation estimates the non-healthcare fraud at an estimated $40 billion a year. Almost all insurance companies and countries have experienced one kind or another kind of fraud. The average estimate of fraud in an insurance company dealing with motor insurance may range from 5% to about 20% of the total claim amount. If the fraud is not controlled the innocent insured will have to bear the cost of fraud. If the fraud is plugged completely then the insured cost will come down and the insured may also get the benefit of savings in the claims. The insured will be paying fewer premiums to have the same cover.
Insurers treat fraud as a very serious matter and if at any point in time the insurers are able to get the proof that the insured has indulged in fraud then they have a right to make the contract voidable. Even if it is discovered that the employees of the insurer are involved in the fraud then the insurance company will take very stern action against their employees.
Different varieties of frauds
Based on the party committing the fraud, fraud can be classified as follows:
Insured may provide wrong information at the time of taking the policy, which will be difficult to detect. The insured may insure his vehicle by giving wrong information about the usage of the vehicle. The vehicle may be used for commercial purposes but for the insurance purpose the insured may declare that the vehicle is being used for private purposes. This will give him a lower rate thereby causing a loss to the insurance company. In case of information related to the driver, wrong information may be given to get a good rate. On the claims side, the insured with the collision of garage, lawyers, hospitals, police may lodge fictitious claims and benefit from the insurance policy.
Keep in mind, however, that if you are caught lying or giving incomplete information to get lower insurance rates, the consequences are likely to be catastrophic. Your insurer may end up canceling your policy and, of course, say goodbye to cheap car insurance with no deposit plans.
The Garages also will be responsible for committing the fraud. They may do so by inflating the bills of labor and parts, they may be billing for the parts, which are purchased but not fixed to the vehicle. They may also buy new original parts and replace the same with duplicate or second-hand parts. The duplicate parts are a fraction of the cost compared to the cost of the original parts.
Insurance company employee’s fraud
Insurance company employees may become a party to the fraud by co-operating with the fraudsters. They may be aware of the fraud but ignore the signs and symptoms of fraud to get the benefit out of it. They will not follow the check and controls laid down by the organization. Insurance companies treat fraud committed by their employees very seriously and may sack the employee if they get proof of their involvement. Despite this, the employees get involved in committing fraud to get easy money.
Agents and brokers fraud
The agents and brokers are also known as intermediaries. They are having knowledge about insurance companies and insurance products. They, because of their knowledge and expertise are capable of committing fraud. They may in their earnestness to help their insured, may get unwittingly involved in committing fraud. There are also cases in which they have committed fraud to get easy money for themselves and their policyholders.
Other stakeholders’ fraud
There are other stakeholders involved in the processing of motor insurance claims and they may also commit fraud like the unscrupulous agents (independent claims settling agents), by manipulating every aspect of the claims process. Their mission is to work for the customer and to make his non-admissible claim become admissible. They may collude with other partners and succeed in committing fraud against the insurance companies.
In some cases, the experienced fraudsters from gangs and involve the insurance company employees, garages, insured, motor loss adjusters, and healthcare service providers to commit fraud. This type of fraud is deliberate and difficult to detect and will cost more to the insurance companies.