A PROJECT

ON
“FRAUDS IN LIFE INSURANCE AND IRDA”
BACHELOR OF COMMERCE
BANKNG & INSURANCE

SEMESTER-VI
ACADEMIC YEAR 2016-17

SUBMITTED BY
RAJVI GALA
SEAT NO: 12

H.R.COLLEGE OF COMMERCE & ECONOMICS

VIDYASAGAR, PRlNCIPAL K.M. KUNDANI CHOWK,123,
‘D.W.’ ROAD, CHURCHGATE, MUMBAI 400020

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 DECLARATION

I MISS. RAJVI GALA Student of B.Com Banking & Insurance

(Semester VI) hereby declare that I have completed this project on

FRAUDS IN LIFE INSURANCE & IRDA

The information submitted is true and original to the best of my knowledge.

Signature of student

RAJVI GALA

ROLL NO 12

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 H.R.COLLEGE OF COMMERCE & ECONOMICS
Vidyasagar Principal K.M. Kundani Chowk, 123

D.W. Road, Churchgate, Mumbai 400020

CERTIFICATE

This is to certify that Miss Rajvi Gala of B.Com (Banking & Insurance)
Semester VI ( 2016-17) has Successfully completed the project on
FRAUDS IN LIFE INSURANCE & IRDA under the guidance of Prof
Tasneem Razmi
________________

Project Guide
(Prof. Tasneem Razmi)

________________

External Examiner :

______________
Signature of Principal

______________________

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 ACKNOWLEDGEMENT

The successful completion of project involved the contribution of time and efforts .The
project would never have been completed without the valuable help extended to us by the
subject teacher and project guide Prof. TASNEEM RAZMI

I would also like to thank all my friends to help me in this project work and giving their
precious time to me.

Last but not the least I would like to thank my parents for making us capable in doing this
project and giving their continuous support and guidance.

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 INDEX

SR TOPIC NAME PG NO
NO
1 SUMMARY 6
2 OBJECTIVES OF INSURANCE 7
3 INTRODUCTION TO INSURANCE 8
4 PRINCIPLES OF INSURANCE 10
5 INTRODUCTION TO INSURANCE FRAUD 13
6 TYPES OF INSURANCE FRAUD 19
7 INSURANCE FRAUD-DETECTION 27

8 INVESTIGATION OF INSURANCE FRAUD 29

9 COMBATTING INSURANCE FRAUD 31
10 MANAGING INSURANCE FRAUD 32
11 INSURANCE FRAUD RESOURCES, CAUTION AND 34
PREVENTION.
12 CASE STUDY 37
13 HISTORY OF IRDA 41

14 ESTABLISHMENT AND INCORPORATION OF AUTHORITY 48

15 SCOPE OF IRDA 49
16 ROLE/DUTIES/FUNCTIONS OF IRDA 50

17 OPERATIONS BY IRDA 52
18 IRDA REGULATION 53
19 OMBUDSMAN 54

20 CONCLUSION 56

21 BIBLIOGRAPHY 58
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 EXECUTIVE SUMMARY

The insurance industry consists of more than 7000 companies that collect over $1 trillion in
premium each year. The massive size of the industry contributes significantly to the cost of
insurance fraud by providing more opportunities and bigger incentives for committing illegal
activities. Insurance fraud is a huge problem which often goes without notice or care. Lots of
people think that insurance fraud is a victimless crime where nobody gets hurt. However it’s not
just wealthy insurance companies getting hurt, it is all drivers which follow the rules and abide
by the laws who are getting penalized with higher and higher insurance rates. Insurance fraud
can come in many different forms. Some deceive insurance carriers into lower insurance rates
while others file fraudulently claims.

Frauds affect the common public in many ways like:-

 People lose their savings

 Health is endangered
 Premium stays high
 Honest businesses lose money
 Innocent people are killed and maimed
 Employees lose their jobs

Insurance Regulatory and Development Authority of India (IRDAI) is an autonomous apex

statutory body which regulates and develops the insurance industry in India. It was constituted
by a Parliament of India act called Insurance Regulatory and Development Authority Act, 1999
and duly passed by the Government of India.

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 OBJECTIVES

 To know more about the insurance sector.

 To study about IRDA.
 To study about the laws and regulations of IRDA.
 To study about the crisis that take place in this sector.
 To investigate and redress these frauds.

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 INTRODUCTION

The insurance industry consists of more than 7,000 companies that collect over $1 trillion in
premiums each year. The massive size of the industry contributes significantly to the cost
of insurance fraud by providing more opportunities and bigger incentives for committing illegal
activities. Insurance fraud is a huge problem which often goes without notice or care. Lots of
people feel insurance fraud is a victim-less crime where nobody gets hurt. However it is not just
wealthy insurance companies getting hurt, it is all drivers which follow the rules and abide by the
laws who are getting penalized with higher and higher insurance rates. Insurance fraud can come
in many different forms. Some deceive insurance carriers into lower insurance rates while others
file fraudulent claims.

People lose their savings. Trusting citizens are bilked out of thousands of dollars, often their
entire life savings, by insurance investment schemes. The elderly are especially vulnerable.

Health is endangered. People's health and lives are endangered by swindlers who sell
nonexistent health policies or perform quack medical care to illegally inflate health insurance
claims.

Premiums stay high. Auto and homeowner insurance prices stay high because insurance
companies must pass the large costs of insurance fraud to policyholders.

Consumer goods cost more. Prices of goods at your department or grocery store keep rising
when businesses pass higher costs of their health and commercial insurance onto customers.

Honest businesses lose money. Businesses lose millions in income annually because fraud
increases their costs for employee health coverage and business insurance.

Innocent people are killed and maimed. People die from insurance schemes such as staged
auto accidents and arson — including children and entire families. People and even animals also
are murdered for life insurance money.

Employees lose jobs. People lose jobs, careers and health coverage when insurance companies go
bankrupt after being looted by fraud thieves.

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 INSURANCE

In one form or another, we all own insurance. Whether it is auto, medical, liability, disability or
life, insurance serves as an excellent risk-management and wealth-preservation tool. Having the
right kind of insurance is a critical component of any good financial plan.

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. "Significant" because if the potential loss
is small, then it doesn't make sense to pay a premium to protect against the loss.

Insurance works by pooling risk. It simply means that a large group of people who want to insure
against a particular loss pay their premiums into 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 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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 PRINCIPLES OF INSURANCE
1. Nature of contract:

Nature of contract is a fundamental principle of insurance contract. An insurance contract comes

into existence when one party makes an offer or proposal of a contract and the other party
accepts the proposal.

A contract should be simple to be a valid contract. The person entering into a contract should
enter with his free consent.

2. Principal of utmost good faith:

Under this insurance contract both the parties should have faith over each other. As a client it is
the duty of the insured to disclose all the facts to the insurance company. Any fraud or
misrepresentation of facts can result into cancellation of the contract.

3. Principle of Insurable interest:

Under this principle of insurance, the insured must have interest in the subject matter of the
insurance. Absence of insurance makes the contract null and void. If there is no insurable
interest, an insurance company will not issue a policy. An insurable interest must exist at the
time of the purchase of the insurance. For example, a creditor has an insurable interest in the life
of a debtor, A person is considered to have an unlimited interest in the life of their spouse etc.

4. Principle of indemnity:
Indemnity means security or compensation against loss or damage. The principle of indemnity is
such principle of insurance stating that an insured may not be compensated by the insurance
company in an amount exceeding the insured’s economic loss. In type of insurance the insured
would be compensation with the amount equivalent to the actual loss and not the amount
exceeding the loss. This is a regulatory principal. This principle is observed more strictly in
property insurance than in life insurance. The purpose of this principle is to set back the insured
to the same financial position that existed before the loss or damage occurred.

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5. Principal of subrogation:
The principle of subrogation enables the insured to claim the amount from the third party
responsible for the loss. It allows the insurer to pursue legal methods to recover the amount of
loss, For example, if you get injured in a road accident, due to reckless driving of a third party,
the insurance company will compensate your loss and will also sue the third party to recover the
money paid as claim.

6. Double insurance:
Double insurance denotes insurance of same subject matter with two different companies or with
the same company under two different policies. Insurance is possible in case of indemnity
contract like fire, marine and property insurance.

Double insurance policy is adopted where the financial position of the insurer is doubtful. The
insured cannot recover more than the actual loss and cannot claim the whole amount from both
the insurers.

7. Principle of proximate cause:

Proximate cause literally means the ‘nearest cause’ or ‘direct cause’. This principle is applicable
when the loss is the result of two or more causes. The proximate cause means; the most dominant
and most effective cause of loss is considered. This principle is applicable when there are series
of causes of damage or loss.

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 PUBLIC INSURANCE

Insurance coverage written by government bodies or operated by private agencies under

government supervision and control. That provides benefits for citizens of a country as part of a
benefits program that is paid for collectively by everyone. Public Sector insurance companies:
1. United India Insurance Comp. Ltd.
2. New India Assurance comp. Ltd.
3. National Insurance Company
4. The Oriental Insurance Company
5. Life Insurance Corporation of India

PRIVATE INSURANCE

Insurance protection provided by non-governmental sources such as private

insurance companies. This can also refer to a policy which is purchased by an
individual directly from the insurer and that is not part of a group or employer-backed policy.
Private Sector insurance companies:

1. Bharti AXA Insurance Company

2. Bajaj Allianz General Insurance Company

3. HDFC ERGO Insurance Company

4. ICICI Lombard

5. IFFCO Tokio

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 INTRODUCTION TO LIFE INSURANCE FRAUD

When someone provides false information to an insurance company in order to gain something
of value that he or she would not have received if the truth had been told‚ they’ve committed
insurance fraud. It is an illegal act on the part of either the buyer or seller of an insurance
contract. Insurance fraud from the issuer (seller) includes selling policies from non-existent
companies, failing to submit premiums and churning policies to create more commissions. Buyer
fraud includes exaggerated claims, falsified medical history, post-dated policies, viatical fraud,
faked death or kidnapping, murder and much more. Insurance fraud occurs when any act is
committed with the intent to fraudulently obtain some benefit or advantage to which they are not
otherwise entitled or someone knowingly denies some benefit that is due and to which someone
is entitled. Most people view insurance as a type of “security blanket” that can protect them
against financial burdens associated with property loss‚ accidents‚ or injuries. Those who
commit insurance fraud undermine the positive aspects of insurance by taking advantage of
opportunities to lie in an attempt to receive undeserved money from their policies. When
dishonest people take money they don’t deserve from insurance companies‚ this act results in
increased policy costs for everyone.

Life insurance fraud is relatively limited in its forms and variants, if only because life insurance
policies are relatively specific in their function. Life insurance policies exist to provide money to
those surviving the policy holder, in the event of his or her death. Life insurance fraud, then, can
only function in so many ways, as the only possible way to collect money on a life insurance
policy is if the holder is officially considered dead by the insurance company issuing the policy.
There are two main types of life insurance fraud, the first of which involves less by way of
criminal charges, and is also theoretically the easier form to investigate. One way to pull off life
insurance fraud is simply to fake the death of the policy holder. Having that person vanish
willingly, while somebody close to him or her then collects on the policy, is a classic life
insurance fraud strategy.
Of course, the flaw in such life insurance fraud schemes is that the person is, in fact, still alive,
and the only way to get the money earned from the life insurance to the person is to make contact
with that person, thereby alerting any fraud investigations that might be looking closely into the
affair. Even putting aside the difficulties of a life insurance fraud scheme in terms of getting the
money to the person who has faked his or her death, the fact remains that the person will still be
in the world. Should he or she ever be discovered, then he or she will be charged with life

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insurance fraud, amongst other possible charges, and will almost undoubtedly be punished
severely for his or her crime.

The other main type of life insurance fraud is significantly more dangerous for all involved
parties, and is significantly more serious. In this version of life insurance fraud, one party,
usually the beneficiary of the policy, will attempt to murder the life insurance policy holder for
the sake of receiving whatever money would come from the policy.

This could be a very plotted out scheme, in which the policy holder does not even necessarily
know that a life insurance policy has been taken out on him, or it could be a more spur of the
moment crime. But either way, this kind of life insurance fraud is much more serious than the
other kind, as it obviously involves criminal murder charges, along with the life insurance fraud.
Fraud investigations may actually subside next to criminal investigations, which would likely
also discover the fraud, along with the murder.
Life insurance fraud is one of the less perpetrated forms of fraud, not least because it is so
difficult. There is no way to perform soft life insurance fraud, which would simply be an
exaggeration of a claim, instead of an outright lie, as the policy holder will either be dead, or
alive. This means that the only kind of life insurance fraud is hard fraud, which generally
indicates a greater amount of planning or criminal intent.
Furthermore, life insurance fraud being so decidedly in the realm of hard fraud indicates that the
people who would likely commit life insurance fraud are the people who would be more likely to
commit any kind of criminal act, in general.

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 CAUSES OF INSURANCE FRAUD
People who normally would not engage in criminal behavior commit insurance fraud because
they:

 Perceive it as a victimless crime perpetrated against a faceless insurance company.

 Hope to make up for premiums they had paid in the past.
 Think many people inflate or falsify insurance claims.
 Believe they will not get caught.
 See it as a quick and easy way to make money.

Another reason that this opportunity arises is in the case of over-insurance, when the amount
insured is greater than the actual value of the property insured. This condition can be very
difficult to avoid, especially since an insurance provider might sometimes encourage it in order
to obtain greater profits. This allows fraudsters to make profits by destroying their property
because the payment they receive from their insurers is of greater value than the property they
destroy.

Insurance companies are also susceptible to fraud because false insurance claims can be made to
appear like ordinary claims. This allows fraudsters to file claims for damages that never
occurred, and so obtain payment with little or no initial cost.

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 FORMS OF LIFE INSURANCE FRAUD:

Life insurance fraud can take extreme forms, such as:

 Faked deaths Schemes are cooked up to collect on the insurance of a person who's still
alive or in some cases never even existed.
 "Double Indemnity" -style plots. In the iconic 1940s movie, Barbara Stanwyck and
insurance man Fred MacMurray plot to kill her husband for a big insurance payout.
Today, a warning sign might be if a spouse or other family member suddenly asks a
person to buy or increase life insurance coverage.

 Pocketed premiums. You get unexplained cancellation notices after your insurance
agent tells you to make out the check for your new life insurance policy to him, not to the
insurance company. You eventually find that you have no policy, and your agent has your
money.
 Upgrade "churning." Your agent convinces you to upgrade to a "better" (and more
expensive) policy. It actually offers nothing more than the first one did, but the agent
collects a nice commission.

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 INTERNAL VS EXTERNAL FRAUD

 Internal fraud is a fraud within the insurance industry itself. It often includes the creation
of a fictitious company to generate insurance premium and issue fraudulent policies. This
is usually performed by professional con-artist, but there are some red flags to protect
customers from being the victim of insurance fraud:

 Follow your instincts, if the deal sounds too good to be true, it probably is. Do not allow
yourself to feel pressure by an agent or a company, if an agent does not directly answers
your question or seems particularly evasive, go elsewhere.

 Be aware of any insurance plan that promises “vanishing” or severely reducing premiums
later in life of the policy.

 Don’t sign any application that have blank areas throughout the text. The fraudulent
agency may later add things that you did not agree to with your signature.

 Save everything that has to do with the policy that you sign, including statements, records
of correspondence etc

 Don’t buy coverage with terms that you don’t understand, or feel pressured into buying
more than you need.

 Never pay premiums in cash, always pay by cheque or money order. Always ask for
receipt for any payment.

 Never buy insurance from unlicensed agent or a company.

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  External fraud is a fraudulent activity by applicants, policyholders or third party
claimants.

For insurance companies, there are set of indicators that arouse suspicious that a consumer or a
beneficiary is trying to deceive a company. Often just one of these indicators would mean little
to the company, but evidence of several can be a severe red flag if fraud is proven, the claim will
be denied and the crime will be reported to the authorities. Insurance fraud is a felony and comes
with strict penalties

Indicators of external insurance fraud includes;

 The death occurred during the policy’s contestable period, or shortly after the policy’s
inception.

 The claimant has several small policies in force.

 Evidence of financial distress directly prior to death.

 Recent changes in coverage, usually in increments that don’t require physical exams, and/
or recent changes in beneficiaries

 Insured was involved in an activity not considered customary for the person when he or
she died.

 The Deceased was not well known by the relatives or lived alone.

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 TYPES OF INSURANCE FRAUD

Insurance fraud can be either “hard fraud” or “soft fraud.

 Hard fraud

Hard fraud refers to a type of fraud committed by criminal organizations with the intention to
defraud an organization. Hard fraud involves criminal activities such as staging a car accident,
injury, arson, loss, break-in, or someone writing false bills to medicare to illegally receive money
from insurance companies. Hard fraud is generally committed with the intention to squeeze
millions of dollars from insurance companies. These thieves often act alone but, increasingly,
large organized crime rings have begun to stage large schemes that steal millions of dollars.
Examples of Hard Fraud include:

Staged Auto Accident: Through planning and coordination with other criminals, one driver
forces another into a collision. Planted witnesses tell police that the victim was at fault.

 Soft fraud

Includes the actions of normally honest persons who have told “little white lies” to their
insurance companies to cover the costs of deductibles or premiums. Soft Fraud is far more
common than Hard Fraud. It typically comes in the form of exaggerations and outright lies told
to pad a payout or reduce premium payments Soft fraud is usually unplanned and arises when the
opportunity presents itself. It is the significantly more prevalent form of fraud. An example of
this type of fraud would be getting into a car accident and claiming the injuries worse than they
really are, getting a bigger settlement than one would get if the truth was being told about the
injuries. Many people view this as harmless number fudging, but soft fraud is a crime and helps
raise everyone’s insurance costs.

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Overall, insurance fraud comes in many varieties. Just as there are many different types of
insurance, someone has attempted or found methods for defrauding each for profit.

 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. 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 bottom line.
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:

 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

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 beneficial to the client. This type of insurance fraud often targets seniors and is driven by
the agent's desire for larger commissions.
 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.

 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 lives for a financial gain

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 is a perversion of the system. This includes non-insurable interest combined 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

 Example

An example of life insurance fraud is the John Darwin disappearance case an ongoing
investigation into the faked death of British former teacher and prison officer John Drawin who
turned up alive in December 2007,five years after he was thought to have died in a canoeing
accident. Darwin was reported as “missing” after failing to report to work following a canoeing
trip on March 21, 2002. He reappeared on December 1, 2007, claiming to have no memory of the
past five years.

 Automobile Fraud
One type of automobile fraud is the “caused” accident. Caused accidents are cases where
there were real injuries or damages to property, but they were not caused by an accident
at all. Rather, they were the result of intentional acts to collect for bodily injuries or
property damages from their own policies or from others’ liability insurance. In the case
of a staged accident, there are often no real injuries or damages because the accidents are
farces enacted to collect money.

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  Example

Examples of soft auto-insurance fraud can include filing more than one claim for a single injury,
filing claims for injuries not related to an automobile accident, misreporting wage losses due to
injuries or reporting higher costs for car repairs than those that were actually paid. Hard auto-
insurance fraud can include activities such as staging automobile collisions, filling claims when
the claimant was not actually involved in the accident, submitting claims for medical treatments
that were not received or inventing injuries. Another example is that a person may illegally
register their car to a location that would net them cheaper insurance rates than where they
actually live, sometimes called “rate evasion”. Another form of automobile insurance fraud,
known as “fronting”, involves registering someone other than the real primary driver of car as
the primary driver of the car. For example, parents might list themselves as the primary driver of
their children’s vehicles to avoid young driver premiums. Hard fraud can also occur when
claimants falsely report their vehicle as stolen. Soft fraud accounts for the majority of fraudulent
auto-insurance claims.

 Arson Fraud (property insurance)

Arson fraud is the willful and malicious burning of property of value for profit derived from
subsequent insurance claims. The end result is that the owner is issued the replacement value of
the real estate or associated property from the insurance company.

 Workers Compensation Fraud

Workers’ compensation fraud is the deliberate, material misrepresentation of facts regarding a

work-related injury or the exaggeration of the extent of a minor injury to collect workers’
compensation benefits. In actuality, these employees are often quite healthy and are caught
working a second job or performing activities beyond what their claimed injury would allow in
order to generate additional income.

 Health-Care Fraud
 Certainly, only a small percentage of health care providers and consumers deliberately
engage in health care fraud. However, even a small amount of health care fraud can raise

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 the cost of health care benefits for everyone. Health care fraud is a crime. It's committed
when a dishonest provider or consumer intentionally submits, or causes someone else to
submit, false or misleading information for use in determining the amount of health care
benefits payable. Health care providers can commit fraudulent acts by:
 billing for services‚ procedures and/or supplies that were never rendered
 charging for more expensive services than those actually provided
 performing unnecessary services for the purpose of financial gain
 misrepresenting non–covered treatments as a medical necessity
 falsifying a patient’s diagnosis to justify tests‚ surgeries‚ or other procedures
 billing each step of a single procedure as if it were a separate procedure
 charging a patient more than the co–pay agreed to under the insurer’s terms
 paying “kickbacks” for referral of motor vehicle accident victims for treatment

 Example

According to Roger Feldman Blue Cross Professor of Health Insurance at the University of
Minnesota, one of the main reasons that medical fraud is such a prevalent practice is that nearly
all of the parties involved find it favorable in some way. Many physicians see it as necessary to
provide quality care for their patients. Many patients although disapproving of the idea of the
fraud are sometimes more willing to accept it when it affects their own medical care. Program
administrators are often lenient on the issue of insurance fraud as they want to maximize the
services of their providers.

The most common perpetrators of healthcare insurance fraud are health care providers one
reason for this, according to David Hyman, a Professor at University of Maryland School of
Law, is that the historically prevailing attitude in the medical profession is one of “fidelity to
patients”. This incentive can lead to fraudulent practices such as billing insurers for treatments
that are not covered by the patient’s insurance policy. To do this, physicians often bill for a
different service, which is covered by the policy than that which was rendered.

Another motivation for insurance fraud in the healthcare industry, just as in all other types of
insurance fraud, is a desire for financial gain. Public healthcare programs such as Medicare and
Medicaid are especially conductive to fraudulent activities, as they are often run on a fee-for-

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service structure. Physicians use several fraudulent techniques to achieve this end. These can
include “up-coding” or “upgrading”, which involve billing for more expensive treatments than
those actually provided; providing and subsequently billing for treatments that are not medically
necessary; scheduling extra visits for patients; referring patients to another physician when no
further treatment is actually necessary; “phantom billing”, or billing for services not rendered;
and “ganging”, or billing for services to family members or other individuals who are
accompanying the patient but who did not personally receive any services.

 Homeowners’ fraud

This type of fraud takes place when someone knowingly submits an inflated claim on their
homeowners or renters policy for more than the actual value of the loss or damage. Submitting a
false or misleading claim to receive undeserved compensation is also considered homeowners
fraud.

 Pet insurance fraud

Pet insurance pays, partly or in total, for veterinary treatment of the insured person’s ill or
injured pet. Some policies will pay out when the pet dies,or if it is lost or stolen.

As veterinary is increasingly employing expensive medical techniques and drugs, and owners
have higher expectations for their pets’ health care and standard of living than previously, the
market for pet insurance has increased.

Nothing, it seems, is immune to the impact of the economic slowdown: jobs, homes, businesses
– now even the family pet. Cats, dogs and horses are facing deliberate injury – or even paying
the ultimate price – as owners seek payouts from pet insurance policies.

Fake claims on pet policies, which range from injuries inflicted by owners to claims related to
non-existent pets, are now the fastest growing area of insurance fraud. Figures from the
Association of British Insurers show that detected pet insurance fraud is rising rapidly. But the
true extent of the fraud, counting all the false claims paid out, is thought to be much higher and is
pushing up the cost of policies.

25
"The recession is quite an obvious catalyst for people to commit insurance fraud," said specialist
insurance lawyer Claire Laver.

The bulk of the fraudulent claims come from exaggerated veterinary bills, or from claims for
illnesses or injuries animals had before owners took out their policies. Other "owners" simply
invent pets, take out an insurance policy, and then slap in a claim.

Insurance lawyers have also seen cases, usually involving pedigree dogs and show horses, where
owners have deliberately maimed or even killed an animal and disguised the incident as an
accident to bank a big payout.

 Kidnap and ransom insurance frauds

One of the known paradoxes of K&R policies is that those who have them are often not aware,
as it can be provided by an employer hoping to protect the company's assets. It is believed that an
employee with knowledge of his K&R policy might begin to act differently, or even collude in
his own kidnap for fraudulent purposes. Criminal gangs are believed to make $500 million a year
from kidnap and ransom payments.

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 INSURANCE FRAUD-DETECTION

It is impossible to predict future trends in fraudulent activities. Fraudsters continually become

more inventive and resourceful – and evasive. Push hard in one area, and they will shift their
focus somewhere else. Change thresholds and models, and they will soon discover the new limits
and skirt around them .Insurers have the means to become more inventive and resourceful, too.
By using a combination of approaches – and by exploiting the advantages of analytic-based
techniques – they have more opportunity than ever to recognize fraud and stop it before it occurs.

 Analysis
A method of detecting fraudulent claims and scams is through analysis of the claim
compared to others. Claims for certain groups of insured risks tend to fall within a range.
Any claims that are on the high side of the average are turned over to insurance
investigators for further review and analysis. If a claim seems particularly high, the
insurance company may require extra proof of loss or may inspect the situation in person.
There are two main types of statistical analysis tools used: supervised and unsupervised.
In both cases, suspicious claims are identified by comparing data about the claim to
expected values. The main difference between the two methods is how the expected
values are derived.

 Claims
Examination of a client's history of making claims against an insurance policy can shed
light on potentially fraudulent activity. Many insurance companies only allow a certain
number of claims before the coverage is terminated, in order to protect the company
against risk. If a client has filed claims for losses incurred in three home thefts in the past
year, for example, the insurance company will examine the details surrounding the
claims, and confer with police officers to determine whether the client is inflating the
theft claims or even inventing the entire incident.
 Surveillance
Insurance companies can also monitor clients directly. This is most common with health

27
 or disability insurance claims, where the client is claiming injuries that prevent them from
working. The client usually fills out a questionnaire when applying for benefits that asks
to document daily activities that they can perform after the illness or accident. The
insurance company will review the video surveillance tapes and compare them to the
questionnaire. If it appears that the client has more mobility than the application would
suggest, payouts will cease.

Fraud Target: Senior Citizens

Senior Citizens especially should be aware of fraud schemes for the following reasons:
 Senior citizens are most likely to accumulate savings over the years and are likely to own
their home, and/or to have excellent credit. They often are in a stable financial position. This
attracts con artists who whip up new schemes and fake health products or insurances to scam
the savings of the elderly.

 People who grew up in the 1930s, 1940s, and 1950s were generally raised to be polite and
trusting. Con artists exploit these traits, knowing that it is difficult or impossible for these
individuals to say “no” or just hang up the telephone.

 Older people are less likely to report a fraud because they don’t know who to report it to, are
too ashamed at having been scammed, or don’t know they have been scammed. Elderly
victims may not report crimes, for example, because they are concerned that relatives may
think the victims no longer have the mental capacity to take care of their own financial
affairs.

 When an elderly victim does report the crime, they often make poor witnesses. Con artists
know the effects of age on memory, and they are counting on elderly victims not being able
to supply enough detailed information to investigators. In addition, the victims’ realization
that they have been swindled may take weeks—or more likely, months—after contact with
the fraudster. This extended time frame makes it even more difficult to remember details
from the events.

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 INVESTIGATION OF INSURANCE FRAUD

Insurance fraud is a growing situation that is occurring across the country. In addition to being
harmful for insurance companies, which may lose money paying out on fraudulent claims,
insurance fraud also hurts everyone who buys insurance, because premiums must be higher to
compensate for fraud. Insurance fraud investigation is a vital service that is conducted to detect
and determine if fraud is taking place. Fraud costs the insurance industry billions of dollars each
year, so there is an increased demand for insurance fraud investigations to help prevent
fraudulent payments. It can also involve the government, as in a case where someone profits
from insurance fraud and files fraudulent tax documents, or when someone sets a fire which
requires the fire department to respond, wasting public resources. The investigation may be done
by a specialized insurance investigator who works for the insurance company or a private
consulting firm. Like investigations in law enforcement, the goal of an insurance fraud
investigation is to determine what happened, whether or not it was legal, and who was
responsible.

CAUSES OF INSURANCE FRAUD INVESTIGATION

Suspected cases of insurance fraud are normally investigated to find whether the claim is
fraudulent or not. The need for insurance fraud investigations is often triggered when an
insurance adjuster feel that a case they are evaluating seems suspicious, lacks key information, or
is outright fraudulent and feels that the information being supplied is suspect. The insurance
company then alerts the police that an insurance fraud investigation is taking place and the
investigation begins. During the process of the insurance fraud investigation, the claimant’s
credit, and background will be checked. They will also undergo surveillance and information and
evidence will be collected from the scene of the accident. Through this type of thorough
investigation, fraudulent activity is often discovered and brought to light.

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 INVESTIGATION PROCESS
Investigators work with insurance companies and employers to help them find the truth when it
comes to insurance investigations. Insurance fraud investigations provide the clients with a
valuable service that saves the insurance companies millions of dollars in fraudulent claims.
Once they find fraudulent activity, the claims are no longer paid and prosecution takes place
through law enforcement.

Not only are they helping the clients with their insurance fraud investigations, but they are also
helping citizens all over the country. It has been proven that insurance fraud costs consumers
more, in the end, for their own insurance policies. Fraudulent claims total around 10% of those
filed, creating a massive headache for insurance companies.

According to the National Crime Insurance Bureau, fraudulent insurance claims not only raise
insurance premiums, but they also raise the taxes. Insurance fraud investigators are standing up
to insurance fraud and making a difference in the lives of the clients.

Some examples of insurance fraud investigation involve investigations into paperwork or claims
which are suspected to be fake, investigations into staged accidents, and investigations which are
designed to uncover collusion or lies

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 COMBATTING INSURANCE FRAUDS

Insurance companies are armed with powerful tools like big data and predictive analytics today
that allow them to create a clearer picture of questionable behaviors whereas they were following
paper trails and operating blindly before. This means they can more easily zero in on fraud
indicators and reveal patterns and habits to either stop a fraud before it can occur or prevent
future frauds from occurring from that same individual(s) or company. Additionally, analytics
models analyze transactional and relationship data to allow insurers the ability to uncover
formerly unknown types of fraud, ongoing fraud schemes, and discover entire fraud networks.

Some measures that could help in effective fraud management are

 Stricter underwriting and claim procedures enforcing proper documented systems and
stronger internal check and balances.

 Severe action against the fraudsters be it internal or external their action should not
restrict itself at either repudiating the policy in case of a customer or serving ties with
external parties.

 Regular internal audit procedures and inspections to keep a tab.

 Stricter legislations to deal with the fraudster to curb the trend and instill a sense of fear
amongst the perpetrators of crime.

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 HOW TO MANAGE FRAUDS IN INSURANCE?

Keeping in mind that the risk of fraud is not only external, but also internal to the company, the
following are the ways in which fraud risk can be managed

Externally managing the risk

 Periodically review controls that mitigate key fraud risks and monitor vulnerable areas.

 Identify anomalies and process level deficiencies using independent business intelligence
and fraud scenario based analytics.

 Implement a sound whistle blower mechanism to provide a venue for communicating

fraudulent activities

 Develop and create efficient communication and reporting channels to escalate issues on
a timely basis.

 Carry out continuous monitoring of third parties including due diligence and background
checks.

Internally managing the risk

 Develop a culture of honesty and ethics.

 Enhance your code of conduct and other policies that govern and set the framework of
ethics within the company

 Train employees-communicate a zero tolerance environment to fraud

Implement of a comprehensive fraud risk governance framework.

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 INSURANCE FRAUD- RESOURCES:

To report about Insurance fraud, contact the following organizations.

Fraud Bureaus
Check to see if your state sponsors a fraud bureau that investigates insurance fraud—most states
do. You may even be eligible for a reward if you report a scam.

Insurance Companies
Go directly to the insurer you think is being defrauded. Some companies have systems in place
for reporting fraud. If the company doesn’t have a reporting system or fraud hotline, call or write
the company headquarters.

National Insurance Crime Bureau (NICB)

The NICB is a non-profit organization that partners with insurance companies and law
enforcement to help identify, detect, and prosecute insurance criminals. The NICB web site is an
excellent source of information.

Coalition Against Insurance Fraud (CAIF)

The CAIF is a national alliance of consumer groups, public interest organizations, government
agencies, and insurers dedicated to preventing insurance fraud. The CAIF website offers a wealth
of information for consumers.

National Association of Insurance Commissioners (NAIC)

The NAIC assists state insurance regulators in serving the public interest and achieving
regulatory goals. You can find numerous fraud resources on the NAIC website.

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 CAUTIONS:

Insurance fraud is a crime, and the Virginia State Police Insurance Fraud Program is working to
stamp it out. Here’s how you can help:

 Be aware of staged accidents, such as intentional sideswiping or cars that cut in front of
other vehicles, forcing collisions due to quick stops.

 Be aware of individuals that try to get you to leave the scene of an accident without calling
police or obtaining a police report.

 Be aware of individuals that claim no previous injuries or continue unnecessary medical

treatment which inflates medical benefits.

 Be aware of fraud rings that specialize in "slip and fall" schemes with fake injuries and
faked claims.

 Be aware of individuals reporting fake burglary or theft claims.

 Be aware that some individuals report damage as vandalism in an attempt to cover

deliberate or previous damage to one’s own property.

 Be aware of individuals making a false stolen vehicle claim to cover previous damage to a
vehicle or to dispose of the vehicle.

 Be aware of individuals that fake an on-the-job injury or stay off work after healing to
collect Workers’ Compensation benefits.

 Be aware of the possibility that someone may set a small fire in their home to obtain a new
paint or remodeling job.

 Be aware that individuals may change a genuine claim to inflate the loss to recover past
premiums.

 Be aware of individuals that inflate genuine claims to cover a policy deductible.

 Be aware of attempts to convince you that "everybody is getting rich" so you may as well
try to get additional money also.

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 PREVENTION:

Fraud bursting units:

Most insurers have made fighting fraud a priority, more than anti-fraud spending in recent years.
Most insurers have created special fraud-bursting units, often staffed by former detectives and
police officers.

Educate consumers

Many insurers actively educate consumers how to detect and protect against fraud, and often
sponsor active fraud hotlines so people can phone in tips.

Train employees

Most insures train employees and alert insurance agents to spot fraud.

Track down cheaters

Insurers also sponsor the National Insurance Crime Bureau(NICB). The NICB is increasing the
number of fraud convictions by gathering detailed data about the suspected fraud crimes, and
referring them for prosecution. The NICB also runs the national consumer fraud hotline.

More fraud bureaus

State insurance regulators have created 37 fraud bureaus in 45 states, whose job is to investigate
and hunt down fraud.

Closer scrutinity of companies

State regulators have created a model law that makes it harder for con artists to set up fake
insurance companies. Many states are also scrutinizing insurance company finances and market
practices more closely.

Tougher scrutinity laws

Increased crackdowns in the 1990s uncovered far more insurance fraud than anyone realized
existed. To give prosecutors better legal tools to convict crooks, the Coalition against Insurance
Fraud developed a tough model state fraud law. Some 15 states have adopted or strengthened
their insurance fraud laws based one coaliton’s model.
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 PENALTIES:
Insurance fraud can generally be divided into two categories, known in the industry as “soft
fraud” and “hard fraud.”

 Soft fraud occurs when a person exaggerates an existing claim, such as overstating the
damages caused by a car accident. Soft fraud is usually considered a misdemeanor,
punishable by fines, jail time of up to one year, community service, and probation.

 Hard fraud, on the other hand, occurs when a person either causes or fabricates a loss for
the deliberate purpose of obtaining insurance payments. Hard fraud is almost considered
a felony, punishable by strict penalties including the possibility of incarceration in state
prison for a number of years.
The penalties for insurance fraud vary widely depending on the state where the prosecution
occurred, the amount of money fraudulently sought or obtained, and the criminal history of the
defendant.

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 CASE STUDIES:
 Two elderly women Helen Golay and Olga Rutterschmidt have recently been convicted

of conspiracy to commit murder. In addition to the conspiracy charges Golay was

convicted on the actual murder charges as well. Prosecutors allege that the women

selected their two victims from the homeless population of Hollywood. The women put

the two men up in apartments and then took out several insurance policies on the men,

naming the two women as beneficiaries. It is then alleged that the two women arranged

for the two men to be killed in hit and run accidents, collecting over $2 million in

insurance money. A key witness in the case was another homeless man who said that the

two offered him benefits, a place to stay, and money, however the man grew suspicious

and left when he was pressured by Golay and Rutterschmidt for personal information and

to sign documents.

 Ronald Evano was sentenced to more than 5 years in prison and was ordered to pay

$340,000 in restitutions for his role in a fraud scheme in which he and his wife Mary

Evano would purposely eat glass in order to defraud restaurants, grocery stores, insurers,

hospitals and doctors. The couple would claim that the glass was in food they had eaten

at restaurants and grocery stores. The couple would then collect payments from insurance

companies to pay their hospital bills, however instead of paying the bills they would

pocket the money

 Isaac Aguigui
In 2014, 22-year-old Army soldier Pvt. Isaac Aguigui was convicted by a military
judge of the murder of his pregnant wife, Sgt. Deirdre Aguigui, and her unborn
child. Aguigui collected $400,000 in life insurance benefits from the death of his
wife, and another $100,000 for funeral costs provided by the U.S. Army.

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 What makes this story extra frightening is that Aguigui allegedly planned to use
the insurance payout to fund a terrorist group comprised of himself and a few
other soldiers. The terrorist organization, known as FEAR (Forever Enduring,
Always Ready) was allegedly plotting, among other things, to bomb a public park,
poison apple crops in Washington State, and even assassinate the president. At the
time of his conviction, Aguigui was already serving a life sentence for the murder
of two people who had allegedly discovered the group’s plans.

 Julia Merfeld
21-year-old Julia Merfield of Muskegon, Michigan is currently serving a 5-20 year
prison sentence for soliciting the murder of her husband in 2013.

 Merfield, looking to cash in on her husband’s $400,000 life insurance policy,

approached a coworker about helping her pull off the murder. The coworker
immediately notified police, and then arranged a meeting between Merfield and a
friend of his that he said would be willing to kill her husband. The coworker’s
friend was actually an undercover detective who secretly filmed two conversations
in which Merfield explicitly describes how, where and when she wants the murder
to take place. Luckily, in this case, police were able to intervene before anyone
was hurt or killed.

 Molly and Clayton Daniels

Molly Clayton lost her husband in a fatal car accident in 2004. At least, that’ s
what she told the police. What actually happened was much more bizarre.

 In an attempt to fake her husband’s death and collect on his $110,000 life
insurance policy, Molly convinced Clayton to dig up a body from a local cemetery,
dress it in his clothes and then stage his own fiery death. And that’s exactly what
he did. However, police noticed right away that the circumstances surrounding the
accident seemed a bit suspicious. There were no skid marks leading up to the site
of the accident, and the fire was determined to have started in the front seat, rather
than the engine of the vehicle.

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 The scheme completely fell apart when DNA testing revealed that the burned body
found in the driver’s seat was actually that of a woman. Police later found that
Molly had also forged documents in an attempt to create a new identity for her
husband, including a fake birth certificate and driver’s license. She had even
introduced her two children to a new “boyfriend” Jake Gregg, who was actually
just Clayton with dyed black hair.

 Pastor Kevin Pushia

In 2010, Former Pastor and founder of a small Baltimore, MD church, Kevin
Pushia, was convicted of the murder of Lemuel Wallace, a blind, developmentally
disabled man associated at Pushia’s nonprofit organization. Pushia confessed to
having hired two men to pick Wallace up from his group home and shoot him in a
nearby park bathroom.

 Pushia was found out when the insurance company noticed he was listed on
Wallace’s $400,000 life insurance plan. He had apparently posed as Wallace’s
brother to get his name added to the policy.

 The two men accused of committing the act were eventually acquitted and Pushia
is now serving a life sentence for ordering the murder, with an another 45 years
added on for the additional charge of insurance fraud.

 The Eventual Death of “Iron” Mike Malloy

Probably one of the most infamous (and bizarre) cases of insurance fraud is that of
the murder (after 5 attempts!) of Michael Malloy in 1933. After Malloy, a
homeless man and severe alcoholic, had upset the owner of his favorite speakeasy
(by frequently passing out face down on the bar) the owner and 5 friends hatched a
little scheme.

 Their plan was to take out a life insurance policy on Malloy and then get him to
drink himself to death so they could split the payout. But when he failed to die
from alcohol poisoning, they realized they’d have to change their approach. They
poisoned him with antifreeze, turpentine, rotten food, even rat poison, and he just
kept on waking up. One night, they waited for him to pas s out at the bar, dragged

39
 him outside in sub-zero temperatures, poured freezing water on his bare chest and
dumped him in the snow thinking he would surely freeze to death. Nope, Malloy
just strolled into the bar the next day thinking he had simply gotten too drunk the
night before and passed out in the park.

 The 5 conspirators, dubbed ‘The Murder Trust’ by the New York media,
eventually did kill Malloy via carbon monoxide poisoning. All five were soon
caught and sent to prison where four of them were executed in the electric chair.

 The Silver Lining

Fortunately, life insurance companies are meticulous when it comes to paying out
benefits and the research involved in processing a claim has led to more than a few
convictions of fraudsters, murderers and would-be murders looking to benefit from
someone else’s death. So while these crimes are
gruesome, tragic and downright terrifying, we can all rest a little easier knowing
that most of the time, justice is eventually done.

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IRDA- INSURANCE REGULATORY AND DEVELOPMENT
AUTHORITY:

The IRDA Act, 1999 was passed as per the major recommendation of the Malhotra
Committee report (7 jan,1994) which recommended establishment of an independent regulatory
authority for insurance sector in India. Later, It was incorporated as a statutory body in April,
2000. The IRDA Act, 1999 also allows private players to enter the insurance sector in India
besides a maximum foreign equity of 26 per cent in a private insurance company having
operations in India. The Insurance Bill proposes to raise the FDI limit in insurance sector to 49%.
Proposed by UPA government in July 2013, it is still pending discussion in Rajya Sabha. It
serves as an Authority to protect the interests of holders of insurance policies, to regulate,
promote and ensure orderly growth of the insurance industry and for matters connected
therewith. IRDA role is to protect rights of policy holders & they provide registration
certification to life insurance companies & responsible for renewal, modification, cancellation &
suspension of this registered certificate.

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MALHOTRA RECOMMENDATION

R.N. Malhotra former RBI Governor.

A Committee was set up in 1993 under the chairmanship of R.N. Malhotra, former Governor of
the Reserve Bank of India, to make recommendations for reforms in the insurance sector. The
Malhotra Committee recommended introduction of a concept of “professionalization” in the
insurance sector to make out a strong case for paving the way for foreign capital.

In its report submitted in 1994, the committee recommended, among other things, that:

Private players be included in the insurance sector.

Foreign companies be allowed to enter the insurance sector, preferably through joint ventures
with Indian partners.

The Insurance Regulatory and Development Authority (IRDA) be constituted as an autonomous

body to regulate and develop the insurance sector.

The key objectives of the IRDA would include promotion of competition so as to enhance
customer satisfaction through increased consumer choice and lower premiums while ensuring the
financial security of the insurance market.

42
Brokers representing the customer be brought in as another marketing and distribution channel, a
practice prevalent in most developed markets

Raise the level of professional standards in risk management and underwriting and speed up
settlement of claims.

Following the recommendations, the IRDA was constituted as an autonomous body in 1999 and
incorporated as a statutory body in April 2000. With the coming into force of the IRDA Act,
1999, the insurance industry was opened up to the private sector.

43
 Birth of IRDA

 Insurance Regulatory and Development Authority (IRDA) set up as autonomous body

under the IRDA Act, 1999
 IRDA’s Mission: To protect the interests of policyholders, to regulate, promote and
ensure orderly growth of the insurance industry and for matters connected therewith or
incidental thereto.

COMPOSITION OF AUTHORITY

As per the section 4 of IRDA Act 1999, Insurance Regulatory and Development Authority
(IRDA, which was constituted by an act of parliament) specify the composition of Authority.
IRDA is a ten member body consisting of:

 A Chairman,
 Five whole-time members,
 Four part-time members,

All members are appointed by the Government of India.

44
 BACKGROUND:

 1991: Government of India begins the economic reforms programme and financial sector
reforms
 1993: Committee on Reforms in the Insurance Sector, headed by Mr. R. N. Malhotra,
(Retired Governor, Reserve Bank of India) set up to recommend reforms.
 1994: The Malhotra Committee recommends certain reforms having studied the sector
and hearing out the stakeholders
 Some recommended reforms
o Private sector companies should be allowed to promote insurance companies
o Foreign promoters should also be allowed
o Government to vest its regulatory powers on an independent regulatory body
answerable to Parliament.

IRDA’S ACTIVITIES:

The main activities of IRDA can be grouped into the categories as enlisted below:
a) General
b) Intermediaries
c) Acturial
d) Administration & Operations
e) Financial Analysis
f) Analytical Research

45
46
 IRDA’S MISSION:

Insurance Regulatory and Development Authority (IRDA) Act, 1999 spells out the Mission of
IRDA as:

 To protect the interest of and secure fair treatment to policyholders.

 To bring about speedy and orderly growth of the insurance industry for the benefit of the
common man and to provide long term funds for accelerating growth of the economy.
 To set, promote, monitor and enforce high standards of integrity, financial soundness, fair
dealing in competence of those it regulates.
 To ensure speedy settlement of genuine claims, to prevent insurance frauds and other
malpractices and put in place effective grievance redressal machinery.
 To promote fairness, transparency and orderly conduct in financial markets dealing with
the insurance and build a reliable management information system.
 To enforce high standards of financial soundness of market players.
 To take action where such standards are inadequate or ineffectively enforced.
To bring about optimum amount of self regulation in day-to-day working of the industry
consistent with the requirements of prudential regulations.

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ESTABLISHMENT AND INCORPORATION OF AUTHORITY:

1. With effect from such date as the Central Government may, by notification, appoint, there
shall be established, for the purposes of this Act, an Authority to be called "the Insurance
Regulatory and Development Authority".

2. The Authority shall be a body corporate by the name aforesaid having perpetual succession
and a common seal with power, subject to the provisions of this Act, to acquire, hold and
dispose of property, both movable and immovable, and to contract ad shall, by the said name,
sue or be sued.

3. The head office of the authority shall be at such place as the Central Government may decide
from time to time.

4. The Authority may establish offices at other places in India.

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 SCOPE OF INSURANCE REGULATORY AND DEVELOPMENT
AUTHORITY:

The Insurance Regulatory and Development Authority has been authorized to register the new
insurance companies in India. The list of new insurance companies also includes the
collaborations of the renowned insurance companies overseas with the existing Indian
companies. The insurance companies in India are required to approach the Insurance Regulatory
and Development Authority for the purpose of renewal of the insurance registration. The
Insurance Regulatory and Development Authority are allowed to withdraw registration of the
companies and even cancel the registration of a company if required. It is also authorized to
modify the registration procedure for a company.

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 ROLE, DUTIES AND FUNCTIONS OF THE INSURANCE REGULATORY
AND DEVELOPMENT AUTHORITY (IRDA)

The Insurance Regulatory and Development Authority (IRDA) was constituted to regulate and
develop p insurance business in India. As a key part of its role, it is responsible to protect the
rights of policyholders. In order to create awareness about IRDA, it's role, duties and
responsibilities are stated here under:
 IRDA provides a certificate of registration to a life insurance company.
 IRDA is responsible for the renewal, modification, withdrawal, suspension or cancellation of this
certificate of registration.
 IRDA frames regulations on protection of policyholders' interests.
 It offers policyholders the right to voice their complaints against insurers or insurance
companies.
 The IRDA has set up the grievance redressal cell to take up the complaints of the policyholder.
 It specifies the requisite qualifications, code of conduct and practical training for intermediaries
or insurance intermediaries and agents.
 It specifies the code of conduct for surveyors and loss assessors;
 It promotes efficiency in the conduct of insurance businesses;
 It promotes and regulates activity of professional organisations connected with life insurance;
 It levies fees and other charges to carry out the purposes of the IRDA Act;
 It can call for information from, undertake the inspection of, conduct enquiries and investigations
including the auditing of insurers, intermediaries, insurance intermediaries and other
organisations connected with the business of life insurance;
 It specifies the form and manner in which books of account should be maintained and statements
of accounts should be rendered by insurers and other insurance intermediaries;
 It regulates the investment of funds by insurance companies;
 It regulates the maintenance of margins of solvency;
 It adjudicates disputes between insurers and intermediaries or insurance intermediaries;
 It specifies the percentage of premium income of the insurer to finance schemes for the
promotion and regulation of certain specified professional organisations;

50
 It specifies the percentage of life insurance business to be undertaken by an insurer in the rural
or social sector; and
 It exercises any other powers as may be prescribed.

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 OPERATIONS OF IRDA:
 IRDA has developed its internal parameters to assess the promoters’
credentials. The promoters’ long term commitment to stay in the market, their ability
to bringing new techniques in insurance underwriting and administration are some of
the parameters. Subsequent to this preliminary assessment, IRDA conducts an in depth
assessment of the business plans submitted by the promoter.
 All insurance intermediaries, such as agents and corporate agents, have to
undergo compulsory training prior to their obtaining a license, IRDA also specified the
minimum educational qualifications for these intermediaries. IRDA conducts
examinations and then issues licenses to these agents. IRDA believes that well trained
and informed intermediaries can service the consumers better.
 The Insurance Association and Life Insurance and General Insurance Council
shave been revived and they are responsible for setting the norms for market conduct,
ethical behaviour of the insurers, and breach of regulations. Continuous straining has
been stipulated to enhance the efficiency of the intermediaries. New players have set up
call centers which are functioning on 24/7 basis.
 IRDA has recognized the Actuarial Society of India and insurance Institute
of India as nodal organization responsible for actuarial and insurance education. IRDA
has drafted separate bills of the Actuarial society of India and the Institute of Surveyors
and loss Assessors in order to grant them statutory status.
 IRDA has also entered into MOU with the Indian Institute of Management,
Bangalore, to further its objective of insurance research and education. It has setup a risk
management resource c entre in Bangalore.
 IRDA has come out with the Insurance Advertisement and Disclosure
Regulations to ensure that the insurance companies adhere to fair trade practices and
transparent disclosure norms while addressing the policy holders or the prospects.

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 IRDA REGULATIONS:

The following Regulations have been notified in the Gazette of India:

1) Appointed Actuary
2) Actuarial Report and Abstract
3) Assets, Liabilities, and Solvency Margin of Insurers
4) Licensing of Insurance Agents
5) General Insurance - Reinsurance
6) Registration of Indian Insurance Companies
7) Insurance Advertisement and Disclosure
8) Obligations of Insurers to Rural Social Sectors
9) The IRDA (Meetings)
10) The Insurance Advisory Committee (Meetings)
11) Investments (Life and General)
12) Statements of Accounts in a zipped file
13) The IRDA (Staff)
14) Surveyors and Loss Assessors
15) Reinsurance – Life
16) Modified Investment Regulations
17) Third Party Administrators
18) IRDA (Preparation of financial statements and auditor's report of insurance Companies)
Regulations, 2002
19) IRDA (Protection of Policyholders' Interests) Regulations, 2002
20) IRDA (Insurance Brokers) Regulations, 2002
21)IRDA(Licensing of Corporate Agents Corporate Agents) Regulations, 2012
22) IRDA (Manner of Receipt of Premium ) Regulations, 2002
23) IRDA (Obligations of Insurers to Rural Social Sectors) Regulations, 2002
24) IRDA (Distribution of Surplus) Regulations, 2002
25) IRDA (Micro-Insurance) Regulations, 2005
26) Report of the KPN Committee on Provisions of the Insurance Act, 1938
27) IRDA Act, 1999
28) Notification on reconstitution of the Insurance Advisory Committee

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 OMBUDSMAN
Ombudsman is an official appointed to investigate individuals' complaints against a company or
organization, especially a public authority.

The institution of insurance ombudsman was created by a government of India notification dated
11th November,1998 with the purpose of quick disposal of grievances of the insured customers
and to mitigate their problems involved in redressal of those grievances. This institution is of
great importance and relevance for the protection of interest of policies holder and also in
building their confidence in the system. The institution

Has helped to generate and sustain the faith and confidence among the consumers and insurers.

ELIGIBILITY

Ombudsman are drawn from insurance industry, civil services and judicial services.

TERMS OF OFFICE

An insurance ombudsman is appointed for a term of three years or till the encumbent attains the
age of 65 years, whichever is earlier, re-appointed is not permitted.

OFFICE MANAGEMENT

The ombudsman has a secretarial staff provided to him by the insurance council to assist him in
discharging his duties. The total expenses on ombudsman and his staff are incurred by the
insurance companies who are members of the insurance council in such proportion as may be
decided by the governing body.

REMOVAL FROM OFFICE

An ombudsman may be removed from service for gross misconduct committed by him during
his term of office. The governing body may appoint such person as it thinks fit to conduct

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enquiry in relation to misconduct of the ombudsman. All enquiries on misconduct will be sent to
insurance regulatory and development authority which may take a decision as to the proposed
action to be taken against the ombudsman. On recommendations of the IRDA, the governing
body may terminate his services, in case he is found guilty.

POWER OF OMBUDSMAN

Insurance ombudsman has two types of function to perform

1.Conciliation

2.Award making

The insurance ombudsman is empowered to receive and consider complaints in respect of

personal lines of insurance from any person who has any grievance against an insurer. The
complaint may relate to any grievance against insurer i.e

a) Any partial or total repudiation of claims by the insurance companies,

b) Dispute with regard to premium paid or payable in terms of the policy

c) Dispute on the legal construction of the policy wordings in case such dispute relates to claims

d) Delay in settlement of claims and

e) Non-issuance of any insurance document to customers after receipt of premium.

RECOMMENDATION OF OMBUDSMAN

When a complaint is settled through the mediation of the ombudsman, we shall make the
recommendation which he thinks fair in the circumstances of the case. Such a recommendation
shall be made not later than one month and copies of the same sent to complaint and insurance
company concerned. If the complaint accepts recommendation, he will send a communication in
writing within 15 days of the date of receipt accepting the settlement.

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 CONCLUSION

 INSURANCE FRAUD

Being victimized by fraud can be one of the worst experiences not only for the insured but also
for the insurers. In today’s competitive world where so many insurance companies are entering
the market with new and improved services, customers demand highest level of service and even
for a little mistake or bad behavior switch and take policies of other insurance companies. So in
such a situation insurance company not only has to look at the fraud as a monetary loss but as a
bigger loss which is a tarnished image of the company. The customer who has gone through the
fraud switches but also the perspective customer’s don’t prefer such companies. So it can also
result to a long term loss because building a good image in the eyes of the customers is the most
important thing. Despite the growing problems like the internalization of fraud and growth in the
pool of potential victims, fraud can be limited if proper preventive controls are taken. Changes
need to be made on a regulatory side, legislation, treaties or information sharing agreements
among countries need to be put in place. More secrecy in terms of documents and agreements
need to be followed.

From customer’s side it is expected that we all take steps to protect ourselves from fraud.
Resources for checking out an investment, firm or company are abundant. By doing just a little,
protection is possible. Education is the key to drive this mammoth seeming problem out of
existence.

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  IRDA

India is among the important emerging insurance markets in the world. Life insurance will grow
very rapidly over the next decades in India. The major drivers include sound economic
fundamentals, a rising middle-income class, an improving regulatory framework and rising risk
awareness. The fundamental regulatory changes in the insurance sector in 1999 will be critical
for future growth. Despite the restriction of 26% on foreign ownership, large foreign insurers
have entered the Indian market. State-owned insurance companies still have dominant market
positions. But, this would probably change over the next decade. In the life sector, new private
insurers are bringing in new products to the market. They also have used innovative distribution
channels to reach a broader range of the population. There is huge in the largely undeveloped
private pension market. The same is true for the health insurance business. The Indian general
insurance segment is still heavily regulated. Three quarters of premiums a/re generated under the
tariff system. Reinsurance in India is mainly provided by the General Insurance Corporation of
India, which receives 20% compulsory cessions from other general insurers. Finally, the rural
sector has potential for both life and general insurance. To realize this potential, designing
suitable products is important..

The IRDA has played a big role in the development and efficient working of the insurance
sector of the country. It has used its powers for the better working of the insurance sector and
that has lead to safe guarding the interest of consumers who are the policy holders. The IRDA
has helped the Indian insurance sector as follow:-

1. Brought revolutionary changes in the Insurance sector.

2. In last 14 years of its establishment the insurance sector has seen tremendous growth. When
IRDA came into being; only players in the insurance industry were Life Insurance Corporation
of India (LIC) and General Insurance Corporation of India(GIC), however in last decade 23 new
players have emerged in the field of insurance. The IRDA also successfully deals with any discrepancy in the
insurance sector.

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 BIBLIOGRAPHY

www.moneycontrol.com

www.helpstopfraud.com

www.thehindubusinessline.com

www.insurancefraudbureau.com

www.investopedia.com

http://insurancefraudguide.blogspot.in

http://www.fraudny.com

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