Professional Documents
Culture Documents
Liability and Aviation Khushboo
Liability and Aviation Khushboo
Liability and Aviation Khushboo
ASSIGNMENT ON:
STUDY AND DETECTION OF CLAIMS FRAUD IN
INSURANCE INDUSTRY
2018-20
Insurance fraud is a serious and growing problem, and there is widespread recognition that
traditional approaches to tackling fraud are inadequate. Studies of insurance fraud have
typically focused upon identifying characteristics of fraudulent claims and claimants, and
this focus is apparent in the current wave of forensic and data-mining technologies for fraud
detection. An alternative approach is to understand and then optimize existing practices in the
detection of fraud. In a world where insurance is both a form of investment and security,
many try to take advantage of the policies and systems that revolve around it. One of the
ways that perpetrators try to illegally get money from insurance companies is through
insurance claims fraud. Insurance fraud can both be done personally or through online
claims. This is why cyber security is crucial for many businesses. Globally, insurance fraud is
a major concern for Insurers which continues to increase year by year. Claims fraud is the
most common buzz around the Insurance industry with auto and workers compensation
business segments being the major contributors. Frauds are typically an individual or a group
led effort of fraudsters with an intention of inflating claims and finally making profit out of a
loss. Insurers spend huge effort and manpower in detecting fraud which as a net result not
only drain the dollar amount from the insurer’s kitty but also adversely affect the good risks
that they underwrite. It is also a social risk as it promotes financial crimes and penalizes the
society.
Following are the key aspects around claim fraud, due to which
imperatives of the insurance ecosystem are impacted in different degrees of
severity:-
Underwriting: Claims Fraud impacts underwriting guidelines and policies and deteriorates the
insurance risk pool.
Social Costs: Due to claim fraud, the prices of insurance go up as a whole.
Unfair with rightfully deserving: Due to claim fraud sometimes even the rightfully deserving
claimants are either denied claim or have to provide additional proofs on a claim.
Undetected fraud encourages more fraud: When to a successful fraud propensity of
individuals to further indulge in fraud increases, thus encouraging more fraud.
Loss in Reputation: Repetition of fraudulent claims for an insurance company causes loss in
market reputation thus causing a decline in competitiveness.
Customer Relationship: Fraudulent claims adversely impacts insurer’s relationship with its
existing customers and with prospects.
Regulatory Compliance: Repeated frauds or even a few major frauds might cause serious
legal issues for an insurer with the regulators.
Loss of faith: Due to fraudulent claims people’s trust in insurance declines, which is
detrimental to the growth of insurance industry.
they can be otherwise legitimate claims that are exaggerated or "built up", or
they can be false claims in which the damages claimed never actually occurred.
Once a built up claim is identified, insurance companies usually try to negotiate the claim
down to the appropriate amount. Suspicious claims can also be submitted to "special
investigative units", or SIUs, for further investigation. These units generally consist of
experienced claims adjusters with special training in investigating fraudulent claims. These
investigators look for certain symptoms associated with fraudulent claims, or otherwise look
for evidence of falsification of some kind. This evidence can then be used to deny payment of
the claims or to prosecute fraudsters if the violation is serious enough.
When an insurance company's fraud department investigates a fraud claim, they frequently
proceed in two stages: pre-contact and post-contact. In the pre-contact stage they analyze all
available evidence before they contact the suspect. They may reviewing submitted
paperwork, reach out to third parties, and gather evidence from available sources. Then, in
the "post-contact" stage, they interview the suspect to gather more information and, ideally,
obtain an incriminating statement. Insurance fraud investigators are trained to question the
suspect in a way that precludes the suspect raising a valid defense at a later time. For
example, questions about access to claim forms preclude the defense that another individual
filled out the fraudulent documents. Full disclosure may add credibility to a suspect's account
of events, but omissions from disclosure or false statements may detract from the suspect's
credibility in later interviews or proceedings.
Few of the suspicious loss indicators insurance agents look out for:-
A claimant who's totally calm and unflustered after submitting a large claim
A claimant who submits handwritten receipts for repairs on a covered item
A claimant who adds or increases homeowners or auto insurance coverage shortly before
submitting a claim
A fire-damage claim for a home or auto where the fire started immediately after a family
argument, or shortly after family members left the home/car
A medical claim submitted by a seasonal employee whose job is ending
Of course, some of these scenarios can be present in legit claims. But. Insurers know they're
not positive indicators of fraud just possible ones and definitely signs they should further
investigate certain claims.