Rishi Project Book

FRAUDS INSURANCE DEDUCTION AND ACTION
“FRAUDS INSURANCE DEDUCTION

AND ACTION”
A PROJECT SUBMITTED TO
Dr.Homi Bhabha State University
FOR PARTIAL COMPLETION OF THE DEGREE OF
B.COM (BANKING & INSURANCE)
UNDER THE FACULTY OF COMMERCE
By
RISHI.HEMNATH.VERMA
UNDER THE GUIDANCE OF
PROF.ATISH WAGHCHAURE
SYDENHAM COLLEGE OF COMMERCE & ECONOMICS
‘B’ ROAD CHURCHGATE MUMBAI 400020
MARCH 2023-2024
1
INDEX
SR CHAPTER PARTICULARS PAGE

NO. NO.
1 I. Introduction 06-35
2 II. Literature 36-38

review
3 III. Research 39-44

Methodology
4 IV. Case study 45-51
5 V. Conclusion 52-81
2
CERTIFICATE
This to certify that Mr. RISHI HEMNATH VERMA has worked and duly
completed his Project Work for the degree of B.COM(Banking and
Insurance)under the faculty of Commerce in the subject of and His project is
entitled, “FRAUDS INSURANCE DEDUCTION AND ACTION” undermy
supervision.
I further certify that he entire work has been done by the learner under my
guidance and that no part of it has been submitted previously for any Degree
or Diploma of any University.
It is his own work and facts reported by her personal findings and
investigation.
PROF.ATISH WAGHCHAURE
(GuidingTeacher)
Principal
DateofSubmission:
ExternalExaminer
3
DECLARATION
I the undersigned Mr. RISHI HEMNATH VERMA hereby, declare that the
work embodied in this project work titled “FRAUDS IN INSURANCE
DEDUCTION AND ACTION”, forms my own contribution to the research
work carried out under the guidance of Prof. ATISH WAGHCHAURA is a
result of my own research work and has not been previously submitted to any
other University for any Degree to this or any other University.
Whenever reference has been made to previous work of others, it has been clearly
indicated as such and included in the bibliography.
I, here by further declare that all information of this document has been obtained and
presented in accordance with academic rules and ethical conduct.
RISHI HEMNATH VERMA

Name and Signature of the learner
Certified by
Prof. ATISH WAGHCHAURE

Name and signature of the Guiding Teacher
4
ACKNOWLEGEMENT
To list who all have helped me is difficult because they are so numerous and the depth is so
enormous.
I would like to acknowledge the following as being idealistic channels and fresh
dimensions in the completion of the project
I take this opportunity to thank the Dr. HOMI BHABHA STATE UNIVERSITY for
giving me chance to do this project.
I would like to thank my Principal, DR. for providing the

necessary facilities required for completion of this project.
I would also like to express my sincere gratitude towards my project guide
Prof. ATISH WAGHCHAURE whose guidance and care made the project successful.
I take this opportunity to thank our Coordinator
PROF. DR.SYED MUBASHAR HASAN for his moral support and guidance.
I would like to thank my College Library, for having provided various reference books and
magazine related to my project.
Lastly, I would like to thank each and every person who directly or indirectly helped me
in the completion of the project especially my Parents and Peers who supported me
throughout my project
FRAUDS IN INSURANCE DEDUCATION & ACTION
CHAPTER 1
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INTRODUCTION
WHAT IS INSURANCE?
Insurance is a means of protection from financial loss. It is a form of

risk management, primarily used to hedge against the risk of a
contingent or uncertain loss.
An entity which provides insurance is known as an insurer, insurance

company, insurance carrier or underwriter. A person or entity who
buys insurance is known as an insured or as a policyholder. The
insurance transaction involves the insured assuming a guaranteed and
known relatively small loss in the form of payment to the insurer in
exchange for the insurer's promise to compensate the insured in the
event of a covered loss. The loss may or may not be financial, but it
must be reducible to financial terms, and usually involves something in
which the insured has an insurable interest established by ownership,
possession, or pre-existing relationship.
The insured receives a contract, called the insurance policy, which

details the conditions and circumstances under which the insurer will
compensate the insured. The amount of money charged by the insurer
to the Policyholder for the coverage set forth in the insurance policy is
called the premium. If the insured experiences a loss which is
potentially covered by the insurance policy, the insured submits a
claim to the insurer for processing by a claims adjuster. The insurer
may hedge its own risk by taking out reinsurance, whereby another
insurance company agrees to carry some of the risk, especially if the
primary insurer deems the risk too large for it to carry.
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Insurance is form of risk management in which the insured transfers the

cost of potential loss to another entity in exchange of monetary
compensation known as the premium
Insurance allows individuals business and other entities to protect

themselves against significant potential losses and financial hardship
at a reasonably affordable rate. We say significant because if the
potential loss is small, then it doesn’t make sense to pay a premium to
protect against a loss. Insurance is appropriate when you want to
protect against a significant monetary loss.
Take life insurance as an example. If you are the primary breadwinner
in your home, the loss of income that your family would experience as
a result of our premature death is consider a significant loss and
hardship that you should protect them against. It would be very
difficult for your family to replace your income, so the monthly
premiums ensure that if you die, your income will be the replaced by
the insured amount. The same principle applies to many other forms
of insurance. If the potential loss will have a detrimental effect on the
person or entity insurance makes sense.
Everyone that wants to protect themselves or someone else against

financial hardship should consider the insurance.
Every risk involves the loss of one other kind. In older time, the
contribution by the person was made at the time of loss. Today, only
one business, which offers all walks of life, is insurance business.
Owning to growing complexity of life, trade and commerce,
individual and business firms and turning to insurance to manage
various risk. Every individual in this world is subject to unforeseen
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uncertainties which may make him and his family safe. At this place,
only insurance helps him not only to survive but also recover his loss
and continue his life in a normal manner.
Insurance is an important aid to commerce and industry. Every
business enterprise involves large number of risk and uncertainties. It
may involve risk to premises, plant and machinery. Raw material and
another thing. Goods may be damage or may be damaged destroyed
due to fire or food. Some risk can be avoided by timely precaution q
and some are unavoidable and are beyond the control of a business.
These unavoidable risks can be protected by insurance.
In simple terms “insurance is a cooperative device to spread the loss

caused by a particular risk over a number of persons who are exposed
to it and agree to insure themselves against the risk” Thus, the
insurance is
• A cooperative device to spread the risk.

• The system to spread the risk over a number of persons who are insured
against the risk.
• The principle to share the loss of each member of the society on the basis
of probability of loss to their risk.
• The method to provide security against losses to the insured.
Insurance may be defined as form of contract between two parties

(insurer) undertake in exchange for a fixed amount of money
(premium) to pay the other party (insured), a fixed amount of money
on the happening of certain event (death or attaining a certain age in
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case of life) or to pat the amount of actual loss when its take places
through the risk insured (in case of property)
Terminology used in definition of insurance
Insurer or insurance company- the agency involved in insurance business
is known as insurer.
Insured/assured- the person who gets his property/life insured is known as
insured.
Policy-the agreement or contract which is put in writing is known as a
policy.
Premium- the consideration in return of which the insurer undertakes to
make goods the loss or give a certain amount in case of life insurance is
known as premium.
Insurance is a means of protection from financial loss. It is a form of risk

management, primarily used to hedge against the risk of a contingent or
uncertain loss.
An entity which provides insurance is known as an insurer, insurance
company, insurance carrier or underwriter. A person or entity who
buys insurance is known as an insured or as a policyholder. The
insurance transaction involves the insured assuming a guaranteed and
known relatively small loss in the form of payment to the insurer in
exchange for the insurer's promise to compensate the insured in the
event of a covered loss. The loss may or may not be financial, but it
must be reducible to financial terms, and usually involves something
in which the insured has an insurable interest established by
ownership, possession, or pre-existing relationship. The insured
receives a contract, called the insurance policy, which details the
conditions and circumstances under which the insurer will compensate
the insured. The amount of money charged by the insurer to the
insured for the coverage set forth in the insurance policy is called the
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premium. If the insured experiences a loss which is potentially

covered by the insurance policy, the insured submits a claim to the
insurer for processing by a claims adjuster. The insurer may hedge its
own risk by taking out reinsurance, whereby another insurance
company agrees to carry some of the risk, especially if the primary
insurer deems the risk too large for it to carry. The insurance industry
of India consisted of 57 insurance companies of which 24 are in life
insurance business and 33 are non- life insurers. Among the life
insurers, life insurance Corporation (LIC) is the sole public sector
company. Apart from that, among the non- life insurers there are six
public sector insurers. In addition to these, there is sole national
reinsurance namely, general insurance corporation of India (GIC).
Other stakeholders in Indian insurance market include agents
(individual and corporate), brokers, surveyor and third-party
administrators serving health insurance claims.
1.1.1Establishment of Insurance in India
Insurance in this current form has its history dating back to 1818 when
oriental life insurance company was started by Anita Bhavsar in
Kolkata to cater to the needs of European community. The pre-
independence being charged for the latter, in 1870, Bombay mutual
life assurance society became the first Indian insurer.
At the dawn of the twentieth century many insurance companies were

founded. In the year 1912, the life insurance companies’ act and the
provident fund act were passed to regulate the insurance business. The
LIC had monopoly till the late 90s when the insurance sector was
reopened to the private sector. Before that, the industry consisted of
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only two state insurers: life insurers (life insurance corporation of

India, lick) and general insurers (general insurance corporation of
India). GLIC had four subsidiary companies: oriental insurance
company limited, new India assurance company limited, national
insurance company and united India insurance company.
The government of India issued an ordinance on 19 January 1956

nationalizing the life insurance sector and Life Insurance Corporation
came into existence in the same year. The life insurance corporation
(LIC) absorbed 154 Indian, 16 non-India insurers and also 75
provident societies—245 Indian and foreign insurers in all. In 1972
with the general insurance business nationalization act was passed by
the Indian parliament, and consequently, general insurance business
was nationalized with effect from 1 January 1973. 107 insurers were
amalgamated and grouped into four companies, namely national
insurance company ltd., the new India assurance company ltd., the
oriental insurance company ltd and the united India insurance
company ltd. The general insurance corporation of India was
incorporated as a company in 1971 and it commenced business on 1
January 1973.
1.1.2 Nature of Insurance
Sharing of Risks - Insurance is a device to share the financial losses

which may occur to individual or his family on the happening of certain
events
Co-operative Device – Insurance is a co-operative device to spread

the loss caused by a particular risk over a large caused by a particular
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risk over a large number of persons who are exposed to it and who
agree to insure themselves against the risk.
Value of Risk –Risk is evaluated at the time of insurance. There are

several methods of valuing the risk. Higher the risks, higher will be
premium
Payment on Contingency -If the contingency occurs, payment is

made; payment is made only for insured contingency. If there is no
contingency, no payment is made. In life insurance contract, payment
is certain because the death or the expiry of term will certainly occur.
In other insurance contract like fire, marine, the contingency may or
may not occur.
Amount of Payment of Claim - The amount of payment depends

upon the value of loss occurred due to the particular insured risk. The
insurance is there up to that amount. In life insurance insurer pay a
fixed sum on the happening of an event or within a specified time
period.
Example – In fire insurance, if fire occurs and half the property is

destroyed, but the whole property is insured, then payment of claim
will be made only for that half building that is destroyed not the whole
amount of insured.
Insurance is different from Charity -In charity, there is no

consideration but insurance is not given without premium
Large number of Insured Person - Insurance is spreading of loss

over a large number of persons. Larger the number of persons, lower
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the cost of insurance and amount of premium and incise lower the
number of persons, higher the cost of insurance and amount of
premium.
Insurance is different from Gambling - In gambling, there is no

guarantee of gain, by bidding the person expose himself to risk of
losing. Whereas in insurance, by getting insured his life and property,
he protects himself against the risk of loss.
1.1.3 Primary and Secondary Functions of Insurance:

Every risk involves the loss of one or other kind. The function of
insurance is to spread the loss over a large number of persons who are
agreed to co-operate each other at the time of loss. The risk cannot be
averted but loss occurring due to a certain risk can be distributed
amongst the agreed persons. They are agreed to share the loss because
the chances of loss, i.e., the time, amount, to a person are not known.
Anybody of them may suffer loss to a given risk, so, the rest of the persons
who are agreed will share the loss. The larger the number of such persons
the easier the process of distribution of loss, in fact; the loss is shared by
them by payment of premium which is calculated on the probability of
loss.
In olden time, the contribution by the persons was made at the time of
loss. The insurance is also defined as a social device to accumulate
funds to meet the uncertain losses arising through a certain risk to a
person insured against the risk.
The functions of insurance can be studied into two parts (i) primary
functions, and (ii) secondary functions.
Primary functions:
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Certainty of compensation loss: insurance provide certainty of

payment at the uncertainty of loss. The elements of the uncertainty are
reduced by better planning and administration. The insurer charges
premium for providing certainty.
Insurance Provides Protection: The main function of the insurance

is to provide protection against the probable chances of loss. The time
and amount of loss are uncertain and at the happening of risk, the
person will suffer loss in absence of insurance. The insurance
guarantees the payment of loss and thus protects the assured from
sufferings. The insurance cannot check the happening of risk but can
provide for losses at the happening of the risk.
Risk-Sharing: The risk is uncertain, and therefore, the loss arising

from the risk is also uncertain. When risk takes place, the loss is
shared by all the persons who are exposed to the risk. The risk-sharing
in ancient time was done only at time of damage or death; but today,
on the basis of probability of risk, the share is obtained from each and
every insured in the shape of premium without which protection is not
guaranteed by the insurer.
Secondary functions:
Besides the above primary functions, the insurance works for the
following functions:
Prevention of Loss: The insurance joins hands with those institutions

which are engaged in preventing the losses of the society because the
reduction in loss causes lesser payment to the assured and so more
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saving is possible which will assist in reducing the premium. Lesser

premium invites more business and more business cause lesser share
to the assured.
It Provides Capital: The insurance provides capital to the society.

The accumulated funds are invested in productive channel. The dearth
of capital of the society is minimized to a greater extent with the help
of investment of insurance. The industry, the business and the
individual are benefited by the investment and loans of the insurers.
It Improves Efficiency: The insurance eliminates worries and

miseries of losses at death and destruction of property. The carefree
person can devote his body and soul together for better achievement.
It improves not only his efficiency, but the efficiencies of the masses
are also advanced.
It Helps Economic Progress: The insurance by protecting the society

from huge losses of damage, destruction and death, provides an
initiative to work hard for the betterment of the masses. The next
factor of economic progress, the capital, is also immensely provided
by the masses. The property, the valuable assets, the man, the machine
and the society cannot lose much at the disaster.
Encouragement of savings: Insurance not only provides protection

against risks but also a number of other incentives which encourages
people to insure. Since regularity and punctuality pf payment of
premium is a perquisite for keeping the policy in force, the insured
feels compelled to save.
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Introduction on Frauds
In law, fraud is deliberate deception to secure unfair or unlawful gain,
or to deprive a victim of a legal right. Fraud itself can be a civil wrong
(i.e., a fraud victim may sue the fraud perpetrator to avoid the fraud or
recover monetary compensation), a criminal wrong (i.e., a fraud
perpetrator may be prosecuted and imprisoned by governmental
authorities), or it may cause no loss of money, property or legal right
but still be an element of another civil or criminal wrong. The purpose
of fraud may be monetary gain or other benefits, such as obtaining a
passport or travel document, driver's license or qualifying for a
mortgage by way of false statements.
What is 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.
Fraud can generally be defined as criminal deception intended to
result in financial or personal gain. Fraud encompasses a variety of
crimes that include, but are not limited to, fraud by false
representation, fraud by failing to disclose information, fraud by abuse
of position and obtaining services dishonestly.
The law regarding fraud was reformed through the enactment of the
Fraud Act 2006, which came into law on 15th January 2007. Prior to
this, the fraud offences were set out in sections 15, 16 and 20 of the
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Theft Act 1968, and sections 1 and 2 of the Theft Act 1978. The
decision for reform arose out of the Law Commission’s Report on
Fraud, published in 2002, which criticised the law at the time for
being too broad and complicated. The report also stated that the law
was out of date, in that it did not make any allowance for modern
means of defrauding through technological advances.
1.1.4 Type of Insurance
Insurance cover various types of risks and include various insurance

policies which provide protection against various losses.
There are two different views regarding classification if insurance: -
I. From the business point of view
II From the risk points of view
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I. Business point of view
The insurance can be classified into three categories from business point of
view
• Life insurance
• General Insurance
• Social Insurance
Life Insurance: The life insurance contract provides elements of

protection and investment after getting insurance, the policyholder
feels a sense of protection because he shall be paid a definite sum at
the death
On maturity. Since a definite sum must be paid, the element of

investment is also present. In other words, life insurance provides
against pre-mature death and a fixed sum at the maturity of policy. At
present, life insurance enjoys maximum scope because each and every
person requires the insurance.
Life insurance is a contract under which one person, in consideration

of a premium paid either in lump sum or by monthly, quarterly, half
yearly or yearly instalments, undertakes to pay to the person (for
whose benefits the insurance is made), a certain sum of money either
on the death of the insured person or on the expiry of a specified
period of time.
Life insurance offers various polices according to the requirement of

the persons –
- Term Assurance
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- Whole Life
- Endowment Assurance
- Family Income Policy
- Life Annuity Joint Life Assurance
- Pension Plans
- Unit Linked Plans
- Policy for maintenance of handicapped dependent
- Endowment Policies with Health Insurance benefits
❖ General Insurance: The general insurance includes property

insurance, liability insurance and other form of insurance. Property
insurance includes fire and marine insurance. Property of the individual
and business involves various risks like fire, theft etc. This need insurance
Liability insurance includes motor, theft, fidelity and machine insurance
➢ Type of General Insurance policies available are -
- Health Insurance
- Medi- Claim Policy
- Personal Accident Policy
- Group Insurance Policy
- Automobile Insurance
- Worker’s Compensation Insurance
- Liability Insurance
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- Aviation Insurance
- Business Insurance
- Fire Insurance Policy
- Travel Insurance Policy
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Social Insurance: Social insurance provide protection to the weaker

sections of the society who are unable to pay the premium. It includes pension
plans, disability benefits, unemployment benefits, sickness insurance and
industrial insurance.
II Risk Points of View
The insurance can be classified into three categories from Risk point of view
• Property Insurance
• Liability Insurance
• Other forms of Insurance
❖ Property Insurance: Property of the individual and business is exposed

to risk of fire, theft marine peril etc. This needs insurance. This is insured with
the help of: -
• Fire Insurance
• Marine Insurance
• Miscellaneous Insurance
❖ Fire Insurance: Fire insurance covers risks of fire. It is contract of

indemnity. Fire insurance is a contract under which the insurer agrees to
indemnify the insured, in return for payment of the premium in lump sum or by
instalments, losses suffered by the him due to destruction of or damage to the
insured property, caused by fire during an agreed period of time. It includes
losses directly caused through fire or ignition. There are various types of fire
insurance policies.
- Consequential loss policy
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- Comprehensive policy
- Valued policy
- Valuable policy
- Floating policy
- Average policy
Marine Insurance: Marine insurance is an arrangement by which the

insurer undertakes to compensate the owner of the ship or cargo for complete or
partial loss at sea. So, it provides protection against loss because of marine
perils. The marine perils are collisions with rock, ship attack by enemies, fire
etc. Marine insurance insures ship, cargo and freight.
The following kinds of marine policies are -
- Voyage policy
- Time policy
- Valued policy
- Hull Policy
- Cargo Policy
- Freight Policy
❖ Miscellaneous Insurance: It includes various forms of insurance

including property insurance, liability insurance, personal injuries are also
insured. The property, goods, machine, furniture, automobile, valuable goods
etc. can be insured against the damage or destruction due to accident or
disappearance due to theft.
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Miscellaneous insurance covers
- Motor
- Disability
- Engineering and aviation risks
- Credit insurance
- Construction risks
- Money Insurance
- Burglary and theft insurance
- All risks insurance
Liability Insurance: The insurer is liable to pay the damage of the

property or to compensate the loss of personal injury or death. It includes
fidelity insurance, automobile insurance and machine insurance.
The following are types of liability Insurance: -
- Third party insurance
- Employees insurance
- Reinsurance
❖ Other forms of Insurance: It include export credit insurance, state

employee insurance etc. whereby the insurer guarantees to pay certain amount
at the happening of certain events.
The following are other form of Insurance-
- Fidelity Insurance
- Credit Insurance
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- Privilege Insurance.
Insurance Fraud
Insurance fraud is an illegal act by either the buyer or seller of an insurance

contract. For example, a seller may sell policies from non-existent companies,
fail to submit the premiums, and churn policies to earn more commissions.
Similarly, a buyer may falsify medical history, exaggerate claims, fake death or
kidnap, and murder.
What is Insurance Fraud?
 Insurance fraud is an attempt to exploit an insurance contract.

Insurance is meant to protect against risks, not to serve as a vehicle
to enrich the insured. Although insurance fraud by the policy issuer
does occur, the majority of cases have to do with the policyholder
attempting to receive more money by exaggerating a claim. A
drawback of insurance is that the increased cost of insurance is
passed on by the insurer to the customers.
Types of Insurance Frauds
 Insurance fraud with automobiles includes disposing of a vehicle

and then claiming that it was stolen in order to receive a settlement
payment or a replacement vehicle. The vehicle can be secretly sold,
abandoned, intentionally destroyed, or pushed into a river or lake.
Then, the owner of the vehicle may claim that the vehicle was
stolen.
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 The owner of a vehicle may want to reduce premiums by using false

registration. Consider that he lives in a locality that demands a higher
premium; premiums are designated based on a higher theft rate in the
neighbourhood or for some other reason. So, he may try to register his
vehicle under a different locality in order to reduce the premiums.
 In terms of healthcare, insurance frauds are described as an intentional

act of deceiving, concealing, or misrepresenting information to get
healthcare benefits paid to an individual or a group. Member frauds can
be prescription drug fraud, concealing pre-existing conditions, claiming
on behalf of ineligible members, failure to disclose that the cause of an
injury is related to work.
Related Terms
ex gratia payment
Ex-gratiapaymentis presented to an individual by an organization, government,
or insurer for damages or claims.
 Merchant Banking
➢ Merchantbankingis a professional service provided by the merchant

banks to their customers considering their financial needs, for adequate
consideration in the form of fee.
 Permanent Account Number – PAN
➢ Permanent Account Number abbreviated as PAN is a unique 10-digit

alphanumeric number issued by the Income Tax Department to Indian taxpayers.
❖ Cramming
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 Cramming is a memorisation technique or an emergency test-preparation

strategy that involves an attempt to absorb extensive amounts of information
within a short period of time, prior to an exam.
 Acredit agencyis a for-profit firm that collects information regarding the
debts of individuals and companies and assigns a numericalvaluecalled a credit
score that indicates the creditworthiness of the borrower.
❖ Credit Reference
 Credit references can be treated as a credit report, or a written letter from

a previous lender, or personal/business acquaintance.
 TYPES OF INSURANCE FRAUDS
Many times, insurances frauds exist from scamming whether it is auto insurance,
life property.
All type of insurance frauds divides into;
- Hard frauds
- Soft frauds
- Automobile insurance frauds
- Life insurance frauds
- Health Insurance frauds
- Property Insurance Frauds
- Internal Frauds
- External Frauds
 Hard frauds:
Hard frauds include someone staging a car accident, injury, arson, loss break-in
or someone writing false bills to Medicare to illegally receive money from their
insurance company. This type of frauds often receives more media attention and
it is easier to detect. Hard frauds often involve criminal activities of insurance
company.
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 Soft frauds:
It happens when a person pads their insurance claims by telling White lies such
as they are felling too ill to come to work, so they can receive workers
compensation benefits that they wouldn’t have otherwise. This is more difficult
to detect.
 Automobile Insurance Frauds:
Fraud rings or groups may fake traffic deaths or stage collisions to make false
insurance or exaggerated claims adjusters and other people who create phony
police reports to process the claims.
 Life insurance frauds:
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.
 Health Insurance:
Health insurance frauds is described as an intentional act of deceiving,

concealing, or misrepresenting information that results in health care benefits
being paid to an individual or group. Frauds can be ineligible members and/or
dependents, alterations unenrolment forms, concealing pre-existing conditions,
failure to report the coverage, prescription drug fraud, and failure to disclose
claims that were result of a work-related injury.
Property Insurance:
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Possible motivations for this can includes obtaining payment that is worth more
than the value of the property destroyed, or to destroyed the subsequently
receive payment for goods that could not otherwise be sold. According to Alfred
Manes, the majority of property insurance crimes involves arson.
Internal Frauds:
There are those perpetrated against insurance companies or its policyholders by

agents, managers, executives, or other employees.
External Frauds:
There are direct against insurance by individuals or entities as divers a policy

holder’s providers, beneficiaries, vendors, etc.
What is the scale and impact of fraud?
The extent of insurance fraud varies between countries. Detected and undetected
fraud is estimated to represent up to 10% of all claim’s expenditure in Europe.
This figure varies between countries and classes of insurance due to a number of
factors, such as how the market functions or the local prevalence of one type of
insurance. The approach to identifying insurance fraud also differs between
European countries. In some countries, importance is placed on establishing an
accurate estimate of detected and undetected fraud, while other countries place
little emphasis on this distinction, choosing instead to focus on reducing the
amount of known fraud. Nevertheless, the aim remains the same: to establish the
extent to which current counter-fraud initiatives are successful and whether
further initiatives are required.
What are the consequences of fraud?
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Fraudulent claims and the cost of investigating suspected frauds lead to higher
premiums for honest customers. Investigating fraud also has an impact on
insurers’ ability to deal with genuine claims quickly. In addition, evidence from
recent studies carried out by insurers suggests that insurance fraud funds and
facilitates other serious crime. • According to the
Danish insurance association (F&P), insurers in Denmark withhold
approximately DKK 500m
(€67m) from claims payments due to documented fraud. • In Germany, the GDV
estimates that the cost of fraud exceeds €4bn per year. • In the UK, the ABI
estimates that fraud adds, on average, an extra £50 (€58) a year to the annual
insurance bill for every policyholder. • Sweden identified a criminal network
that arranged at least 214 staged traffic accidents. Every major non-life
insurance company in the Swedish market was affected by its activities. Insurers
remain committed to paying all genuine claims as quickly as possible, and strive
to achieve a balance between investigating potential frauds and ensuring that
genuine claimants do not face delays as a result. While insurers must investigate
all potential frauds.
What Is an Insurance Deduction?
The insurance deductible is the amount of money you will pay in an insurance
claim before the insurance coverage kicks in and the company starts paying you.
When you have a deductible, you have to come up with the amount of money for
your deductiblebefore a claim gets paidin many circumstances. Once you pay
your deductible the insurance company will pay you the rest of the claim value
up to thepolicy limitsand conditions in the wording
In an insurance policy, the deductible is the amount paid out of pocket by the
policy holder before an insurance provider will pay any expenses. In general
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usage, the term deductible may be used to describe one of several types of
clauses that are used by insurance companies as a threshold for policy payments
Claims Related Fraud
Policy holders may generally commit these kinds of frauds:
 Hiding a pre-existing condition: most individual health policies give a

definite waiting period for a pre-existing condition/disease. The policyholder by
falsifying the report of a pre-policy health check-up, conceal this fact.
 Fabricated documents to meet terms and conditions of the Insurance:

Youthful and Healthy people are an obvious choice for insurance by the
companies. Any person with a different attribute, for example, a person aged,
may not necessarily face rejection of his application but may be charged more
premium. In this case people try to conceal age or chronic diseases. Faking
disability also comes under this.
 Duplicate bills of exchange: Submission of forged or inflated bills is also

fraud, especially when no expenses have been undertaken. The objective of
health insurance, to cover the medical expenses incurred when one has diseases
or requires surgery, is defeated then. An insurance policy is not supposed to be
profitable.
 Withholding information of multiple policies: It is the responsibility of the

insured to inform all the other insurers of the existing policies whether group,
30
individual to prevent the making of multiple claims on an issue and make a

profit out of it
 Participating in fraud rings: A person might collude with another like an

agent or doctor or providers to make a false claim, for example, alter
information at their bequest to make a claim.
 Orchestrated accident: A person might stage an accident so that they can call
for compensation for their medical and hospital expenses. As the social health
insurance takes a steady upward come, the victims of health insurance might be
more in nature.
Current Action against fraud
 No fraud Management policy has been properly documented or implemented

till date by the various insurance regulatory authorities or the government.
 These are the various actions which can be taken when it comes to insurance
fraud and the actions are limited to:
1. Rejection of claims of serious fraud – in all cases brought out in the

court if the guilt is found out, the claim is outright rejected
2. Fraud can also lead to cancellation of policy in serious fraud cases;
however, this does not generally happen in abuse or misdeclaration.
3. There are only limited actions which can be taken against the agents due
to lack of a comprehensive legal framework to punish the same.
4. Most of the insurance companies do not have an underwriting as a part
of their disclosures or documents, about what action will be taken against the
consumers in case of misdeclaration or non-declaration of material information.
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Due to the mounting backlog of pending cases in the judicial machinery of our
state, taking legal action against fraud is not a common occurrence and fraud of
amounts not big enough are let go off as opposed to the heavy investment of
time and energy in pursuing the same.
Even if legal remedies are taken or help of the court is availed due to various
reasons and the design and process of the law sometimes make the recovery of
the money lost by fraud are a rare occurrence.
Legal Provisions under Indian Penal Code,1860
The provisions which can be applicable in such cases are –
1. Section 205. False personation for purpose of act or proceeding in suit or

prosecution. —Whoever falsely personates another, and in such assumed
character makes any admission or statement, or confesses judgment, or causes
any process to be issued or becomes bail or security, or does any other act in any
suit or criminal prosecution, shall be punished with imprisonment of either
description for a term which may extend to three years, or with fine, or with
both.
2. Section 420. Cheating and dishonestly inducing delivery of property. —

Whoever cheats and thereby dishonestly induces the person deceived to deliver
any property to any person, or to make, alter or destroy the whole or any part of
a valuable security, or anything which is signed or sealed, and which is capable
of being converted into a valuable security, shall be punished with imprisonment
of either description for a term which may extend to seven years, and shall also
be liable to fine.
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• Or Secondly — Who, without lawful authority, dishonestly or fraudulently, by

cancellation or otherwise, alters a document or an electronic record in any
material part thereof, after it has been made, executed or affixed with {electronic
signature] either by himself or by any other person, whether such person be
living or dead at the time of such alteration; or
• Thirdly — Who dishonestly or fraudulently causes any person to sign, seal,
execute or alter a document or an electronic record or to affix his[electronic
signature] on any electronic record knowing that such person by reason of
unsoundness of mind or intoxication cannot, or that by reason of deception
practised upon him, he does not know the contents of the document or electronic
record or the nature of the alteration.
4.Section 405. Criminal breach of trust.— Whoever, being in any manner

entrusted with property, or with any dominion over property, dishonestly
misappropriates or converts to his own use that property, or dishonestly uses or
disposes of that property in violation of any direction of law prescribing the
mode in which such trust is to be discharged, or of any legal contract, express or
implied, which he has made touching the discharge of such trust, or wilfully
suffers any other person so to do, commits “criminal breach of trust’’.As seen
above from the comprehensive and elaborate explanations/definitions all these
sections under this law can be used to persecute in case of insurance fraud
however due to the time and cost involved, parties generally refrain.
Legal Remedies under The Indian Contract Act, 1872
1. Misrepresentation within the meaning ofSection 18of the ICA

2. The contract of insurance is also void in as perSection 10read with
Section 14(4) andSection 18of the ICA generally in cases of fraud.
33
3. As perSection 20of the Indian Contract Act, 1872, the agreement is void
where both parties are under mistake as to matter of fact. Some factors
are essential for insurance cover.
Other measures which can be taken
Steps such as having a comprehensive fraud and abuse management policy

which covers types of fraud and abuse alongside with policies, procedures, and
controls, company action being documented and implementing a review
mechanism should be taken by insurance companies also so that they are also in
a position to take legal action.
Sharing of knowledge and data should be more prevalent with the victims of
fraudulent insurance claims, this data should include fraud patterns and case
studies, fraud customer list and intermediaries, fraudulent providers and
investigators etc. followed before reporting a case. Reporting to external bodies
such as Medical Council of India, IRDA, and corporate Human Resources can
also be tried.
➢ FRAUDS IN INSURANCE COMPANY:
• As According to Verma and Mani (2002) analytics can contribute in
accompanying your enterprise technologies into a social networking era, Big

Data and CRM to crack down on financial offenders. Verma and Mani (2002)
highlighted that the increasing number of mobile devices and social media
platforms are bringing significant transformations in the world of business
including the insurance sector. The opportunities offered by this landscape for
insurers are vast. The myriad of social networks and communities enable
insurers to connect with their customers in a more efficient manner, which in
turn aids contributes towards brand equity, customer acquisition, and retention.
34
Insurance firms are also empowered through the input of customers’ feedback
which also can be used for new product and pricing strategies. In addition to
these opportunities, insurance companies are using data analytics to detect fraud.
Handling fraud manually has always been costly for insurance companies, even
if one or two low incidences of high-value fraud went undetected. In addition to
this, the big data trend, (the growth in unstructured data) always leaves lot of
room for undetected fraud arising out of poor level data analysis. Furthermore,
as mentioned by Ruchi Verma and Sathyan Ramakrishna Mani (2002) analytics
address these challenges and play a very crucial role in fraud detection for
insurance companies. Some of VA the key benefits of using analytics in fraud
detection are discussed below. By making use of sampling techniques methods
accompanies its own particular set of accepted errors.
• fraud is a serious and growing problem, and there is widespread recognition

that traditional approaches to tackling.
• fraud is 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. We report an ethnographic study that explored
the nature of motor insurance fraud-detection practices in two leading insurance
companies. The results of the study suggest that an occupational focus on the
practices of fraud detection can complement and enhance forensic and data-
mining approaches to the detection of potentially fraudulent claims.
• Frauds in insurance are typically where a fraudster tries to gain undue benefit
from the insurance contract by ignorance or wilful manipulation. Using the
claims data in motor insurance obtained from a Mumbai based insurance
35
company for the time period of 20102016, this study focuses on studying the
pattern exhibited by those claims which have been rejected and accepted as well.
The prime objective of the study is to identify the important or the significant
triggers of fraud and predicting the fraudulent behaviour of the customers using
the identified triggers in an existing algorithm. This study makes use of statistical
techniques like logistic regression & CHAID (Chi Square Automatic Interaction
Detection) technique to identify the significant fraud triggers and to determine
the probability of rejection & acceptance of each claim coming in future
respectively. Data mining techniques like decision tree and confusion matrix are
used on the important parameters to find all possible combinations of these
significant variables and the bucket for each combination. This study finds that
variables like Seats/Tonnage, No Claim Bonus, Type of Vehicle, Gross Written
Premium, Sum Insured, Discounts, State Similarity and Previous Insurance
details are found
to be significant at 1% level of significance. The variables like Branch Code and
Risk Types are found to be significant at 5% level of signify chance. The Gain
chart depicts that our model is a fairly good model. This research would help the
insurance company in settling the legitimate claims within less time and less cost
and would also help in identifying the fraudulent claims.
Insurance overview
WHAT DO YOU NEED TO KNOW ABOUT INSURANCE FRAUDS?
Insurance fraud can be said to occur when an insured or someone in relation to

an insurance process, knowingly makes a falsified claim or misrepresents
facts/information in relation to an insurance claim or process, with the sole
intention to obtain some benefit or advantage to which they are not otherwise
entitled. Insurance frauds is one of the oldest type of frauds ever recorded
36
Dating back to 300 B.C., When a Greek merchant sunk his own ship in an
attempt to cash in the insurance and drop in the attempts.
It Takes Two to Tango

Insurance frauds comes in two main categories: seller frauds & buyer frauds.
Seller frauds occurs when the seller of a policy hijacks the usual process, in the
way that maximizes his or her profit. Buyer frauds 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 Frauds

There are many variations of seller frauds, but they all centre around 4 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.
• 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 the less of an issue as more companies have moved
towards direct deposit models but it is still possible in some cases.
37
• 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 beneficial to the client.
• These types of insurance frauds often target 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 represent 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 BUYERS FRAUD:
Product was not Delivered: One of the most common tricks used in buyer
fraud is to contact a marketplace or seller, and claim that a product was never
delivered after it was having been received. After making a claim, bad buyers
are awarded a refund or a replacement. Effectively gaining a free product or two
items for the price of one.
As a seller, this can be very costly. Not only do you lose the sale but also the
product.
The best thing sellers can do is be pre-emotive! Take steps to cover yourself just
in case you happen to come across a bad buyer.
One of the most common solutions is to use a tracked parcel delivery service.
Meaning you obtain proof of delivery from the customer, usually in the form of
a signature. Most people who commit buyer fraud do so online because they
believe they are anonymous to the seller. Once sellers remove the anonymity,
38
bad buyers will begin to second guess themselves. While this method is not full
proof it is usually enough to deter worst buyers.
There are also applications, like Sku Vault, that have customer service features
that can help sellers combat false claims. Sellers who use our software have
access to SkuVault’s detailed inventory reports and are able to track and review
past sales. SkuVault’sQuality Controlfeature outlines item quantity, type, and
delivery. The high level of detail given in these reports are exactly what any
seller needs as proof to right any false claims in attempt of buyer fraud.
Return Abuse: I didn’t have to do much research to find forum after forum of
online sellers who had negative experiences with bad buyers when it comes to
return policies. For example, under eBay’s money
back guarantee a buyer is allowed to dispute a product if it is damaged, is not

received, or is not as described in the listing. While this protects the customer, it
also has the potential to backfire on sellers.
Return abuse happens when a customer files a false claim and a marketplace
refunds that customer’s money. The customer then sends back an item that was
not originally purchased from the seller in exchange.
One online seller, Jordan Allison, is an example of just how much of a

nightmare this experience can be. Allison sold his cell phone on eBay, and upon
arrival the customer submitted a claim that the product was never delivered.
After Allison sent proof of delivery the customer said he had received the
product after all, but instead of a phone it contained beetroots.
Items Not as Described: Another common practice in buyer fraud is to file a

false claim about the item listing. Bad buyers will order an item and upon
delivery take certain parts from the product and claim that the item is not as
39
described in the listing. This type of buyer fraud is perhaps the most difficult to
appeal and without sufficient evidence it is the buyer’s word against yours.
A good solution for this problem is to implement standard procedures to verify
the condition of the product for every order. Taking pictures of the product and
shipment labels is a good step to add as proof. Using
picture evidence is easy to use in single item purchase, but when sellers are
distributing in high volumes taking time to take such detailed precautions is not
ideal.
It is impractical to record packaging and shipment of every order so instead

invoices can be used to prove you bought a product from suppliers in good
condition. Record serial numbers or IMEI of products to compare against the
returned item. Also collecting contact information from customers can be useful
in settling product listing disputes. While you may not get the parts or money
back from marketplaces directly you can file criminal charges against bad
buyers.
Identifying a Bad Buyer: Wouldn’t it be nice if buyers profile came with a

warning notice that the customer may be a bad buyer. Well guess what? They
do.
Many sites provide feedback for buyers and sellers to engage each other. When
interacting with a new buyer do your research. Look at comments that are on the
potential customer’s page from previous sellers, and see how much negative
feedback is on their page.
Some marketplaces, like eBay, even have feedback left for others. Feedback left
for others shows comments the buyer has made to other sellers about past
purchases. If the buyer’s norm is to give negative reviews, or constantly
40
complaining about shipping problems these are all warning signs that they
themselves are the cause of issue and are likely to be a bad buyer.
Examples of Insurance Scams
Introduction to Satyam Scandal
In 2009, the Indian equivalent of the fabled 2001 Enron fraud case occurred in
India. The chairman of Satyam Computers Services, Byrraju Ramalinga Raju,
confessed that the accounts of the company had been manipulated to result in a
fraud of nearly 7000 Cr.
Understanding Satyam Scandal
The Satyam Scandal exposed the many loopholes of the Indian Legal system
while also throwing light upon the financial system. Established in 1987 by the
Raju brothers, Satyam Computers went on to get listed on the BSE in 1991,
where the shares were oversubscribed by
17 times. Its growth was steadily quick, achieving milestones year after year.
The annual revenue of 1 billion, and touched 2 billion in 2008. The ideal success
story. The truth, as the meaning of ‘Satyam’ is, was that the numbers were
extravagant figures being supported by fake bills, receipts and bank statements.
Satyam also employed their own ERP system to account for these fictitious
receipts instead of the commercial ERP accounting systems. The fake bills
amounted to nearly 5000 Cr. in a Fixed Deposit (FD). In 2009, the board of
directors expressed that the idle money in the FDs be invested, one that the Raju
brothers decided to invest in Matyas, another holding of the Raju family. It was a
last resort to match the statements between Satyam and Matyas, which the
stakeholders opposed.
41
The heat of disagreements and the pressure that built from the World Bank’s
interrogation, the subsequent falling of share prices and the inability to match the
real estate statements of Matyas to an IT company put Satyam and PwC failures
in the spotlight. Following this, Raju and ten others were arrested with three
partial charges, consolidating into a single charge sheet.
Highlights of Satyam Scandal
In the aftermath of the scandal, Tech Mahindra purchased Satyam through public
auction, following which the new company was branded as ‘Mahindra Satyam.’
SEBI barred Price Waterhouse (PwC), the auditor of Satyam Computers, from
conducting any audit processes for any company in India for two years, starting
2018. From Rs. 554 on the BSE and $29.10 on the NYSE in 2008, the share
prices of Satyam fell to Rs. 11. 50 and $1.80 respectively.
42
CHAPTER 2
LITERATURE REVIEW
Review of literature is first step for conducting research. It is carried out to

enable the researcher to get understanding about the detailed field of study.
Further it helps the researcher to get thorough with the tested methods and
interpretations of similar type of studies conducted elsewhere. It also helps the
researcher to eradicate limitations of work and may also assist to.
A literature review discusses published information in a particular subject area,

and sometimes information in a particular subject area within a certain time
period.
A literature review can be just a simple summary of the sources, but it usually
has an organizational pattern and combines both summary and synthesis. A
summary is a recap of the important information of the source, but a synthesis is
a re-organization, or a reshuffling, of that information. It might give a new
interpretation of old material or combine new with old interpretations. Or it
might trace the intellectual progression of the field, including major debates.
And depending on the situation, the literature review may evaluate the sources
and advise the reader on the most pertinent or relevant.
43
 DEXTER MORSE, LYNNE SKAJAA1: Insurance fraud is a growing

problem on a global scale. The ABI estimates that fraudulent insurance
claims on motor and household policies alone cost insurers in excess of
1 billion every year. This book provides an analysis of the insurance
industry’s response to the problem and examines fraud from legal and
practical perspectives to determine how to manage and reduce fraud.
 WILLARD PHILLIPS: Mr. Justice Story, in giving his opinion upon

this question, in an early case, said: “If the deduction' of one third could
be made, I should have no doubt that the like deduction must be taken
from the whole value of the ship after the repairs.”
 GORGE.E.2003: There are several papers which focus on risk

management
(George, E. (2003) in insurance but hardly any paper talk about the fraud risk,
how to do fraud risk assessment and the risk management The literature review
presented in Chapter 2 serves as a basis for the development and discussion of
the following theoretical framework. The reason why this subject was chosen is
to test the applicability of prevention and reasons for life insurance fraud.
Insurance fraud is often committed because people see an opportunity that is
44
presented to them, and the situational crime prevention approach is based on the
premise that the best way to reduce crime is to curtail the opportunities for 44
committing it.
 KASTURI: The study reveals that success of an insurance company

depends on four important functions, such as identification of markets,
assessment of risks and estimation of losses, penetration into and
exploitation of markets, control over investment and operating costs.
 PAREKH (2007): explained that the face of insurance in India has

changed so radically that you cannot recognize it from the past. The
changes which have been witnessed in the last seven years are: product
innovation, unbundling of features and becoming more customer-
responsive.
Tackling Insurance Fraud: Law and Practice, Publish LLP 2014.
45
CHAPTER 3
RESEARCH METHODOLGY
The systematic and objective identification, collection, analysis, dissemination

and use of information for the purposes of assisting management in decision
making relating to the identification and solution of problems (and
opportunities) in marketing.
It is a way to systematically solve the research problem. In it we study various

steps that are generally adopted by a researcher in studying his research problem
along with the logic behind them. It is important for the researcher not only to
understand the research methods and techniques but also the methodology.
Research Methodology is the systematic and theoretical analysis of the method

applied to a field of study. It involves qualitative and quantities technique. This
part aims to understand the research methodology establishing a frame of
evaluation and revaluation of primary and secondary research.
46
Objectives
• To study which action implemented by the insurance sector regarding frauds.
• To identify the fraudulent activates in insurance sector.
• To study brief on deduction provided by insurance sector.
• To identify the Regulatory authority which regulate

the insurance sector.
• To evaluate the performance and actions of insurance firms with respect to

frauds related activates.
Scope of Study:
• Insurance fraud is any act committed to defraud an insurance process. This
occurs when a claimant attempts to obtain some benefit or advantage they are
not entitled to, or when an insurer knowingly denies some benefit that is due.
47
• Insurance provide security which is the prime motivating factor. It tends to

stimulate an individual do more work.
• Insurance is defined as a co-operative device to spread the loss caused by a

particular risk over a number of persons who are exposed.
• Insurance sector in India plays a dynamic role in the wellbeing of its economy.
It substantially increases the opportunities for savings amongst the individuals,

safeguards their future and helps the insurance sector form a massive pool of
funds.
• Insurance industry in India has seen a major growth in the last decade along
with an introduction of a huge number of advanced products. This has led to a

tough competition with a positive and healthy outcome.
• The aim of all types of insurances is to protect the owner from a variety of
risks which he anticipates.
• Insurance means the act of securing the payment of a sum of money in the
event of loss or damage to property, life, a person.
Limitation of study:
Limitations are influences that the researcher cannot control. They are the
shortcomings, conditions or influences that cannot be controlled by the
researcher that place restrictions on your methodology and conclusions.
Following are limitation -
• People were not interested in providing the true financial position of them.
• Time limit was one the limitation in this project. I got approximately 5 weeks
To complete the project.
48
• Some people were so much busy that they didn’t show their interest in giving
Information.
• In secondary data collection, I found problem in collecting the latest reliable
data after recession.
Significance of Study
The Project has beenbased to understand the frauds in insurance deduction and
action where the meaning of insurance is perfectly described.
Insurance fraud can be said to occur when an insured or someone in relation to
an insurance process, knowingly makes a falsified claim or misrepresents
facts/information in relation to an insurance claim or process, with the sole
intention to obtain some benefit or advantage to which they are not otherwise
entitled.
Fraud comes in all shapes and sizes. In general, insurance fraud can be divided
into two categories: criminal fraud, which is perpetrated by professionals
habitually trying to milk the system; and cultural fraud, which is a genuine
claimant being opportunistic or exaggerating a claim.
Insurance allows individuals business and other entities to protect themselves

against significant potential losses and financial hardship at a reasonably
affordable rate. We say significant because if the potential loss is small, then it
doesn’t make sense to pay a premium to protect against a loss.
Data Collection
In dealing with any real-life problem, it is often found that data at hand are
inadequate and hence, it becomes necessary to collect data that are appropriate.
There are several ways of collecting the appropriate data which differ
considerably in context of money costs, time and other resources at the disposal
of the researcher.
49
For data collection, questionnaire (survey instrument) will have to be prepared

so that adequate information will be collected from the respondents by asking
appropriate questions. Data collection should be systematic so that reliable and
relevant data are collected for research purpose. “Without data, you are just
another person with an opinion”.
The study is based on both primary and secondary data; however, the secondary
data plays major role to achieve aims and objective of the study. The primary
and secondary data are used in the appropriate proportion. Both the data are
having the vital significance in the research study. The primary data is first-hand
information which is generated from primary sources and secondary data is
second hand information which is generated from secondary sources. Both
primary and secondary data in the project. Primary data through questionnaire
and secondary data through journals, office documents, and other sources of
published information like website of company.
Primary Data
Primary data constitute first-hand information which is collected for the first
time in order to solve research problem. it is the data collected from primary
sources which are original sources. It is fresh data collected for the first time
directly from the respondents. Primary data is important as it gives reliable
factual first-hand information for research purpose. Primary data collection is
time consuming and costly. Primary data are collected for detailed information
on certain aspects of research project. Such data are also collected when the
secondary data available are old, outdated or inadequate.
Examples of primary data: Data collected through observation, experimentation,

surveys and questionnaire.
There are many sources of primary data which are used to generate first-hand
information. This data is collected by conducting bank account holders and bank
employees which are effectively engaged in banking business. The questionnaire
specially prepared to conduct interviews of the bank account holders and the
bank employees. Many factors are considered for formulating this questionnaire.
It is formulated in such way that the relevant information would be collected. It
took about six days to formulate this questionnaire for collecting adequate care
is taken to formulate the questionnaire for collecting adequate information to
achieve said aims and objective.
50
Secondary Data
Secondary data are easily or readily available in the published form and are used
for conduct of research activity. Secondary data are actually borrowed data from
its published source. Initially, such data may be primary data but when used for
research purpose, they are to be treated as secondary data. Such data are used
extensively in academic research. Secondary data are available from internal
sources (old records of the company, sales invoices, financial records, etc.) and
external sources. Secondary data are supportive in character. Secondary data are
used to support and substantiate the primary data collected for the research
project under study. This data are quantitative data used for supporting primary
data.
Examples of secondary data: census reports, reports of committees and

published information through print media, journals and government
publications like economic survey and budget documents.
Secondary data is inexpensive and takes less time in obtaining it. Even the
processing of data is economical. Secondary data are affordable. As it is readily
available its validity needs confirmation. There is no privacy or secrecy of
secondary data. The data are kept on sale and any person in need of it can buy it.
Data is easily accessible to anyone. There is no problem as regards its disclosure
and secrecy. The significance of secondary data is that it leads to saving time,
because the data is readily available it enables to make quick decisions.
Moreover, the data is available in processed form. There is no need to make
elaborate processing. The secondary data available may not be relevant to the
subject matter of research work. Lack of in-depth information in secondary data,
possibility of biased information available, unsuitability of secondary data for
specific research project, may affect the quality of research work.
Research Technique
Structured Questionnaire and personal interview, telephonic interview and

observation research technique was used in the project. Type of questionnaire in
this project I have used close ended structured questionnaire to collect the actual
view of the consumers and their approach towards the frauds in insurance.
51
RESEARCH DESIGN:
A research design is a structure or blue print for conducting a research project. It

details the measures necessary for acquiring the information need to construct
and/or solve the problems. The research design sets the foundation for carrying
the research. Exploratory Research: This will comprise of secondary data
analysis as well as primary. Primary will comprise of qualitative research –
expert interview and advice was taken. These experts comprised of manager and
above cadre (risk profile) from life insurance companies as well as investigating
agencies which were 6 in number and also 4 academicians’ interview were
taken.
Questionnaire was circulated via email to industry experts and proof checking of
the content of the questionnaire was done and the questions were modified as
per the expert’s advice. This helped us to gather information such as actual
practices followed by them to review fraud and the measures taken by them to
control it. Descriptive Research: Two surveys i.e., employees and consumer
survey were conducted in order to study the customer’s perception and practices
followed by the life insurance companies. This helped us to know how a
52
customer would rate their company as well as agent, personal experience of the
consumer with fraud, curtailing and punishing fraud. Detail description is given
below.
CHAPTER 4
➢ CASESTUDY INTRODUCTION
In the social sciences and life sciences, a case study is a research method
involving an upclose, in-depth, and detailed examination of a subject of study
(the case), as well as its related contextual conditions.
Case studies can be produced by following a formalresearchmethod. These case

studies are likely to appear in formal research venues, as journals and
professional conferences, rather than popular works. The resulting body of 'case
study research' has long had a prominent place in many disciplines and
professions, ranging from psychology, anthropology, sociology, and political
science to education, clinical science, social work, and administrative science.
In doing case study research, the "case" being studied may be an individual,
organization, event, or action, existing in a specific time and place. For instance,
clinical science has produced both well-known case studies of individuals and
also case studies of clinical practices. However, when "case" is used in an
53
abstract sense, as in a claim, a proposition, or an argument, such a case can be

the subject of many research methods, not just case study research.
Another suggestion is that case study should be defined as a research strategy,

an empirical inquiry that investigates a phenomenon within its real-life context.
Case study research can mean single and multiple case studies, can include
quantitative evidence, relies on multiple sources of evidence, and benefits from
the prior development of theoretical propositions. Case studies should not be
confused with qualitative research and they can be based on any mix of
quantitative and qualitative evidence.Single-subject researchprovides the
statistical framework for making inferences from quantitative case-study data.
Case studies may involve both qualitative and quantitative research methods.
Analysis of data I the process of re-arranging the collected data in a systematic

manner for interpretation purpose. Analysis prepares data ready for interpretation
and drawing conclusions. Raw data has no usage in marketing research. Hence,
appropriate analytical tools must be used. Advanced statistical tools can also be
used if the researcher has an access to its techniques.
In the analysis of data, the arranged data are examined as regards relevance,
validity and practical utility in the marketing research project undertaken. It is a
critical evaluation of data in terms of quality and making the data ready for
interpretation purpose. Analysis of data provides basis for the interpretation. It is
the critical study of the data from different angles. It is the most skilled task in
the research process.
According to David J. Luck and Ronald S. Rubin, statistical analysis means “the
refinement and manipulation of data that prepares them for the application of
logical inference.”
54
Analysis of data and interpretation of data are closely related concepts.

However, analysis is prior to interpretation and prepares proper background for
the interpretation and also for drawing conclusions.
Types of Case Studies
Under the more generalized category of case study exist several subdivisions,
each of which is custom selected for use depending upon the goals and/or
objectives of the investigator. These types of case study include the following:
Illustrative Case Studies
These are primarily descriptive studies. They typically utilize one or two
instances of an event to show what a situation is like. Illustrative case studies
serve primarily to make the unfamiliar familiar and to give readers a common
language about the topic in question. Exploratory (or pilot) Case Studies
These are condensed case studies performed before implementing a large-scale

investigation. Their basic function is to help identify questions and select types
of measurement prior to the main investigation. The primary pitfall of this type
of study is that initial findings may seem convincing enough to be released
prematurely as conclusions.
Cumulative Case Studies
55
These serve to aggregate information from several sites collected at different
times. The idea behind these studies is the collection of past studies will allow
for greater generalization without additional cost or time being expended on
new, possibly repetitive studies. Critical Instance Case Studies
These examine one or more sites for either the purpose of examining a situation
of unique interest with little to no interest in generalizability, or to call into
question or challenge a highly generalized or universal assertion. This method is
useful for answering cause and effect questions.
4.1.2 MEANING OF INTERPRETATION OF DATA
In research project, analysis and interpretation of data are two major concluding
steps. Analysis of data is the verification of data already arranged in a systematic
manner. It is followed by the interpretation of data.
Interpretation is the climax of the research process. It is basically subjective

process in which the researcher has to draw conclusion by using the data as a
base. He has to use his common sense, knowledge, experience and intellectual
honesty while drawing specific conclusion and also while making concrete
recommendations.
It is rightly said that interpretation means adding information to mere facts and
figures. Interpretation is a process of drawing inference from collected facts.
Interpretation is the ultimate purpose of all research activates. Interpretation of
data is not mere summarization of data. It is adding new meaning and
significance to the conclusions available from the data collected. Interpretation
of data is very crucial stage in the research process. Analysis and interpretation
are two key components of a research process.
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MOST FAMOUSE CASE STUDY ON FRAUDS IN INSURANCE:
Insurance fraud seems like it might be an easy thing to do. Insurance companies
are often so huge, one wonders how they might not even notice a few mistakes
in your favour. But the fact is thatinsurance companieshave people who make it
their full-time job to sniff out fraud, ensuring that they keep a tight bottom line.
And while they may not catch every tiny little fudge, you can be sure they are on
the hunt for major offenders such as the ones on this list. Check out these
famous insurance fraud cases that surely carried a huge bounty.
• HCA/Medicare: In 2000 and 2002, HCA pleaded guilty to 14 felonies,

including fraudulently billing Medicare as well as other programs. HCA had
inflated the seriousness of diagnoses, filed false cost reports, and paid kickbacks
to doctors to refer patients. HCA had to pay the US government $631 million
57
plus interest, as well as $17.5 million to state Medicaid agencies, on top of $250
million already paid to Medicare for outstanding expense claims. It was the
largest fraud settlement in US history, with law suits reaching $2 billion in total.
• John Darwin's Death: John Darwin faked his death in a canoeing accident,
turning up five years later. He'd been secretly living in his house and the house
next door, while his wife claimed the money on his life insurance. They were
both sentenced to six years in prison, but released on probation. BBC created a
TV drama about their story called Canoe Man.
• The horse murders scandal: Between the mid-1970s and mid 1990s many
expensive horses were involved in insurance fraud. These expensive horses,
often show jumpers, were placed on insurance for accident or death, and killed
for the insurance money. The number of horses killed in this manner is believed
to be at least 50 and possibly as high as 100. It was the biggest scandal in
equestrian sports, resulting in the death of a whistle blower, Helen Brach, in
addition to the horses.
• John Mango's fire: A Toronto businessman, John Mango hired someone to set
fire to his business for the insurance money. Things got quite out of hand, killing
one person during the fire and forcing many families to leave the area until the
fire could be put out. Mango was charged with second degree murder on top of
his fraud charges.
• Swoop and squat: In the 90s, car insurance fraud ran rampant. Cars would
purposely get into accidents with innocent people on the road, hoping to score
insurance money, and often, they did. These accidents frequently injured drivers,
and some were even fatal. These accidents usually earned the orchestrators
about $20,000 each.
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• Michael Jackson's prescriptions: Lloyds of London has recently filed suit to
invalidate an insurance policy taken out by Michael Jackson. The policy covered
his "This Is It" tour in the event that it was not successful. The pay-out was to be
$17.5 million, but Lloyds argues that it is invalid because Michael Jackson did
not disclose prescription drugs on his application. As Jackson died from an
overdose, Lloyds is claiming deception.
• The Titanic: Everyone knows the story of the Titanic, but not everyone realizes
that some believe it's part of a conspiracy to pull off a huge insurance fraud. The
Olympic, Titanic's sister ship, was damaged and rendered useless during one of
its voyages-and some believe that the Titanic as it sunk was actually the
Olympic. Conspiracy theorists note several inconsistencies in the performance
and construction of the "Titanic" that indicate the Titanic sinking was a case of
swapped ships.
• Cooperman art theft hoax: Would you steal your own art for money? LA
ophthalmologist Steven Cooperman did. He arranged for a Picasso and a Monet
to be stolen from his home in an attempt to collect $17.5 million in insurance
money. He was convicted in July 1999.
• Martin Frankel: Martin Frankel's insurance fraud is just one in a long list of
financial crimes. He was sentenced to 200 months in prison due to over $200
million in losses to insurance companies. He eventually plead guilty to 24
federal counts of racketeering and conspiracy, securities fraud, and wire fraud.
• Bristol-Myers Squibb kickbacks: Regulators in California have gone after

Bristol-Myers Squibb for insurance fraud, among other offenses. The lawsuit
accuses Bristol-Myers of making payments to high-prescribing physicians,
targeting and profiting on the private insurance industry. It is the largest health
59
insurance fraud to be pursued by a California state agency. Additionally, in

2007, the pharmaceutical company paid $515 million to settle with federal and
state governments against allegations of kickbacks to defraud Medicare and
Medicaid.
• Dr. Gupta's mystery procedures: There's a nationwide manhunt launched by the

FBI looking for Dr. Gautam Gupta. The complaint against him alleges that he
submitted claims to Blue Cross/Blue Shield and Medicaid for unnecessary
procedures, and even ones that were never performed. The fraudulent insurance
claims from Dr. Gupta reached nearly $25 million.
• Millionaire insurance fraud: Charles Ingram was first made famous as a fraud
when he cheated on Who Wants to Be a Millionaire, using coded coughs to win.

But his deception was further exposed when he was convicted of insurance fraud
as well. He placed a suspicious £30,000 burglary claim, and was found to be
dishonest, ultimately winning two guilty charges for his fraud.
TAP Pharmaceuticals fraud: The Department of Justice got involved with this
pharmaceutical insurance fraud case. TAP Pharmaceuticals engaged in
fraudulent drug pricing and marketing conduct, as well as filing fraudulent
claims with Medicare and Medicaid. They agreed to pay $559 million to the
government for those claims, as part of an $875 million settlement for all
criminal charges and civil liabilities.
• I get knocked down, but I get up again…and knocked down again 48 more
times: With 49 cases, Isabel Parker earned her title as the queen of the slip and
fall scam. During her career, she received claims totalling $500,000.
• Torching the Malibu: What do you do if you don't want to pay on your car
anymore? If you're teacher Tramesha Lashon Fox, you get your students to set
your car on fire in exchange for passing grades. She'd hoped to get insurance
money, but instead lost her job and served 90 days in jail.
60
CHAPTER 5
FINDING
Findings suggest that some of the factors driving up life insurance fraud are
fraudster’s attitude and consumer’s attitude towards fraud. Therefore, the life
insurance companies
should develop and fund an exhaustive, ongoing information campaign to
instruct the public about life insurance fraud. This campaign should consist of
communication addressing
consumers. A consumer considers that a good judgment of right and wrong
prevents people from committing insurance fraud. Therefore, the public
campaign should include communication that appeal to an individual’s sense of
what is right and what is wrong. This will in turn help in demonstrating that
committing life insurance fraud is equivalent to doing a crime of stealing from
others.
61
CONCLUSION
7.1 Conclusion A very essential challenge for the life insurance industry is due
to the ‘fraud risk’. Insurers are aware of the need to deal with this risk, but the
problem is lack of an integrated approach to fraud risk management. The
increasing cases of frauds and the growing level of risk insist that insurers
regularly evaluate their policies, conduct checks and adopt advanced techniques
to curtail such issues. However, no system can clean out such frauds, but a
proactive approach can make a company ready to oppose fraudsters and gain a
frame over its competitors. As India’s insurance industry matures, fraud risk
management is going to be a major concern for insurers and business leaders.
Insurers will need to constantly reassess their processes and guidelines to
manage and alleviate the risk of fraud. Fraud risk in the insurance can originate
from internal and external factors. Internal risk means the risk of employees’
misappropriating confidential information and conspire with fraudsters is on the
rise and therefore they need to put in place internal checks. External fraud risk
can occur at various stages, e.g., registration of clients, reinsurance,
underwriting, and the claims process. India is one of the fastest growing
economies and so is the case with the country’s insurance sector. Insurance
Fraud Survey is conducted to assess the fraud scenario, the probable risk
exposure and the industry practices to counter fraud risk. The significant role
that life insurance fraud plays is negatively affecting the insurance industry is
often under-reported or discounted. Fraud risk in life insurance is a complex
matter, which influence both the parties — insurers as well as policyholders.
Life insurance frauds increase the cost of insurance, resulting in policyholders
paying higher amount of premiums and at the same time insurers losing to their
competitors. 138 The study recognized life insurance fraud as a serious fault,
and insurers are striving to place effective measures to identify, penalize, and
62
more importantly, avert this kind of practice. Life insurance risk exposure from
insurance risk is a major issue for all the industry players. Respondents have
highlighted the need for anti-fraud regulations in the area of insurance risk. The
internal audit and a dedicated risk department of the company were considered
to be the chief mechanism utilized for detecting life insurance fraud. The truth
was that insurer fraud was more complex and involved more defiance of internal
control mechanisms. The schemes used by insurer fraud perpetrators were
significantly different than those used by insurance fraud. External audits and
external database search for discovering life insurance fraud were not prevalent
in the life insurance companies. It is evident from the study that major group of
respondents comprises of moralists who are least tolerant against
life insurance fraud. This clearly indicates this segment of customers is highly
concerned for life insurance fraud and they are ready to punish the fraudsters.
Majority of the customers also perceive that the major reason for committing life
insurance fraud is that fraudsters think they can get away with life insurance
fraud. This indicates the lack of a comprehensive and integrated approach to
fraud risk management. Fraud risk poses a very big challenge for the insurance
sector. The increasing number of frauds and the growing degree of risk
necessitates that insurance companies regularly review their policies, build in
checks and use new and advanced technology to avoid such issues. However, no
system can be fool proof, but a proactive and dynamic approach can make a
company ready to counter fraudsters and gain an edge over its competitors.
Currently the life insurance companies are using various mechanism to prevent
life insurance fraud such as external audit, a dedicated risk team, internal audit
and whistle blower policy. Some recommendations to allay mounting concerns
relating to money laundering include: a centralized KYC database, a risk-based
approach, and the use of intelligent software for transaction monitoring and
screening against negative lists and third-party databases. These
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recommendations were given by two customers during the survey. KYC

database means Know Your Customer database which will help to understand
the identity of the customers and identify duplicate application. Risk based
approach means having a dedicated risk management team who will only focus
on identifying and curtailing life insurance fraud. Intelligent software and
negative database list will focus on those names who have already done frauds
in the past. Today, when India’s life insurance companies are working toward
controlling costs, one of its key focus areas to reduce costs is by proactively
detecting fraud, which can be 139 attained through an effective fraud risk
framework. Lastly some of the respondents also expressed those other countries
are having better fraud control mechanism compared to India and therefore
Indian life insurance companies should learn from other developed countries to
adopt some of the best fraud control mechanisms which are already practiced by
them.
SUGGESTION
Suggestions Following suggestions and recommendations were observed:

Findings suggest that some of the factors driving up life insurance fraud are
fraudster’s attitude and consumer’s attitude towards fraud. Therefore, the life
insurance companies should develop and fund an exhaustive, ongoing
information campaign to instruct the public about life insurance fraud. This
campaign should consist of communication addressing consumers. A consumer
considers that a good judgment of right and wrong prevents people from
committing insurance fraud. Therefore, the public campaign should include
communication that appeal to an individual’s sense of what is right and what is
wrong. This will in turn help in demonstrating that committing life insurance
fraud is equivalent to doing a crime of stealing from others. The most admired
section of the insurance industry is the agents themselves. Findings of the study
suggest that consumers are having negative attitude towards the life insurance
agents. Therefore, it is suggested to enrol the major agent clusters to help in this
64
campaign. The agent clusters may perhaps be a foundation of mass media

messages and also provide a root level of anti-fraud education from the agent
directly to the consumer. In addition to this insurer should enrol their own agents
to help in this campaign through awareness training and by providing them with
the materials they will need to instruct the consumers. The campaign should be
such which would convince the consumers that they will get some economic
benefit from this life insurance fraud fighting efforts. Alarming things observed
in the findings leads to the following recommendations: - 140 Vigilant and
effective authentication of applications which would demolish any practice of
material
misrepresentations, non-disclosure and this should be a practice which should be
adopted by all the life insurance companies, especially with the introduction of
new databases and technology. This practice should be downloaded to
prospective as well as existing applicants to dismiss any possible notion that
insurance companies do not check applications properly and thoroughly. Claim
submissions should be thoroughly scrutinized for any evidence of probable life
insurance fraud and that also needs to be investigated accordingly. From the
literature review it was observed that there are specific institutions like the
coalition and/or other organizations in other countries which are supervising the
antifraud programs. These types of institutions should be introduced in India as
well. In the current scenario when
India’s insurance industry is working towards reducing costs, one of its key
focus areas to control or reduce costs is by arresting fraud proactively, which
can be achieved through an effective fraud risk assessment program. Fraud risk
assessment program would include effective policy holder and vendor due
diligence process, effective claims validation, mystery shopping – it means that
an agent is approached by a dummy customer in order to check whether the
agent is explaining the deal accurately or not, doctor audit – it means to check
whether the doctors give clean reports or not in case of discrepancies, channel
reviews pertaining to tied agency. Some recommendations to allay mounting
65
concerns relating to money laundering are a centralized KYC database, a risk-

based approach, the use of database for transaction monitoring and screening
against negative lists and third-party databases, state level legislation, better
internal control system. One of the findings observed
during the research was the attitude that fraudsters had in their mind. The
attitude that they can get away with fraud escalates frauds, so a better fraud
detection technique will definitely help in controlling frauds. One of the
alarming findings was exploitation due to lack of separation of duties. Also, this
was observed in both insurance and insurer fraud. Therefore, separation of duties
will definitely help in controlling frauds.
TYPES OF FRAUD RBI
1.Introduction
1.1 Incidence of frauds, dacoities, robberies, etc., in banks is a matter of concern.

While the primary responsibility for preventing frauds lies with banks
themselves, the Reserve Bank of India (RBI) has been advising banks from time
to time about the major fraud prone areas and the safeguards necessary for
prevention of frauds. The Reserve Bank has also been circulating to banks, the
66
details of frauds of an ingenious nature, not reported earlier so that banks could
introduce necessary safeguards / preventive measures by way of appropriate
procedures and internal checks. Banks are also being advised about the details of
unscrupulous borrowers and related parties who have perpetrated frauds on
banks so that banks could exercise caution while dealing with them. To facilitate
this ongoing process, it is essential that banks report to RBI complete
information about frauds and the follow-up action taken thereon. Banks may,
therefore, adopt the reporting system for frauds as prescribed in following
paragraphs.
1.2 A reference is invited to paragraph 5.2.4, as regards reporting of frauds

involving Rs. 1.00 crore and above to special committee of the Board.
1.3 It has been observed that frauds are, at times, detected in banks long after
their perpetration. Sometimes, fraud reports are also submitted to RBI with
considerable delay and without complete information. On some occasions, RBI
comes to know about frauds involving large amounts only through press reports.
Banks should, therefore, ensure that the reporting system is suitably streamlined
so that frauds are reported without any delay. Banks must fix staff
accountability in respect of delays in reporting fraud cases to RBI.
1.4 Delay in reporting of frauds and the consequent delay in alerting other banks
about the modus operandi and issue of caution advices against unscrupulous
borrowers could result in similar frauds being perpetrated elsewhere. Banks
may, therefore, strictly adhere to the timeframe fixed in this circular for
reporting fraud cases to RBI failing which banks would be liable for penal action
prescribed under Section 47(A) of the Banking Regulation Act, 1949.
1.5 A software package on 'Frauds Reporting and Monitoring System' was

supplied to banks in June 2003 and subsequent revisions carried out in the above
package were advised to banks vide RBI Circular DBS.FGV(F) No.
8897/23.10.001/2005-06 dated December 20, 2005. Banks are required to send
the returns and data, as prescribed, in soft copy only (except in case of FMR-1
return which is required to be submitted both in hard and soft copies) to RBI
Central Office as well as the concerned Regional Office of the Department of
Banking Supervision under whose jurisdiction the bank's Head Office is
situated.
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1.6 Banks should specifically nominate an official of the rank of General

Manager who will be responsible for submitting all the returns referred to in this
circular.
1.7 Fraud Monitoring Cell at Department of Banking Supervision, Central

Office will publish a directory of officers of banks/Financial Institutions (FI)
responsible for reporting of Frauds etc in January every year. Banks/Financial
Institutions should furnish to Department of Banking Supervision, Central
Office Fraud Monitoring Cell any changes in the names of officials that will be
necessary for inclusion in the directory by December 15 every year.
2. CLASSIFICATION OF FRAUDS
2.1 In order to have uniformity in reporting, frauds have been classified as

under, based mainly on the provisions of the Indian Penal Code:
a. Misappropriation and criminal breach of trust.
b. Fraudulent encashment through forged instruments, manipulation of

books of account
or through fictitious accounts and conversion of property.
c. Unauthorised credit facilities extended for reward or for illegal

gratification.
d. Negligence and cash shortages.
e. Cheating and forgery.
f. Irregularities in foreign exchange transactions.
g. Any other type of fraud not coming under the specific heads as above.
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2.2 Cases of 'negligence and cash shortages' and ‘irregularities in foreign

exchange transactions’ referred to in items (d) and (f) above are to be reported as
fraud if the intention to cheat/defraud is suspected/ proved. However, the
following cases where fraudulent intention is not suspected/proved at the time of
detection will be treated as fraud and reported accordingly:
(a) cases of cash shortage more than Rs. 10,000/-, and
(b) cases of cash shortage more than Rs.5,000/- if detected by management

/auditor/inspecting officer and not reported on the day of occurrence by the
persons handling cash.
2.3 To ensure uniformity and to avoid duplication, frauds involving forged

instruments may be reported only by the paying banker and not by the collecting
banker. However, in the case of collection of an instrument which is genuine but
the amount is collected fraudulently by a person who is not the true owner, the
collecting bank, which is defrauded, will have to file fraud report with the RBI.
In case of collection of instruments where the amount has been credited before
realisation and subsequently the instrument is found to be fake/forged and
returned by the paying bank, it is the collecting bank who has to file FMR-1
with the RBI as they are at loss by parting the amount before realisation of the
instrument.
2.4 Encashment of altered / fake cheques involving two or more branches of the
same bank
2.4.1 In case of collection of altered/fake cheque involving two or more

branches of the same bank, the branch where the altered/fake cheque has been
encashed, should report the fraud to Head Office of the bank. Thereafter, Head
Office of the bank will file the fraud report with RBI.
2.4.2 In the event of an altered/fake cheque having been paid/encashed involving

two or more branches of a bank under Core Banking Solution (CBS), there
could be a possibility of dispute/difference of opinion as to whether the branch
where the drawer of the cheque maintains the account or the branch where the
encashment has taken place should report the matter to the Head Office of the
bank. In such cases also the branch which has released the payment against an
69
altered / fake cheque should report the fraud to the Head Office. Thereafter,
Head Office of the bank will file the fraud report with RBI.
2.5 Cases of theft, burglary, dacoity and robbery should not be reported as
fraud. Such cases may be reported separately as detailed in paragraph 7.
2.6 Banks (other than foreign banks) having overseas branches/offices should
report all frauds perpetrated at such branches/offices also to RBI as per the
format and procedure detailed under Paragraph 3 below.
3. Reporting of Frauds to Reserve Bank of India
3.1 Frauds involving Rs. 1 lakh and above
3.1.1 Fraud reports should be submitted in all cases of fraud of Rs. 1 lakh and
above perpetrated through misrepresentation, breach of trust, manipulation of
books of account, fraudulent encashment of instruments like cheques, drafts and
bills of exchange, unauthorised handling of securities charged to the bank,
misfeasance, embezzlement, misappropriation of funds, conversion of property,
cheating, shortages, irregularities, etc.
3.1.2 Fraud reports should also be submitted in cases where central investigating
agencies have initiated criminal proceedings suo motto and/or where the
Reserve Bank has directed that they be reported as frauds.
3.1.3 Banks may also report frauds perpetrated in their subsidiaries and
affiliates/joint ventures. Such frauds should, however, not be included in the
report on outstanding frauds and the quarterly progress reports referred to in
paragraph 4 below.
3.1.4 The fraud reports in soft copy format involving all categories of frauds and
hard copy format involving frauds of Rs. 5 lakh and above should be sent to the
Central Office (CO) as also the concerned Regional Office of RBI, Department
70
of Banking Supervision, under whose jurisdiction the Head Office of the bank
falls, in the format given in FMR – 1, within three weeks from the date of
detection. However, fraud reports in hard copy format involving frauds of Rs.
1.00 lakh and above and less than Rs. 5.00 lakh should be sent to the concerned
Regional Office of RBI, Department of Banking Supervision only.
3.2 Frauds committed by unscrupulous borrowers
3.2.1 It is observed that a large number of frauds are committed by unscrupulous

borrowers including companies, partnership firms/proprietary concerns and/or
their directors/partners by various methods including the following:
i. Fraudulent discount of instruments or kite flying in clearing effects.
ii. Fraudulent removal of pledged stocks/disposing of hypothecated

stocks without the bank’s knowledge/inflating the value of stocks in
the stock statements and drawing excess bank finance.
iii. Diversion of funds outside the borrowing units, lack of interest or

criminal neglect on the part of borrowers, their partners, etc. and also
due to managerial failure leading to the unit becoming sick and due to
laxity in effective supervision over the operations in borrowal
accounts on the part of the bank functionaries rendering the advance
difficult to recover.
3.2.1 In respect of frauds in borrowal accounts, additional information as

prescribed under Part B of FMR – 1 should also be furnished.
3.2.2 Banks should exercise due diligence while appraising the credit needs of
unscrupulous borrowers, borrower companies, partnership/ proprietorship
concerns and their directors, partners and proprietors, etc. as also their associates
who have defrauded the banks.
In addition to above borrower- fraudsters, third parties such as builders,

warehouse/cold storage owners, motor vehicle/tractor dealers, travel agents, etc.
and professionals such as architects, valuers, chartered accountants, advocates,
etc. are also to be held accountable if they have played a vital role in credit
71
sanction/disbursement or facilitated the perpetration frauds. Banks are advised

report to Indian Banks Association (IBA) the details of such third parties involved
in frauds.
Before reporting to IBA, banks have to satisfy themselves of the involvement of

third parties concerned and also provide them with an opportunity of being heard.
In this regard the banks should follow formal procedures and the processes
followed should be suitably recorded. On the basis of such information, IBA
would, in turn, prepare caution lists of such third parties for circulation among the
banks.
3.2.3. Frauds in borrowal accounts having multiple banking arrangements
Certain unscrupulous borrowers enjoying credit facilities under "multiple banking

arrangement” after defrauding one of the financing banks, continue to enjoy the
facilities with other financing banks and in some cases avail even higher limits at
those banks. In certain cases, the borrowers use the accounts maintained at other
financing banks to siphon off funds by diverting from the bank on which the fraud
is being perpetrated. This is due to lack of a formal arrangement for exchange of
information among various lending banks/FIs. In some of the fraud cases, the
securities offered by the borrowers to different banks are the same.
In view of this, all the banks which have financed a borrower under 'multiple
banking' arrangement should take co-ordinated action, based on commonly agreed
strategy, for legal / criminal actions, follow up for recovery, exchange of details
on modus operandi, achieving consistency in data / information on frauds reported
to Reserve Bank of India. Therefore, bank which detects a fraud is required to
immediately share the details with all other banks in the multiple banking
arrangements.
3.3 Frauds involving Rs. 100.00 lakh and above
In respect of frauds involving Rs. 100 lakh and above, in addition to the
requirements given at paragraphs 3.1 and 3.2 above, banks may report the fraud
by means of a D.O. letter addressed to the Chief General Manager in charge of the
Department of Banking Supervision, RBI, Central Office, within a week of such
72
frauds coming to the notice of the bank’s Head Office. The letter may contain
brief particulars of the fraud such as amount involved, nature of fraud, modus
operandi in brief, name of the branch/office, names of parties involved (if they are
proprietorship/ partnership concerns or private limited companies, the names of
proprietors, partners and directors), names of officials involved, and whether the
complaint has been lodged with the Police/CBI. A copy of the D.O. letter should
also be endorsed to the Regional Office of RBI under whose jurisdiction the
bank's branch, where the fraud has been perpetrated, is functioning.
3.4 Cases of attempted fraud
Cases of attempted fraud, where the likely loss would have been Rs. 1.00 crore or
more had the fraud taken place, should be reported by the bank to the Fraud
Monitoring Cell, Department of Banking Supervision, Reserve Bank of India,
Central Office, Mumbai within two weeks of the bank coming to know that the
attempt to defraud the bank failed or was foiled. The report should cover the
following:
• The modus operandi of the attempted fraud.

• How the attempt did not materialise in the fraud or how the attempt failed /
was foiled. •The measures taken by the bank to strengthen the existing
systems and controls •New systems and controls put in place in the area
where fraud was attempted.
Reports on such attempted frauds should be placed before the Audit Committee
of the Board. Such cases should not be included in the other returns to be
submitted to RBI.
4.Quarterly Returns
4.1 Report on Frauds Outstanding
4.1.1 Banks should submit a copy each of the Quarterly Report on Frauds
Outstanding in the format given in FMR – 2 to the Central Office and the
Regional Office of the Reserve Bank under whose jurisdiction the Head Office of
73
the bank falls within 15 days of the end of the quarter to which it relates. The data
should be submitted in soft copy only. Banks which may not be having any fraud
outstanding as at the end of a quarter should submit a nilreport.
4.1.2 Part - A of the report covers details of frauds outstanding as at the end of the
quarter. Parts B and C of the report give category-wise and perpetrator-wise
details of frauds reported during the quarter respectively. The total number and
amount of fraud cases reported during the quarter as shown in Parts B and C
should tally with the totals of columns 4 and 5 in Part – A of the report.
4.1.3 Banks should furnish a certificate, as part of the above report, to the effect
that all individual fraud cases of Rs. 1 lakh and above reported to the Reserve
Bank in FMR – 1 during the quarter have also been put up to the bank’s Board
and have been incorporated in Part – A (columns 4 and 5) and Parts B and C of
FMR – 2.
4.1.4 Closure of fraud cases
Banks will report to the Frauds Monitoring Cell, RBI, Department of Banking
Supervision (DBS), Central Office, Mumbai and the respective regional offices of
the DBS, the details of fraud cases closed along with reasons for the closure where
no further action was called for.
Fraud cases closed during the quarter are required to be reported in quarterly
return FMR 3 and cross checked with relevant column in FMR-2 return before
sending to RBI.
Banks should report only such cases as closed where the actions as stated below
are complete.
i.The fraud cases pending with CBI/Police/Court are finally disposed of.
ii.The examination of staff accountability has been completed

74
iii.The amount of fraud has been recovered or written off.
iv.Insurance claim wherever applicable has been settled.
v.The bank has reviewed the systems and procedures, identified the causative
factors and plugged the lacunae and the fact of which has been certified by the
appropriate authority (Board / Audit
Committee of the Board)
vi.Banks should also pursue vigorously with CBI for final disposal of pending
fraud cases especially where the banks have completed staff side action.
Similarly, banks may vigorously follow up with the police authorities and/or
court for final disposal of fraud cases and / or court for final disposal of fraud
cases.
Banks are allowed, for limited statistical / reporting purposes, to close those
fraud cases involving amounts up to Rs.25.00 lakh, where:
a.The investigation is on or challan/ charge sheet not filed in the Court for more
than three years from the date of filing of First Information Report (FIR) by the
CBI/Police., or
b. The trial in the courts, after filing of charge sheet / challan by CBI /
Police, has not started, or is in progress.
4.2 Progress Report on Frauds (FMR-3)
4.2.1 Banks should furnish case-wise quarterly progress reports on frauds

involving Rs. 1.00 lakh and above in the format given in FMR – 3 to the Central
Office of RBI, Department of Banking Supervision as well as the concerned
Regional Office of the Department of Banking Supervision under whose
jurisdiction the bank’s Head Office is situated, within 15 days of the end of the
quarter to which they relate.
75
4.2.2 In the case of frauds where there are no developments during a quarter, a
list of such cases with a brief description including name of branch and date of
reporting may be furnished in Part – B of FMR – 3.
4.2.3 Banks which do not have any fraud involving Rs. 1.00 lakh and above
outstanding may submit a nil report.
5. Reports to the Board
5.1 Reporting of Frauds
5.1.1 Banks should ensure that all frauds of Rs. 1.00 lakh and above are reported
to their Boards promptly on their detection.
5.1.2 Such reports should, among other things, take note of the failure on the
part of the concerned branch officials and controlling authorities, and consider
initiation of appropriate action against the officials responsible for the fraud.
5.2 Quarterly Review of Frauds
5.2.1 Information relating to frauds for the quarters ending March, June and
September may be placed before the Audit Committee of the Board of Directors
during the month following the quarter to which it pertains, irrespective of
whether or not these are required to be placed before the Board/Management
Committee in terms of the Calendar of Reviews prescribed by RBI.
5.2.2 These should be accompanied by supplementary material analysing
statistical information and details of each fraud so that the Audit Committee of
76
the Board would have adequate material to contribute effectively in regard to the
punitive or preventive aspects of frauds.
5.2.3 A separate review for the quarter ending December is not required in view
of the Annual Review for the year-ending December prescribed below.
5.2.4 Banks are required to constitute a Special Committee for monitoring and
follow up of cases of frauds involving amounts of Rs. 1.00 crore and above
exclusively, while Audit Committee of the Board (ACB) may continue to
monitor all the cases of frauds in general. The Special Committee should consist
of CMD in case of public sector banks and MD in case of SBI/its Associates. In
case of private sector banks, two members from ACB, two members from Board
excluding RBI nominee.
The major functions of the Special Committee would be to monitor and review
all the frauds of Rs. 1.00 crore and above so as to:
• Identify the systemic lacunae if any that facilitated perpetration of the fraud
and put in place majors to plug the same:
• Identify the reasons for delay in detection, if any, reporting to top management
of the bank and RBI:
• Monitor progress of CBI/Police investigation and recovery position:
• Ensure that staff accountability is examined at all levels in all the cases of
frauds and staff side action, if required, is completed quickly without loss of
time:
• Review the efficacy of the remedial action taken to prevent recurrence of

frauds, such as strengthening of internal controls:
77
• Put on place other measures as may be considered relevant to strengthen

preventive measures against frauds.
All the frauds involving an amount of Rs 1.00 crore and above should be
monitored and reviewed by the Special Committee of the Board in case of all
Indian commercial banks. The periodicity of the meetings of the Special
Committee may be decided according to the number of cases involved.
However, the Committee should meet and review as and when a fraud involving
an amount of Rs 1.00 crore and above comes to light.
5.3Annual Review of Fraud
5.3.1 Banks should conduct an annual review of the frauds and place a note
before the Board of Directors/Local Advisory Board for information. The
reviews for the year-ended December may be put up to the Board before the end
of March the following year. Such reviews need not be sent to RBI. These may
be preserved for verification by the Reserve Bank’s inspecting officers.
5.3.2 The main aspects which may be taken into account while making such a
review may include the following:
a.Whether the systems in the bank are adequate to detect frauds, once they have
taken place, within the shortest possible time.

b. Whether frauds are examined from staff angle and, wherever necessary,
the cases are reported to the Vigilance Cell for further action in the case of
public sector banks.
c.Whether deterrent punishment is meted out, wherever warranted, to the persons
found responsible.
d. Whether frauds have taken place because of laxity in following the
systems and procedures and, if so, whether effective action has been taken to
78
ensure that the systems and procedures are scrupulously followed by the staff
concerned.
e.Whether frauds are reported to local Police or CBI, as the case may be, for
investigation, as per the guidelines issued in this regard to public sector banks by
Government of India.
5.3.3 The annual reviews should also, among other things, include the following
details:
a.Total number of frauds detected during the year and the amount involved as
compared to the previous two years.
b. Analysis of frauds according to different categories detailed in
Paragraph 2.1 and also the different business areas indicated in the Quarterly
Report on Frauds Outstanding (vide FMR
– 2).
c. Modus operandi of major frauds reported during the year along with
their present
position.
d. Detailed analyses of frauds of Rs. 1 lakh and above.
e. Estimated loss to the bank during the year on account of frauds, amount
recovered and provisions made.
f. Number of cases (with amounts) where staff are involved and the action
taken against staff.
g. Region-wise/Zone-wise/State-wise break-up of frauds and amount

involved.
h. Time taken to detect frauds (number of cases detected within three
months, six months and one year of their taking place).

79
i. Position with regard to frauds reported to CBI/Police.
j. Number of frauds where final action has been taken by the bank and
cases disposed of.
k. Preventive/punitive steps taken by the bank during the year to
reduce/minimise the incidence of frauds.
6. Guidelines for reporting frauds to Police/CBI
6.1 Private sector banks (including foreign banks operating in India) should
follow the following guidelines for reporting of frauds such as unauthorised
credit facilities extended by the bank for illegal gratification, negligence and
cash shortages, cheating, forgery, etc. to the State Police authorities:
a.In dealing with cases of fraud/embezzlement, banks should not merely be
actuated by the necessity of recovering expeditiously the amount involved, but

should also be motivated by public interest and the need for ensuring that the
guilty persons do not go unpunished.
b. Therefore, as a general rule, the following cases should invariably be
referred to the State Police:
i.Cases of fraud involving an amount of Rs. 1.00 lakh and above, committed
by outsiders on their own and/or with the connivance of bank staff/officers.
ii.Cases of fraud committed by bank employees, when it involves bank funds
exceeding Rs.
10,000/-.
c.Fraud cases involving amounts of Rs 1.00 crore and above should also be
reported to the Director, Serious Fraud Investigation Office (SFIO), Ministry of
Company Affairs, Government of India. Second Floor, Paryavaran Bhavan,
CGO Complex, Lodhi Road, New Delhi 110 003. Details of the fraud are to be
reported to SFIO in FMR-1 Format.
80
6.2 Public sector banks should report fraud cases involving amount of Rs. 1
crore and above to CBI and those below Rs. 1 crore to local police, as detailed
below:
Cases to be referred to
CBI
a.Cases of Rs. 1.00 crore and above up to Rs. 5.00 crore oWhere staff
involvement is prima facie evident – CBI (Anti-Corruption Branch) oWhere
staff involvement is prima facie not evident – CBI (Economic Offences Wing) b.
All cases involving more than Rs.5.00 crore – Banking Security and Fraud Cell
of the respective centres, which is specialised cell of the Economic Offences
Wing of the CBI for major bank fraud cases.
Cases to be referred to Local Police
Cases below Rs.1 crore – Local Police.
i.Cases of financial frauds of the value of Rs.1.00 lakh and above, which involve
outsiders (private parties) and bank staff, should be reported by the Regional
Head of the bank concerned to a senior officer of the State CID/Economic
Offences Wing of the State concerned.
ii.For cases of financial frauds below the value of Rs.1.00 lakh but above
Rs.10,000/- the cases should be reported to the local police station by the bank
branch concerned.
iii.All fraud cases of value below Rs.10,000 involving bank officials, should be
referred to the Regional Head of the bank, who would scrutinize each case and
direct the bank branch concerned on whether it should be reported to the local
police station for further legal action.
81
6.3 Filing of Police complaint in case of fraudulent encashment of

DDs/TTs/Pay Orders/Cheques/ Dividend Warrants, etc.
6.3.1 In case of frauds involving forged instruments, the paying banker has to file
the police complaint and not the collecting banker.
6.3.2 However, in case of collection of instruments which is genuine but the

amount collected fraudulently by a person who is not the owner, the collecting
bank which is defrauded has to file a police complaint.
6.3.3 In case of collection of instruments where the amount has been credited
before realisation and subsequently the instrument is found to be fake/forged and
returned by the paying bank, it is the collecting bank who has to file a police
complaint as they are at loss by paying the amount before realisation of the
instrument.
6.3.4 In cases of collection of altered/fake cheque involving two or more branches

of the same bank, the branch where the altered/fake instrument has been encashed,
should file a Police complaint.
6.4.5 In the event of an altered/fake cheque having been paid/encashed involving

two or more branches of a bank under CBS, the branch which has released the
payment against a fraudulent withdrawal, should file a Police complaint.
7. Reporting Cases of Theft, Burglary, Dacoity and Bank Robberies
7.1 Banks should arrange to report by fax / e-mail instances of bank robberies,
dacoities, thefts and burglaries to the following authorities immediately on their
occurrence.
82
a. The Chief General Manager-in-Charge, Reserve Bank of India, Department of

Banking Supervision, Central Office, Mumbai.
b. Regional Office of the Department of Banking Supervision, Reserve Bank of

India under whose jurisdiction the Head Office of the bank falls.
c. Regional Office of Reserve Bank of India, Department of Banking
Supervision, Reserve Bank of India, under whose jurisdiction the affected bank
branch is located to enable the Regional Office to take up the issues regarding
security arrangements in affected branch/es during the State Level Security
Meetings with the concerned authorities (endorsements).
d. The Security Adviser, Central Security Cell, Reserve Bank of India, Central
Office Building, Mumbai – 400001.
e. Ministry of Finance, Department of Economic Affairs, (Banking Division),

Government of India, New Delhi.
The report should include details of modus operandi and other information as at
columns 1 to 11 of FMR –4.
7.2 Banks should also submit to the Reserve Bank, Department of Banking
Supervision, Central Office as well as the concerned Regional Office of the
Reserve Bank under whose jurisdiction the bank’s Head Office is situated a
quarterly consolidated statement in the format given in FMR – 4 covering all
cases pertaining to the quarter. This may be submitted within 15 days of the end
of the quarter to which it relates.
7.3 Banks which do not have any instances of theft, burglary, dacoity and/ or
robbery to report during the quarter, may submit a nil report.
83
TYPES OF BANK FRAUD
1. Advance Fees Fraud
2. Phishing Fraud
3. Card Skimming
4. Accounting data fraud
5. Account opening fraud
6. Cheque kiting
7. Cheque fraud
8. Counterfeit securities
9. Bank hacking fraud
10. Loan fraud
11. Money laundering fraud
12. Money transfer fraud
13. Letters of Credit
14. Telex Fraud
1. Advance Fees Fraud
An advance-fee fraud occurs when the victim pays money to someone in

expecting of receiving something. such as receiving a loan, contract, investment,
or gift and then receives little or nothing in return.
Example – Fraudster doing calls as custom duty officer to random people to pay
this amount via bank and get your order clearance. Sometimes, people get
trapped by thinking they really got a gift but in end, people end up losing the
money and get nothing.
2. Phishing Fraud
84
Phishing is an online scam that uses to steal private user data which includes
login details, OTP, Password, and credit card numbers. Moreover, Phishing can
be done by giving bank details to fake email, text, phone calls.
For example – Fraudsters often call people to renew their bank account or credit
card, to get bank account details and OTP from their victims so they can commit
fraud.
3.Card Skimming
Card skimming is a method used by fraudsters to record information of people’s

payment cards like debit and credit cards to conduct fraudulent transactions.
Example- Fraudsters do this type of fraud by capturing your payment card

information by way of copying is known as a skimmer. The captured
information will be stored and transferred to an appointed computer so can be
used later for fraudulent activities.
4. Accounting data fraud
In order to hide some serious financial problem. Some companies use fraudulent
bookkeeping to overstate sales, profit, and worth of the company. When the
company is operating at a loss. These fake records can help the company to get
loans from a bank etc.
5. Account opening fraud
Account opening fraud means opening a bank account to deposit and cashing
fraudulent cheques. This fraud is one of the most common frauds in the world.
85
Moreover, mostly these accounts are opened with fake proofs so no one can get
busted.
Example: - A bank account opens to send illegal money to another account or a

fake account to get benefits from the government like the name of the old aged
person to take advantage of pensions.
6. Cheque kiting
Cheque kiting is the illegal process of writing a cheque off to a bank account
with inadequate funds to cover that amount. This relies on the fact that it takes
banks a few days (or even longer for international checks) to determine that a
cheque is bad.
Example – Deposit 1000 in one bank, write a cheque on that amount, and
deposit it to your account in the second bank, you now have 2000 until the
cheque clears.
7.Cheque frauds: There are three main types of cheque fraud:
1.Counterfeit – a simple paper made into the same as bank cheque paper to
make a real cheque but it relates to a real bank account, which has been created
and written by a fraudster.
2.Forged – This fraud is related to a stolen real cheque and not signed by the
account holder. The fraudster has signed the signature on the cheque themselves.
3.Altered – a cheque that has been properly issued by the account holder but has
been altered or changes made by fraudsters like the payee’s name or the amount
of the cheque have been altered.
7. Counterfeit securities
Documents, securities, bonds, shares, and certificate is forged, duplicated,

adjusted, or altered are presented to a bank to get a loan by using these securities
as collateral.
86
8. Bank hacking fraud
Hacking and tampering with a computer to gain access to bank data for illegally
transferring money, deposits, removing any transactions entry. Though,
Computer fraud can be happened by spreading malware or by hacking bank
computers or systems.
9. Loan fraud
Loan fraud means when funds are lent to a borrowing customer that has
exceeded his credit limit or a non-borrowing customer.
Example – When individuals present false information in order to obtain a loan,

that is loan fraud. Similarly, if a thief uses someone’s identity to get a loan in
name of that person, that is another type of loan fraud.
11. Money laundering fraud
Money laundering is illegal obtained money and deposits the money in banks by
converting the cash into untraceable transactions. Fraudsters try to make the
funds look as though they have come from a legal source.
For example – If someone is selling drugs, they may try to pretend that the cash
is from a business, and they may deposit the funds in that business’s account.
12. Money transfer fraud
Scammers use a lot of schemes to get your money by using money transfers
through companies like Western Union and Money-Gram. Scammers create
pressure on people to use money transfers as quickly, so fraudsters can get the
money before that victim realize they’ve been cheated.
Money transfers are online cash transfers same as sending cash and there are no
protections for the sender. At last, there is no way any person can reverse the
transaction or trace the money.
87
13. OTP Fraud
The OTP messages that are passed through telex in form of codes could be
altered to divert the funds to another account so that code could help fraudsters
to make fund transfer.
14. Letters of Credit

Letter of credit generally used for taking importing goods on credit. This is
mostly used in international trading. Letters of credit frauds are mostly tried
against banks by
providing false documentation showing that goods were shipped but in fact, no
goods were shipped.
15. Frauds in Bank’s advances portfolio
 Frauds related to the advances portfolio accounts for the largest Share of the
total amount involved in frauds in the banking sector. (Involving amount of Rs. 50
crore and above)
 Another point that public sector banks account for a substantial chunk of the
total amount involved in such cases.
 Declaration of frauds by various banks in cases of consortium/ multiple
financing we have on occasions observed more than 12– 15 months lag in
declaration.
 The large value advance related frauds, which pose a significant challenge to
all stakeholders, are mainly concentrated in the public sector banks
88
 Majority of the credit related frauds are on account of deficient appraisal
system, poor post disbursement supervision and inadequate.
 Reserve bank has also advised banks to audit periodically so that cases of
multiple financing may be detected in the initial stages itself
Expectations of the supervisor
 RBI has clearly indicated that fraud risk management, fraud monitoring
and fraud investigation function must be owned by the bank’s CEO, audit
committee of the board.
 In respect large value frauds, the special committee of the board are
CMDs, CEOs, audit committee and the special committee evolving robust fraud
risk management systems.
 They are responsible for effective investigation of fraud cases and
accurate reporting to appropriate regulatory and law enforcement authorities.
 Top management puts in place targeted fraud awareness training for its
employees focusing on prevention and detection of fraud
 Audit systems prevalent in banks have not proved effective in detecting
fraud cases. Providing individuals, a means to report suspicious activity is a
critical part of an anti-fraud program.
89
 A system of protected disclosure scheme has been evolved which is
regulated by CVC in case of public sector banks
Investigation of Bank Frauds
 Target: Minimize Losses, Least Adverse Publicity, Preserving of

material Evidence, Effective Legal Action Agencies: District Police,
CID(CB), EoW SFIO CBI (fraud amount more than 3 crores in Public
Sector Banks)
 Important Steps in investigation: Preliminary Enquiry (if required,

permitted in SC judgment of Lalita Kumari) to ascertain cognizable
offence, N.I Act, Civil matter? FIR: Proper drafting is key, (Bhajan
Lal case) moneyed suspects. Understand the banking methodology,
co-opt experts (Satyam case) Searches, collection of documents
including hard disks (proper custody, 65B I. EV. Act, 2A Bankers Books
of Evidence Act), imaging of hard disk.
 Motivate the witnesses with the help of bank
90
 Examine witnesses showing original documents Arrest and seizure u/s

27 Ev. Act, LOC
 Freeze accounts u/s 102 CrPC and inform magistrate ❖ Analysis and
examination of documents: CAs, FSL ❖ Is there any need for Letter
Rogatories?
 Summing up evidence: FR/CS? , DE?, CVO? CBI? ED?
 Necessary follow up action with another agency. Key of investigation:

immediate collection of documents, evidence about dishonest
knowledge, menswear,
Conclusion
 The impact of frauds on entities like banks, and the economic cost of
frauds can be huge in terms of likely disruption, confidence in the banking
system and may damage the integrity and stability of the economy.
 It can bring down banks, undermine the central bank’s supervisory role
and even create social unrest, discontent and political upheavals.
 The vulnerability of banks to fraud has been heightened by technological
advancements in recent times.
 Challenge before investigation agencies lies in shape of capacity
building, quality of investigation, support from experts
91
BIBLIOGRAPHY
 BOOKS:
 1.Business Ethics and Corporate Governance
 By- Anita Bobade, Vipul Prakashan
 2.Organisation of Commerce &Management
 By –Archana Prabhudessai , Seth Publication


 WEBSITES:
 www.irda.gov.inwww.wikipe
dia.orgwww.rediffbusiness.com
92
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FRAUDS INSURANCE DEDUCTION AND ACTION

“FRAUDS INSURANCE DEDUCTION

Dr.Homi Bhabha State University

FOR PARTIAL COMPLETION OF THE DEGREE OF

B.COM (BANKING & INSURANCE)

UNDER THE FACULTY OF COMMERCE

UNDER THE GUIDANCE OF

SYDENHAM COLLEGE OF COMMERCE & ECONOMICS

‘B’ ROAD CHURCHGATE MUMBAI 400020

SR CHAPTER PARTICULARS PAGE

2 II. Literature 36-38

3 III. Research 39-44

4 IV. Case study 45-51

RISHI HEMNATH VERMA

Prof. ATISH WAGHCHAURE

I would like to thank my Principal, DR. for providing the

I would also like to express my sincere gratitude towards my project guide

I take this opportunity to thank our Coordinator

FRAUDS IN INSURANCE DEDUCATION & ACTION

Insurance is a means of protection from financial loss. It is a form of

An entity which provides insurance is known as an insurer, insurance

The insured receives a contract, called the insurance policy, which

Insurance is form of risk management in which the insured transfers the

Insurance allows individuals business and other entities to protect

Everyone that wants to protect themselves or someone else against

In simple terms “insurance is a cooperative device to spread the loss

• A cooperative device to spread the risk.

Insurance may be defined as form of contract between two parties

Insurance is a means of protection from financial loss. It is a form of risk

premium. If the insured experiences a loss which is potentially

At the dawn of the twentieth century many insurance companies were

only two state insurers: life insurers (life insurance corporation of

The government of India issued an ordinance on 19 January 1956

1.1.2 Nature of Insurance

Sharing of Risks - Insurance is a device to share the financial losses

Co-operative Device – Insurance is a co-operative device to spread

Value of Risk –Risk is evaluated at the time of insurance. There are

Payment on Contingency -If the contingency occurs, payment is

Amount of Payment of Claim - The amount of payment depends

Example – In fire insurance, if fire occurs and half the property is

Insurance is different from Charity -In charity, there is no

Large number of Insured Person - Insurance is spreading of loss

Insurance is different from Gambling - In gambling, there is no

1.1.3 Primary and Secondary Functions of Insurance:

Certainty of compensation loss: insurance provide certainty of

Insurance Provides Protection: The main function of the insurance

Risk-Sharing: The risk is uncertain, and therefore, the loss arising

Prevention of Loss: The insurance joins hands with those institutions

saving is possible which will assist in reducing the premium. Lesser

It Provides Capital: The insurance provides capital to the society.

It Improves Efficiency: The insurance eliminates worries and

It Helps Economic Progress: The insurance by protecting the society

Encouragement of savings: Insurance not only provides protection

What is Insurance Fraud?

When someone provides false information to an insurance company in

1.1.4 Type of Insurance

Insurance cover various types of risks and include various insurance

I. From the business point of view

II From the risk points of view

I. Business point of view

Life Insurance: The life insurance contract provides elements of

On maturity. Since a definite sum must be paid, the element of