In general terms, Insurance fraud is an act committed with the intent to obtain a fraudulent outcome from an insurance process. This may occur when a claimant attempts to obtain some benefit to which they are not otherwise entitled, or when an insurer knowingly denies some benefit that is due. According to the United States Federal Bureau of Investigation, the most common schemes are Premium Diversion, Fee Churning, Asset Diversion, and Workers Compensation Fraud. The perpetrators in these schemes can be both insurance company and claimants.
IRDA recently stated the definition given by the International Association of Insurance Supervisors (IAIS) which defines fraud as “an act or omission intended to gain dishonest or unlawful advantage for a party committing the fraud or for other related parties.”
Insurance fraud existed since the beginning of insurance as a commercial enterprise. Fraudulent claims account for a significant portion of all claims received by insurers and cost billions of dollars annually. Types of insurance fraud are diverse and occur in all areas of insurance. Fraudulent activities affect the lives of innocent people, both directly through accidental or intentional damage, and indirectly as these crimes cause higher insurance premiums. Insurance fraud creates a significant problem, and governments and other organizations make efforts to deter such activities.
Classification of Insurance Fraud
The Insurance fraud are classified as hard fraud or soft fraud.
1. Hard fraud occurs when someone deliberately plans or invents a loss, such as auto theft, or fire etc., that is covered by their insurance policy in order to receive payment for damages.
2. Soft fraud, is far more common than hard fraud. It is sometimes also referred to as opportunistic fraud. This type of fraud consists of policyholders exaggerating legitimate claims.
For example, when involved in an automotive collision an insured might claim more damage than actually occurred. Soft fraud can also occur when, while obtaining a new health insurance policy, an individual misrepresent previous or existing conditions in order to obtain a lower premium on his or her insurance policy.
Types of fraud committedby parties
IRDA guidelines classify various insurance frauds as:
Policyholder Fraud or Claims Fraud – Fraud against the insurer in the purchase or execution of an insurance product, including fraud at the time of making a claim.
Intermediary Fraud – Fraud perpetuated by an intermediary against the insurer and policyholders.
Internal Fraud – Fraud against the insurer by a staff member.
Areas of insurance fraud
Life insurance fraud may involve faking death to claim life insurance. Fraudsters may sometimes turn up a few years after disappearing, claiming a loss of memory.
For an example in John Darwin disappearance case, which was an investigation into the act of pseudo ide committed by the British former teacher and prison officer John Darwin, who turned up alive in December 2007, five years after he was thought to have died in an accident. Darwin was reported as “missing” after failing to report to work following a trip on March 21, 2002. He reappeared on December 1, 2007, claiming to have no memory of the past five years.
Health care insurance
Health care insurance is described as an intentional act of misrepresenting information that results in health care benefits being paid to an individual or group.
Fraud can be committed either by an insured or by a provider. Member fraud consists of claims on behalf of ineligible members and dependents, alterations on enrolment forms, concealing pre-existing conditions, prescription drug fraud, and failure to disclose claims that were a result of a work-related injury.
Provider fraud consists of claims submitted by physicians, billing for services not rendered, billing for the higher level of services, diagnosis or treatments that are outside the scope of practice, alterations on claims submissions, and providing services while medical licenses are either suspended or revoked. Independent medical examinations show false insurance claims and allow the insurance company or claimant to seek a non-partial medical view for injury-related cases.
The motivation for insurance fraud is a desire for financial gain. Public health care programs such as Medicare and Medicaid are especially conducive to fraudulent activities, as they are often run on a fee-for-service structure. Physicians use several fraudulent techniques to achieve this end. These involve billing for more expensive treatments than those actually provided; scheduling extra visits for patients; referring patients to other physicians when no further treatment is actually necessary; providing, and subsequently billing for, treatments that are not medically necessary.
Automobile insurance Fraud may fake traffic deaths or stage collisions to make false insurance or exaggerated claims and collect insurance money.
Insurance investigators have even discovered some insurance adjusters getting into the act for a fee. Perpetrators of the auto insurance fraud use variety of tactics, such as braking sharply in traffic to intentionally cause the car behind them to hit them in the rear. These fraudsters then claim that the other driver was having a fault, and make a claim for damages to their vehicle, as well as to injuries that don’t exist.
A real accident may occur, but the dishonest owner may take the opportunity to incorporate a whole range of previous minor damage to the vehicle into the garage bill associated with the real accident. The Insurance fraud cases of exaggerated claims may include claiming damage to the car that did not result from the accident for which the claim is made.
Examples of soft auto-insurance fraud can include filing more than one claim for a single injury, filing claims for injuries not related to an automobile accident, misreporting losses due to injuries, or reporting higher costs for car repairs than those that were actually occurred.
Hard auto-insurance fraud can include activities such as staging automobile collisions, submitting claims for medical treatments that were not received, filing claims when the claimant was not actually involved in the accident, or inventing injuries.
In property insurance fraud motivations can include obtaining payment that is worth more than the value of the property destroyed or to destroy and subsequently receive payment for goods that could not otherwise be sold. It occurs when an individual either destroys, or makes a false report of theft of, personal property items, or a vehicle, in order to obtain benefits from the insurance company.
Legislation for Insurance Fraud
Under the Indian legal system, such as the Indian Penal Code or Indian Contract Act do not offer specific laws for Insurance fraud. Sections of the Indian Penal Code which deal with issues of the fraudulent act, forgery, cheating etc. are sometimes applied but none of them are directly related to insurance fraud and are inadequate for purpose of acting as an effective deterrent. In absence of specific laws and punishments, the prosecution will rarely be successful and if successful, the penalty inadequate to deter others.
Section 463 deals with forgery and it is relevant for insurance fraud. It read as “Whoever makes any false document or false electronic record or part of a document or electronic record, with intent to cause damage or injury, to the public or to any person, or to support any claim or title, or to cause any person to part with property, or to enter into any express or implied contract, or with intent to commit fraud or that fraud may be committed, commits forgery.”
Section 465 of IPC deals with Punishment for forgery. It read as “Whoever commits forgery shall be punished with imprisonment of either description for a term which may extend to two years, or with fine, or with both”
Section 477 A of IPC deals with falsification of accounts. This may be an applicable section in some insurance fraud. It read as “Whoever, being a clerk, officer or servant or employed or acting in capacity of a clerk, officer or servant, wilfully and with intent to defraud, destroys, alters, mutilates or falsifies any book, electronic record, paper, writing], valuable security or account which belongs to or is in the possession of his employer or has been received by him for on behalf of his employer or wilfully, and with intent to defraud, makes or abets the making of any false entry in, or omits or alters or abets the omission or alteration of any material particular from or in, any such book, electronic record, paper, writing] valuable security or account, shall be punished with imprisonment of either description for a term which may extend to seven years, or with fine, or with both.”
Section 17 of The Indian Contract Act, 1872 deals with fraud. It read as:
“Fraud” means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent, with intent to deceive another party thereto or his agent, or to induce him to enter into the contract:-
the suggestion, as a fact, of that which is not true, by one who does not believe it to be true;
the active concealment of a fact by one having knowledge or belief of the fact;
a promise made without any intention of performing it;
any other act fitted to deceive;
any such act or omission as the law specially declares to be fraudulent
Shefali Gupta is a final year law student at Amity Law School, having interest in corporate laws.