Section 45 - How fraudsters make money out of insurance claims.
Jul 20
3 min read
0
4
0
In 2014, the Indian parliament amended the insurance act 1938 the amendment brought several changes in the insurance landscape. The changes were many but one amendment opened the floodgates to Insurance claim Mafia or insurance fraudsters.
Section 45 of the Insurance (Amendment) Act 2015, provides the basis on how (life only) Insurance claims will be provided. The whole purpose of buying an insurance plan is to get funds (claims) at the time when we need the most from these insurance companies and this section provides it all.
The controversial amendment is that if a claimant approaches the life insurance claim after a period of 3 years from the date of policy issued then the insurance company has to honor or provide claim irrespective of any fraudulent or material misrepresentation activity associated with that policy. Yes! it’s true so if I purchase policy providing incorrect details at the time of buying and happened to make a claim for that policy after 3 years from the date of the policy then the company has to honor the claim. Sounds amazing right? So the amendment provides a period of 3 years to the insurance companies to find out whether such policies have any fraud or material misstatement associated with it.
The amendment made all life insurance approach the insurance regulator in India i.e. IRDAI to provide clarification on the same. UIDAI issued a set of FAQ on Section 45. But the fact was clear that the life insurance had the additional responsibility to find out policies that are purchased with fraudulent intentions.
Rural India has many active claims mafia. There is a strong nexus between doctors, medical practitioners, locals, insured people's relatives, etc.
One of the investigators mentioned that once he was asked to make a claim inquiry at a remote location in India that had a record high cases in HIV, he noted that the mafia would purchase a policy in the name of the people who were terminally ill due to HIV. They would falsify medical reports to show a heart attack as the cause of death and entice claim money. the mafia had somehow got the information that an investigator is in town and he was hounded by the natives with a blade, as they would try to get him infected with HIV too. he said that his visit was conducted in utmost secrecy still it was known to them, so we could understand the level of penetration these mafia have in their areas.
Insurance companies generally hire Investigation Agency to find out frauds and they usually blacklist certain areas based on the upcoming claims. The change can be seen in a positive manner, that the companies may be more vigilant in selling policies. Also, artificial intelligence and machine learning have been implemented to identify policies that may be purchased within the correct information.
Life insurance policy can be called in question on any ground by the insurer. These grounds may include misrepresentation, suppression of material fact (which impacts decisions to accept/reject/postpone/impose revised terms) or fraud.
In short -
Sr. No. | Policy type | Insurer finding within 3 years as prescribed above | Treatment by the insurer |
1 | Any life insurance policy | Fraud | Cancel/withdraw the policy or deny the claim or refund of premium |
2 | Any life insurance policy | Misrepresentation or suppression of a material fact (not amounting to fraud) | Refund entire premiums paid till date of withdrawal/repudiation within 90 days or deny/repudiate a death claim. |
But as several reports by insurance consulting firms suggest, insurance frauds are always on a rise in spite of strict measures. This will hurt customers with higher premiums that they may be changed, so the good customers pay for the nuisance of another.
Please refer to our detailed slideshow on Section 45 for in-depth understanding:-
NEED TO GIVE LINK OF THE PPT THAT THERE IN THIS GOOGLE DRIVE FOLDER