Insurance Investigations

Insurance investigations are usually conducted to investigate matters pertaining to insurance claims that are suspicious or otherwise in doubt for some reason. Investigators in this field have differing specialities and backgrounds. Some insurance companies have their own in-house investigation teams while other companies sub-contract the work to private investigators or private investigation firms. Although such investigations are usually conducted to combat fraud, very often investigators will be working simply to establish the circumstances of a particular claim (for example, in a multi-vehicular road accident involving various parties, claims and insurance companies).

Insurance fraud
Insurance fraud is an act committed with intent to fraudulently obtain payment from an insurer. Insurance fraud existed ever since the beginning of insurance as a commercial enterprise. Fraudulent claims account for a considerable portion of all claims received by insurers and it accounts for millions of dollars annually. Types of insurance fraud are very diverse and it occurs in all areas of insurance.
Insurance frauds also range in severity, from slightly exaggerating claims to deliberately causing accidents or damage. It affects the lives of innocent people, both directly through unintentional damage and indirectly as intentional. In both ways, it leads to the premiums to be higher. Insurance fraud poses a significant problem and governments and other organizations are making efforts to deter such activities.

Types of insurance fraud
The types of insurance fraud that exist are as diverse as the types of insurance policies that are available. Some of the major areas in which insurance fraud occurs are in the life, health, motor and property insurances.

Life insurance fraud
Life insurance fraud is committed by people buying insurance. Suppression of material facts, compliance of manipulated substantiating documents, nondisclosure of moral hazard, submission of distorted information, exerting influence on the sales personnel etc are some of the means by which chances emerge for insurance frauds.

An application for life insurance entails that any type of information about the age, occupation, family history, income, existing illnesses, general health condition, deformities etc shall be accurate and in certain instances, supported by documentary evidences. Misrepresentation, non-disclosure or submission of fabricated corroborative evidences lead to chances of fraud.

One type of life insurance purchase that may be fraudulent or illegal at times occurs when companies purchase life insurance on employees, sometimes called dead peasants insurance. This is not illegal provided employees grant permission for the company to insure them and collect funds if they die. When an employee does not consent to this, it may be viewed as a fraudulent act.

Health insurance fraud
It is common amongst all insurers who offer health insurance to obtain an application from each individual applicant who is desirous of buying a health insurance. Apart from general information pertaining to an applicant, an insurer will always seek answers to a few typical questions, which they consider decisive to assume all risks. Only if the questions are answers are true and correct, an insurer could gauge the level of risk. In many cases, since an insurer considers the answers to their questions as factual, without prejudice, they issue a policy. Once the policy is issued, the policyholder will view things only from the receiver’s end and it often leads to emergence of fraud.

When meticulously developed individual questions are so cleverly answered, the level of truth and accuracy in respect of a group health insurance could be too low. Since group health insurance is offered as an employee benefit, many employers resort to non-disclosure of material facts pertaining to the interests of their employees and or their dependents. Once a group health insurance is arranged, majority of employers need not look after subsequent health care needs of their employees and or dependents. Employers also resort to many unethical stands; which ultimately will lead to health insurance fraud.

The tendency of non-disclosure or deliberate misrepresentation of material facts will be greater in individual health insurance proposals. In India, the practice of non-disclosure of details of pre-existing diseases is quite common.  Many proposers approach the insurer when they realise that major medical expenses are imminent. Once the policy is issued, they will come out with all sorts of explanations and plea of ignorance.

In addition to the above and when a benefit has to be derived from a health insurance policy, individual as well as group health insurance policy holders will resort to all tricky steps to ensure that they do not lose any money from their pocket. Collusion with doctors, hospitals, diagnostic centres, pharmacies and all other parties who could be service providers, constitute emergence of insurance fraud. Intentional health insurance fraud does not even have this excuse of trying to help a beneficiary.

In addition to the above, doctors and allied health care providers or hospitals may file false claims, claim treatments for patients that never occurred, fill prescriptions under patients’ names and then sell them on the black market, diagnose diseases that do not exist and might even order unnecessary diagnostics tests. Occasionally, a healthcare professional works in collusion with a personal attorney to falsify medical reports, in which case more than one type of insurance fraud may be perpetuated.

Motor insurance fraud
In India, motor policies are the most popular in the non-life segment. Every other man owns a vehicle and there exists well oiled machinery which is capable of duping any insurance company.

Motor claims fall into two categories.  First, there is the ‘own damage claim’ segment, in which the insurer makes good the loss or damage to the vehicle. Then there are claims relating to ‘liability to the public’. There is enough scope for defrauding the insurer in either segment.

In the ‘own damage’ (OD) segment, following are the common practices of fraud.

  1. Proposing a vehicle for insurance, after it met with an accident.  Mostly these are cases where the owner forgot to renew his insurance. Active connivance of an insurance marketing man is necessary in this type of cases.
  2. Substituting the driver, if the actual driver was not holding an effective licence or holding no licence at all.
  3. Exaggerating the claim amount. This can be done to cover outgo like depreciation or deductible or even to carry out maintenance/renovation at the expense of the insurer. In such cases, assistance of a surveyor is inevitable. In this type of cases, even the officials of the insurer might be involved.

In the ‘liability to public’ (TP) sector, following are the practices of fraud.

  1. Proposing a vehicle for insurance after it met with an accident. Here also connivance of the marketing man of the insurer is definite.
  2. Substituting the vehicle.  If the vehicle involved in the accident had no insurance, another vehicle with proper insurance will be planted. In many cases the vehicle involved in the accident may not have any damage. It is, therefore, easy to substitute the vehicle.
  3. Substitution of driver.  If the actual driver had no licence or no effective licence, this practice is followed. In situations where the actual driver was under the influence of alcohol, this is a convenient practice.
  4. Place of occurrence, description of the accident and similar relevant facts are likely to be tampered with.  This is done with a view to overcoming one flaw or other in the claim.

These are methods of fraud resorted to by the owners of vehicles. On the other side, there is the public at large, the police force, the doctors and the lawyers. Jointly and severally, they constitute a severe threat to insurers. Quite a few members of the public have acquired skills of tampering with liability claims. But the chief contribution comes from the legal fraternity. They can concoct an accident with the help of the police and the doctors. Generally, the following practices are followed:

  1. If a person was injured due to reasons other than a road accident, the case is converted as an accident.
  2. Similarly, there will be instances where the injured person is not entitled to compensation. (An insured getting injured while driving his vehicle is an example.) In such cases extraneous factors will be introduced.  Rider of a bike will become pillion rider and a new rider will be planted. Police help is required in such cases.
  3. Gross exaggeration of injuries. There are advocates specialised in this branch of fraud.  They receive active support of like minder doctors. Exaggerated medical bills also fall in this category.

The insurers are placed in a very inconvenient position in so far as the TP claims are concerned. TP claimants are considered as beneficiaries of welfare legislation.  Elaborate arguments or appreciation of minute evidence is not required. It makes very convenient for the ‘specialised’ advocates to push through their fraudulent/exaggerated cases.  Therefore, it becomes necessary for the insurer to be all the more watchful in dealing with these cases. Reliable evidence has to be collected and presented before the court.

Property insurance fraud
Fraudulent activities against property insurance providers consist of the destruction of property in order to receive insurance payments for it. Possible motivations for this 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. When the business is bad, there is a tendency to take insurance cover for values higher than the actual stock and then create a fire loss. Possibility of fraudulent practice exists in other classes of insurance also.

Detecting fraud
The detection of insurance fraud generally involves two steps. The first step is to identify suspicious claims that have a higher possibility of being fraudulent. This can be done by computerized statistical analysis or by referrals from claims adjusters or insurance agents / brokers. The next step is to refer these claims to investigators for further analysis.

Due to the sheer number of claims submitted each day, it would be far too expensive for insurance companies to have employees check each claim for symptoms of fraud. Instead, many companies use computers and statistical analysis to identify suspicious claims for further investigation. There are two main types of statistical analysis tools used: supervised and unsupervised. In both cases, suspicious claims are identified by comparing data about the claim to expected values. The main difference between the two methods is how the expected values are derived.

Fraudulent claims can be one of two types. They can be otherwise legitimate claims that are exaggerated or “built up,” or they can be false claims in which the damages claimed never actually occurred. Once a built up claim is identified, insurance companies usually try to negotiate the claim down to the appropriate amount. Suspicious claims can also be submitted to “special investigative units” for further investigation.

These units generally consist of experienced claims adjusters with special training in investigating fraudulent claims. These investigators look for certain symptoms associated with fraudulent claims or otherwise look for evidence of falsification of some kind. This evidence can then be used to deny payment of the claims or to prosecute fraudsters if the violation is serious enough.

Insurance fraud investigation

Insurance fraud or fraudulent activities such as application fraud or claims fraud are on the rise. One of the key competencies of Risk Richter is insurance fraud investigation. We assist major insurance companies in identifying individuals involving in fraudulent insurance acts. Our team of professional investigators will work with the claims department, legal staff and executive teams to process fraudulent insurance claims during trails. We will also testify during trials about the discoveries arising from insurance fraud investigations.
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