DeloitteÂ’s Insurance Fraud Survey 2023 revealed that insurance companies in India have experienced a rise in instances of fraud within the life and health insurance categories. According to the report, some key factors contributing to fraud include increased digitisation (34%), remote working post-pandemic and weakened controls (22% each).

Life insurance is a legal agreement between the policyholder and an insurance company. In this contract, the insurer (i.e. the life insurance company) agrees to provide a specified amount of money to the beneficiaries named by the policyholder. This money is provided on the death of the policy holder or after a predetermined period. The policyholder pays regular premiums to the insurance company to secure the policy amount. However, some unscrupulous individuals have found a way to commit insurance frauds which can lead to a devastating impact on Insurer, policyholders and the genuine customers. Understanding the kinds of frauds commonly seen in India, can help you avoid them.

Types of Insurance Frauds in India

1. APPLICATION FRAUD

Application fraud occurs when a policyholder intentionally provides fake information on the life insurance application. This could include things like lying about health, occupation, or financial status to qualify for a lower premium or a larger policy benefits. This is also known as concealment or material misrepresentation,

2. CLAIMS FRAUD

Claims fraud is when a policyholder or nominee files a false life insurance claim. This could include things like faking own death or murder to avail the policy benefits.

3. FORGERY

Forgery happens when someone (usually family members) alters or forges a life insurance policy. This could include things like changing the beneficiary or increasing the death benefit without the knowledge of policyholder.

4. PHONEY POLICY FRAUD

Phoney policy fraud occurs when a customer is sold a fake life insurance policy. This type of fraud is often committed by fraudster who sell fake policies to unsuspecting consumers or assures extra bonuses or loan offers. The premiums are pocked by the fraudster and customers not only lose the money but also do not get policy benefits.

5. IDENTITY THEFT

Identity theft occurs when a person steals customerÂ’s personal information and uses it to commit fraud. The fraudster then collect the policy benefits even though they are not the actual policyholder.

What Happens When an Insurance Fraud Is Discovered?

When life insurance fraud is discovered, several consequences can arise (illustrative list):

• Consequence #1-Denial of the life insurance policy: On discovery of the fraud, the insurance may deny the policy altogether. This means that the policyholder or nominee will not be able to collect any benefits from the policy even in the case of death of life assured.
• Consequence #2-Cancellation of the life insurance policy: If the policy is not denied outright, the insurance company may still cancel the policy if they discover that it was obtained through fraudulent means. This means that the policyholder will lose all coverage under the policy.
• Consequence #3-Criminal charges: In some cases, life insurance fraud can be a criminal offence. If the perpetrator is caught and convicted, they could face fines, jail time, or both.
• Consequence #4-Civil lawsuits: If the insurance company suffered financial losses as a result of the fraud they could also sue the perpetrator for damages.

How to Save Yourself from Insurance Fraud?

There are a few things you can do to protect yourself from life insurance fraud:

• Do your research before you buy a life insurance policy:Make sure you are dealing with a licensed agent or authorised distributor and that the policy you are buying is legitimate.
• Be careful about what information you provide: Only provide information that is true and accurate. Cross check the details in your policy records as updated by insurer.
• Keep an eye on your policy:If you notice any suspicious activity, such as changes to the beneficiary, communication details etc.,, contact your insurer immediately.
• Do not click on any link from unverified sources for making payment or sharing personal or confidential information.
• Do not fall to the promises regarding loan offer, bonuses from existing policies, extra benefit transfer etc.,
• Do not share your sensitive/confidential details as well as copies of your KYC with strangers.

Life insurance frauds pose a significant threat to policyholders and the overall integrity of the insurance industry in India. While insurance companies adopt stringent measures to detect and prevent fraudulent activities, policyholders too need to recognize the common types of fraud and stay vigilant.

By fostering awareness and promoting ethical practices, we can collectively combat life insurance fraud to ensure a secure and reliable future for policyholders across the nation.