Most known insurance frauds are usually about the insurance company being defrauded by customers. Saying a white lie about your high blood pressure in a health insurance proposal form, or allowing your garage to exaggerate the accident damage to your car in the claim form are common unethical practices. The insurance industry has suffered because of it and it comes back to roost as higher premium rates for everybody in the long run.
Fraudulent documentation, misrepresentation of material facts, inflated claims, fake claims and moral hazard — the act of buying insurance under false pretences in order to make a claim — are well-known insurance frauds. More complicated frauds involve buying multiple policies on the same property, which is then destroyed for making a claim, policies being taken on non-existent properties or over-valuation of a property for enabling a higher cover and hence a higher claim.
In this column, let us see examples of a different type of fraud. How you, the insured, can be defrauded, or used to perpetrate fraud on an insurance company.
Recently a State police department exposed a fake motor insurance racket. Members of the public are contacted by a call centre claiming to be, or to be representing prominent insurers, and offered motor and health insurance. Premium is collected and fake policies are issued, leading to a double whammy for the ‘insured’ who has lost his money to a fraudster and is saddled with a worthless policy.
Even more interesting is a case where mobile pollution testing centres were selling fake insurance policies to customers who approached them for a ‘Pollution Under Control’ certificate. A valid vehicle insurance policy is required for getting a PUC certificate, which is a must-have. So, the fake insurance is foisted easily on the customer in a moment of expediency, when he is unlikely to verify the genuineness of the transaction.
Another kind of fraud that came to light was online insurance policy documents issued for motor third-party liability cover for a commercial vehicle, but at much lower rates by misrepresenting the category of vehicle.
Misrepresenting category
This ‘policy’, which has correct vehicle details like registration number, except for the category of vehicle, is issued in connivance with the customer, who can use it to show he has complied with the Motor Vehicles Act and has a TP cover. This will help him/her obtain a fitness certificate as the Road Transport Authority (RTA) systems are not linked to insurance and hence the policy cannot be authenticated.
A routine check by the traffic police can easily be handled with this document, but would be useless if one tries to make a claim on it. The repercussions are terrible here as the actual victim would be somebody else who was hit by this ‘insured’ vehicle. Claims can be made only by or on behalf of the third party, who is affected (by way of injury, death or property damage) by the vehicle and there would be no linked insurance documents to make a claim on.
We have seen just a few types of frauds involving motor insurance that you have to watch out for. There are vulnerabilities in health insurance and even life insurance that border on identity theft. We will see them in subsequent columns, including how to keep yourself safe from them and to avoid aiding and abetting criminals even if used unwittingly.
(The writer is a business journalist specialising in insurance & corporate history)