Introduction
Fraud involving insurance claims is a severe problem that impacts the insurance sector and all of its stakeholders. It entails the purposeful fabrication of facts or the omission of material information in order to get benefits from insurance that are not legally due. Fraud involving insurance claims can take many different forms, including medical fraud, staged accidents, fake claims, and inflated claims.
Significant financial losses for insurers, higher premiums for policyholders, and a decline in public trust in the insurance sector are all consequences of insurance claims fraud. In order to prevent insurance claim fraud, it is crucial to comprehend the legislative frameworks and preventative strategies that have been put in place.
An insurance fraud: what is it?
The term “insurance fraud” is not defined in the Indian Insurance Act. The Indian Penal Code, 1860 does not contain any explicit regulations pertaining to insurance fraud (IPC). There are no particular laws addressing insurance fraud in the Indian Contract Act, 1872 (ICA). Although the IPC includes parts pertaining to forgeries and fraudulent actions, these sections are ineffective in discouraging the committing of fraud. When someone deceives an insurance company to obtain money to which they are not entitled, it is known as insurance fraud.
The International Association of Insurance Supervisors (IAIS) defines “an act or omission intended to gain dishonest or unlawful advantage for a party committing the fraud or for other related parties,” and the Insurance Regulatory and Development Authority (IRDA) has adopted this definition on multiple occasions.
Insurance fraud is defined as “the act of making a statement known to be false and used to induce another party to issue a contract or pay a claim” by the Federation of Indian Chambers of Commerce & Industry. This conduct must be done under false pretences, with financial benefit, intentionality, and illegality.
Insurance Fraud Types
These three general forms of fraud are defined by the Insurance Regulatory and Development Authority of India, the highest authority in charge of regulating the insurance industry in India:
- Fraud against the firm in the acquisition and/or execution of an insurance product, including fraud committed at the time of filing a claim, is referred to as policyholder fraud and/or claims fraud.
- Fraud committed against the firm and/or policyholders by an insurance agent, corporate agent, intermediary, or third-party administrator (TPA) is known as intermediary fraud.
- Internal fraud is any fraud or misappropriation committed against the organization by a manager, director, or other officer or employee (under any other title).
Understanding Types of Insurance Fraud
1. Bogus or Misleading Claims
In the insurance sector, false or deceptive claims are a severe problem that can cost policyholders money.
2. Fabricated Accidents
Fabricated accidents are insurance frauds in India in which people purposely arrange or create accidents to submit fake insurance claims for financial gain.
3. Falsified Records
In the insurance context, falsified records relate to intentionally changing, manipulating, or fabricating documents or information to deceive insurers and get unfair advantages.
4. Premium Deviation
The practice of purposely misleading or manipulating insurance premiums to get lower rates or unauthorized reductions is referred to as premium deviation.
5. Phantom Regulations
Phantom regulations are fake or nonexistent rules misrepresented as valid legal obligations or suggestions.
6. Numerous assertions
Numerous assertions describe a situation where multiple claims or declarations are made without enough justification or backing.
7. Identity fraud
Identity fraud, commonly called identity theft, is a form of insurance fraud in India in which someone illegally gets and uses another person’s personal information without that person’s knowledge or permission.
Insurance Claims Fraud’s Effects
Fraud involving insurance claims has a big effect on the insurance sector and its players. As a result, policyholders pay higher premiums, insurers suffer financial losses, and public trust in the insurance sector is weakened. Insurance claims fraud costs insurers $80 billion a year in the United States alone, according to research published by the Coalition Against Insurance Fraud (CAIF, 2021).
Legal Provisions under Indian Penal Code, 1860
The provisions that can be applicable in such cases are:
- Section 205: False persona intended for use in a legal action or prosecution Falsely assuming the identity of another, anyone who then goes on to make any kind of admission or statement, confess to a judgment, issue a process, become bail or security, or engage in any other actions related to a lawsuit or criminal prosecution will face a term of imprisonment of any kind up to three years, a fine, or both.
- Section 420: Deceitfully obtaining property delivery by dishonest means Anybody who deceives someone by cheating and then dishonestly persuades them to give up property to someone else, create, alter, or destroy a valuable security in whole or in part, or create anything signed or sealed that has the potential to be turned into a valuable security, faces up to seven years in prison of any kind as well as a fine.
- Section 464: Making a false document A person is said to have made a false document or false electronic record. First, who dishonestly or fraudulently
(a) creates, autographs, seals, or executes a document, or a portion thereof;
(b) creates or sends any electronic record, or a portion of one;
(c) signs any electronic document with an electronic signature;
(d) makes any mark indicating the authenticity of the [electronic signature] or the document’s execution with the intent of making it appear as though the document, a portion of it, an electronic record, or the [electronic signature] was made, signed, sealed, executed, transmitted, or affixed by someone whose authority it is known not to have been;
- Section 405. Criminal breach of trust. A criminal breach of trust is committed by anyone who, while in any capacity as a custodian of property or having dominion over property, dishonestly misappropriates or converts that property to his own use, or dishonestly uses or disposes of that property in violation of any legal contract, express or implied, that he has made regarding the discharge of that trust, or who wilfully permits any other person to do so.
Legal Remedies under The Indian Contract Act, 1872
- Misrepresentation within the meaning of Section 18 of the ICA
- The contract of insurance is also void in as per Section 10 read with Section 14(4) and Section 18 of the ICA generally in cases of fraud.
- As per Section 20 of the Indian Contract Act, 1872, the agreement is void where both parties are under mistake as to matter of fact. Some factors are essential for insurance coverage.
Conclusion
To sum up, insurance claims fraud is a severe problem that has an impact on the insurance sector and all of its stakeholders. It entails the purposeful fabrication of facts or the omission of material information in order to get benefits from insurance that are not legally due.
International conventions, regulatory agencies, and criminal and civil legislation provide the legal foundations for insurance claims fraud. Fraud detection and prevention technologies, fraud investigation and prosecution, and education and awareness campaigns are some of the preventative methods against insurance claims fraud.
Adv Khanak Sharma (D\1710\2023)