How Insurance Companies Detect and Prevent Fraudulent Claims?

Insurance claim fraud is the illegal act of misleading and exploiting a company or an individual holding an insurance contract. For instance, a policy seller might sell somebody a policy by a company that does not even exist, or make fake promises to the buyer for the sake of earning more commission. In a similar manner, a policy buyer may lie about serious medical conditions or even fake his death. With each year passing by, the issue of insurance claim frauds in India is becoming more prevalent. Companies lose billions of rupees each year due to fraudulent claims.

Kinds of Insurance Claim Frauds

There are many different kinds of insurance claim frauds that companies need to watch out for. Here is a brief explanation of each one of them:

• Application Fraud: In this kind of fraud, an individual provides inaccurate information and conceals important facts while applying for an insurance policy. For instance, an individual might provide a fake passport and conceal his criminal history while applying for an insurance policy.
• Premium Fraud: In case of premium frauds, policyholders intentionally misrepresent their risk factors for the sake of avoiding higher premiums. For instance, a bike owner might lie about residing in an area with lower crime rates to reduce his bike insurance premium. 
• Staged Accidents: Staged accidents take place when individuals cause planned accidents in order to claim insurance. Such individuals might file claims for not only the vehicle damage but also for the injuries caused.
• Fake Claims: Fake claims are extremely common in India. Many policyholders claim for losses or injuries that did not even take place.

Insurance Frauds Detection

The insurance company and policyholders both suffer due to insurance frauds. Companies suffer from financial losses and many policyholders’ genuine claims are sometimes rejected because of the strict rules made by insurance companies to minimise cases of fraud; due to this, many genuine policyholders lose faith in insurance companies and the reputation of insurance companies takes a nosedive.

This is why detecting insurance frauds is a necessity. Insurance fraud detection is a multi-faceted approach involving the efforts of insurance companies, investigators, and technology. Here are the key elements of detecting insurance fraud:

Role of Insurance Companies and Investigators

As an effort to reduce cases of fraudulent claims, insurance companies hire trained investigators known as Insurance surveyor and loss assessor  that work closely with anti-fraud divisions that specialise in insurance fraud detection. Their responsibilities are mentioned below:

• Claim Analysis: Insurance companies carefully examine claims and look out for any irregularities or red flags pointing towards fraud. 
• Data Analytics: For spotting any odd trends in claims data, insurance companies take the help of data analytics. For instance, if there is an abrupt increase in claims from a certain region, an inquiry might be started.
• Collaborating with Stakeholders: If an insurance company has any proof and information about possible fraud cases, it’ll share the same with the police.

Role of Data Analytics and Technology

Data analytics and technology play a crucial role in modern insurance claim fraud detection:

• Predictive Modelling: With the help of predictive modelling, insurance companies can identify fraud claims easily. These models analyse the claim attributes and past data to give each claim a fraud likelihood score.
• Machine Learning: Machine learning algorithms can identify fraudulent claims by learning from historical fraud patterns and detecting anomalies in new claims.
• Digital Verification of Policyholders: With the help of documents such as Aadhar Card and Pan Card, insurance companies can confirm the legitimacy of policyholders. Facial recognition, biometric verification and document scanning are important tools for digital verification.

Collaboration with Law Enforcement Agencies

Insurance companies work along with law enforcement facilities that help in identification and prosecution of fraudsters. This works as a deterrent to the wrongdoers due to the increased likelihood of getting caught and facing legal consequences.

Conclusion

Detecting and preventing insurance frauds in India is the need of the hour. A vital first line of defence for doing the same is by cooperation of investigators and insurance companies with the help of data analytics, thorough claim analysis and cooperation of stakeholders. The insurance companies and law enforcement facilities collaborate with each other to bring charges against offenders to prevent misconduct and maintain the reputation of the companies. The continuous efforts to change tactics and adopt new technology reflects the determination of companies when it comes to shielding insurers and genuine policyholders from the repercussions of insurance fraud.

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