Life insurance companies are in a fix over the provision of claims being mandatorily required to be passed after three years of the policy being in force.
With the insurance regulator asking insurers to keep expenses under control, companies are concerned over investigation expenses going up.
Section 45 which says that no claim can be rejected after three of the life insurance policy being in force still remains a bone of contention among insurers. The claim has to be paid even if a fraud has been detected.
The earlier provision under the Insurance Act, 1938, no life insurance policy could be called into question on grounds of mis-statement or wrong disclosure after two years of the policy coming into force.
However, if the insurer was able to prove that the claim was fraudulent, it need not be paid.
A senior insurance official said that while the industry had sought five years as the deadline post which any claim had to be paid, the lawmakers did not agree to the request.
Organised gangs which commit insurance fraud usually pay up to two to three years after which a claim is filed.
If we had time up to five years, such fraud claims could be investigated and payouts can be avoided. If not, premiums will have to hiked and also underwriting will be further tightened, he said.
Before the law took shape, life insurers had sent a representation through the Life Insurance Council to the Rajya Sabha committee.
Further, industry bodies had also taken up the matter with government officials. However, the law was passed with the three year deadline. Currently, insurers are engaged with the regulator on this issue.
But, since a law has been passed to this effect, any changes would have to be preceded by a constitutional amendment in the Parliament.
The aim, according to life insurers, is now to ensure that fraudulent cases are detected early and if possible, at underwriting stage itself.
In March 2016, credit information company Experian India launched Hunter Fraud Management Services for the life insurance sector in India.
The offering was aimed at helping life insurance companies to be a part of the Hunter Closed User Group (CUG) for detection of life insurance fraud.
Life insurance companies that join the CUG will share with Experian any data relating to new policy proposals and claims.
The credit information company is looking to offer similar services to general insurers as well. In India, Experian is the only provider of application fraud detection services using National Hunter.
Data from life insurers show there is an at least a 25-30 per cent rise year-on-year in fraudulent claims, including claims in the name of non-existent people.
These include producing fake death certificates, taking policies in name of dead people and also tampering with documents on the nature of death.
Both life and general insurance industry face such fraudulent claims. Insurers also said that even doctors, police officials and past insurance agents have been found colluding with these cartels to get the claims passed.
Cases have been reported where investigating officers have been threatened or physically harmed when they have been on the field looking into such suspicious claims.
According to industry estimates, hundreds of thousands of claims are getting fraudulently passed by these cartels, which operate in gangs in select pockets across India.
They pose as relatives of customers and get a policy issued. Usually, they also have a doctor as part of the group to issue fake death certificates.
Going forward, insurers said that there could be a rise in litigations if there was a big increase in these claims.
This would mean such claims would be rejected and be heard before a court of law which could give a decision based on their expertise. This will increase costs, both for insurers as well as policyholders.
Curated from Life insurers in a fix over paying fraud claims