Understanding Insurance: Key Concepts and Principles
Insurance is a vital tool for managing risks by transferring the possibility of loss from one party to another in exchange for payment. This presentation delves into the fundamental aspects of insurance, including its definition, subject matter classification, the Indian Contract Act's relevance, and the key ingredients of an insurance contract. It also sheds light on the different types of insurances such as property, life, liability, and profit insurance.
Download Presentation
Please find below an Image/Link to download the presentation.
The content on the website is provided AS IS for your information and personal use only. It may not be sold, licensed, or shared on other websites without obtaining consent from the author. Download presentation by click this link. If you encounter any issues during the download, it is possible that the publisher has removed the file from their server.
E N D
Presentation Transcript
Presentation on Insurance Frauds Presentation by Rakesh Kumar, GM & CVO The Oriental Insurance Co. Ltd. 9/24/2024 1 1
What is Insurance Insurance is the equitable transfer of the risk of a loss, from one entity to another in exchange for payment. It is a form of risk management primarily used to hedge against the risk of uncertain loss. An insurer is the Company selling insurance. The insured, or Policyholder, is the Person or Entity buying the insurance policy. The amount of money to be charged for insurance coverage is called the Premium. 9/24/2024 2 2
Subject Matter of Insurance Broadly, it may be divided into 4 Groups 1.Insurance of Property (Motor, Building, Plant, Machinery etc.) 2.Insurance of Person / Life (Personal Accident, Medi claim etc.) 3.Insurance of Liability (Motor Third Party, Workman Compensation etc. ) 4.Insurance of Profit 9/24/2024 (Loss and Profit, Advance Loss of Profit ) 3 3
Indian Contract Act 1872 Indemnity is one of the Principle of General Insurance. Section 124 under Chapter VIII of Indian Contract Act 1872 "Contract of indemnity" defines it as under:- A contract by which one party promises to save the other from loss (In General Insurance it is called Insured perils ) caused to him by the contract of the promisor himself, or by the conduct of any other person, is called a "contract of indemnity". 9/24/2024 4 4
9/24/2024 5 5
Insurance Contract The transaction involves the Insured assuming a guaranteed relatively small loss in the form of payment to the insurer in exchange for the insurer's promise to compensate (indemnify) the insured in the case of a financial (personal) loss. The insured receives a contract, called the insurance policy, which details the conditions and circumstances under which the insured will be financially compensated. and known 9/24/2024 6 6
Ingredients of Contract Offer / Proposal Acceptance Consideration Final Contract 9/24/2024 7 7
Offer / Proposal There must be a definite, clearly stated offer to do something. Insurance , the printed proposal form is available, which is required to be filled up by Prospective Insured . But in Marine Insurance, there is no proposal form. The prospective Insured is required to submit questionairre form duly completed in all respect. In General 9/24/2024 8 8
Underwriting In Insurance Contract, there is a special Ingredient between ACCEPTANCE, which is Underwriting. The acceptance of proposal / offer is based on the analysis of risk involved in that particular proposal. Premium is also decided on the basis of risk involved in that proposal OFFER and 9/24/2024 9 9
UNDERWRITING MAIN FACTORS FOR CONSIDERING UNDERWTITING 1. RISK Risk includes the possibility of losing some or all AND is usually measured by calculating the standard deviation . A high standard deviation indicates a high degree of risk. 9/24/2024 10 10
UNDERWRITING AUTHORITY Authority delegated to do something. In General Insurance it is generally delegated to Officers and the Financial authority depends on their Rank. is a power or right 9/24/2024 11 11
Acceptance Only accepted. This means that the offer must be accepted exactly as offered without conditions. If any new terms are suggested this is regarded as a counter offer which can be accepted or rejected. what is offered can be 9/24/2024 12 12
Acceptance Acceptance can be given verbally (But in Insurance, the acceptance must be given in writing only), in writing The acceptance must conform with the method prescribed by the offerer for it to be effective. 9/24/2024 13 13
Consideration Consideration is an essential element of a contract. It may consist of a promise to perform a desired act or a promise to refrain from doing an act that one is legally entitled to do. In a bilateral contract an agreement by which both parties exchange mutual promises each promise is regarded as sufficient consideration for the other. In a unilateral contract, an agreement by which one party makes a promise in exchange for the other's performance, consideration for the promise, while the promise is consideration for the performance. the performance is 9/24/2024 14 14
Insurance Policy 9/24/2024 15 15
Abuse of Official Position The position of power can be misused at any stage during the process of applying, buying, using, selling, underwriting insurance or while staking a claim which can be broadly categorized as under :- 1.Pre Insurance otherwise known as application 2. Post Insurance --- claims 9/24/2024 16 16
Pre-Insurance ie application By compared to the risk offered Ignoring the missing information Not framing the policy in such a way that all exclusions are included Charging less premium as 9/24/2024 17 17
Post Insurance Stage Eligibility The benefit is paid to a person not eligible to receive benefit because of various factors. ( Theft of Identity , where people steal the person s Identity & misuse it for committing frauds ) Claims Where losses are concocted, exaggerated, inflated, manipulated, stage managed. Frequency of any Insurance Fraud is greater at the claim stage in comparison to pre- Insurance Stage. 9/24/2024 18 18
Case Study 1( Insurance of Life ) Death of Mr. Ram Prasad Verma, owner of Insured vehicle Motor Cycle No. CG 08 A 0106 covered under Motor Insurance Policy. While driving his own vehicle, collided with Bullock cart ,died in the accident following fatal injuries in the said mishap. 9/24/2024 19 19
Case Study 1( Insurance of Life ) This was the case of P.A. Claim and liability was restricted to Rs.1 lac only, as Insured (owner/ driver)/ deceased was covered under Compulsory PA Section of the subject policy. MACT Case Claimant / legal heirs of the deceased lodged a claim for compensation under Sec. 163 A of MV Act before MACT Rajnandgaon treating the deceased as third party. 9/24/2024 20 20
Case Study 1( Insurance of Life ) During the course of trial in lower court, no witness/evidence was adduced by the office against lodging the claim on self insured vehicle u/s. 163 A. Since deceased was not a Thirty party, claim was not maintainable u/s 163 A of M.V. Act. However MACT passed award against the Company for Rs.7,82,589/ considering deceased as Third party in the absence of defense witness from the Company s side 9/24/2024 21 21
Case Study 1( Insurance of Life ) Advocate advised the Branch Office to go for an appeal against the Award as Court had ordered wrongly in contravention to the policy condition. The Office has not made any efforts to go for an appeal ignoring advices of our dealing advocate and lost the Case. 9/24/2024 22 22
Procedure of General Insurance Claim Intimation by Insured for accidental loss to subject matter of Insurance Registration of Claim by Insurer Deputation of Surveyor / Investigator for assessment of liability of Insurer Assessment and submission of Survey report by Surveyor Scrutiny of Claim file 9/24/2024 23 23
Procedure of General Insurance Claim Letter assessment of loss and to submit required information / papers. to Insured regarding Approval of Claim by the Competent Authority, after complete information / papers receiving the Settlement of Claim 9/24/2024 24 24
Case Study - 2 A Senior Assistant in one of the Divisional Office of a General Insurance Company working in Motor Third Party Claims Department for a long time. His wife was working in the Accounts Department of the same office. In the compound where Motor Accident Claim Tribunal was situated, there was a branch of nationalized Bank. The tribunal has its account also in the same Bank. The Insurance Company has its payment account in the same Bank. 9/24/2024 25 25
Case Study - 2 This Senior Asst., over a period of time became very friendly with some of the advocates in MACT Court as also some clerks in the Bank. This was made possible because of his regular visit to MACT to meet advocates in his official capacity as also to the Bank where the Company was having the payment Account. In Collaboration with some advocates and Bank employees, he floated a charitable trust called Maulana Azad Charitable Trust ( MACT ) and managed to open an account in the bank in the name of the same trust, which was existing on papers only 9/24/2024 26 26
Case Study - 2 Against the award passed by the tribunal, cheques used to be prepared in the name of MACT and the same, instead of being deposited in the tribunal, were deposited in the trust account. His wife being in the accounts department made his task easier. His advocate friends and friends in bank were helpful in ensuring that proceeds are transferred to the trust without any problem 9/24/2024 27 27
Case Study - 2 A situation started developing wherein the claim file status in insurance company s office showed that award has been satisfied where as in court s records settlement was still awaited. This resulted in starting of execution proceedings against the insurance company. The senior assistant would then remove the office note sheet and the original judgment from the file and would prepare a fresh note sheet seeking permission for immediate settlement of award to avoid execution. 9/24/2024 28 28
Case study - 2 He used to wait for the Divisional Manager to be on tour or leave and would go to the person officiating the absence of Divisional Manager. The Amount of second cheque would be different from the original cheque in satisfaction of the award because of interest part on account of delayed settlement. This continued for quite some time and by the time it was detected more than 26 lacs had been siphoned. 9/24/2024 29 29
Case Study - 3 Tempering Generation of Bogus Policies under which claims were paid In this particular case, a Branch Manager of the Company involved. The cases related to the year 1998 involving long-term JPA policies of three year duration. The Branch Manager was very computer savvy & considered very hardworking . He used to help his controlling Divisional Office / Regional Office on regular basis in accounts and computer related work. He was a trusted hand always available. with the Computer and 9/24/2024 30 30
Case Study - 3 At that point of time, at staff level not many people were comfortable working in computer environment. The Branch Manager used to do quite a lot of computer related work himself. Two cases discussed below with slightly differing modus operandi 9/24/2024 31 31
Case Study - 4 Underwriting Underwriting Norms with a View to Pay a Claim done Violating all A Particular Finance Company, which was in the business of financing vehicles and machinery has arrangements with a PSU Insurance Company of Insurance purpose. Mostly the Insurance effected was under motor policy. The Business emanating from this company was booked and serviced by a particular Dev. Officer working under a particular branch office of a Co. 9/24/2024 32 32
Case Study - 4 On 16th March, the financer wrote a letter to the SBM to issue a repossessed excavator which originally belonged to some other Co. The finance company in question repossessed the excavator and leased it to say, ABC Engineers. The earlier insurance of the said excavator had lapsed long back. As per the instruction of SBM, Dev. Officer issued Cover note, covering the excavator from 17th March to 16th March of next year. The cover note was accepted in the office by the SBM. Policy was issued in the joint name of Financer and ABC Engineers for a specified sum insured. 9/24/2024 33 33
Case Study - 4 The following aspects need special mention The SBM and Dev. Officer, insured the excavator without proper inspection even though there was break in Insurance. It was to be insured under Motor Insurance but was insured under Engineering Insurance. As the motor cover note has a column asking for the date and time of inspection. Apparently to circumvent this, Engineering Policy route was taken 9/24/2024 34 34
Case Study - 4 At that time, Branches were not authorized to accept Engineering Insurance proposal on their own without reference to Divisional / Regional Office. Branch Office not only accepted the proposal and issued the policy but did not inform the higher office. The financer vide letter dtd. 27th March ,requested the Branch Office to enhance the Sum Insured by more than 11 lakhs of rupees to correspond it with the current replacement value of the machine. The Sr. B.M. against appropriate premium passed necessary endorsement. This fact was also not brought to the notice of higher office. 9/24/2024 35 35
Case Study - 4 On 18th April , the insured ABC Engineer informed the SBM that excavator was completely burnt in the early morning of 18th April The SBM deputed surveyor for pre. survey. The report was submitted on 1.6.1998 ,which clearly stated that the machine was operating normally until 4.30 am ,18th April as per the logbook. On 15th July the SBM was transferred to another Branch in the same city. A new Branch Manager took the charge. 9/24/2024 36 36
Case Study - 4 ABC Engineer vide letter dt 13th Aug. sent estimate of loss prepared by BEML dated 24th April along with BEML letter dated 24th April addressed to the insured. This estimate was prepared by BEML after the machine was shifted to their workshop and totally dismantled. The new BM sent these letters to Regional Office. The matter then came to the notice of Regional Office but they did not ask about the obvious irregularities committed by the BO. Final Survey was deputed and in due course he submitted his report. No doubt was raised on any aspect of the claim. 9/24/2024 37 37
Case Study - 4 The claim file was processed by Branch Office and sent to Head Office through Divisional Office / Regional recommendations. Office with due Head Office approved the claim with some observations, not very relevant for our purpose. 9/24/2024 38 38
Case Study - 4 CBI filed an FIR and subsequently a regular case was instituted in CBI designated court. CBI advised the company to charge sheet some of the officers of the company under CDA rules of the company. Some were prosecuted in the Court. Ultimately, some got acquitted and some received imprisonment award. If CBI had not come in the picture, the case would never have been detected. 9/24/2024 39 39
Case Study - 4 Based on information, CBI enquired into the case. The following facts came to light The excavator was actually burnt on 15th March. The matter was reported to BEML and their Engineer has inspected the damage. Estimate of loss has submitted at that time. The Insured manipulated the date of estimate and made it 24th April It became clear that excavator was insured when it was in totally burnt condition. a) b) c) 9/24/2024 40
Case of United India Insurance Co. , Jaipur The brief facts of the case is that a boy aged 15 years died due to fall from the roof of an unidentified bus and these facts were reported in the Roznamcha reported by the compounder. The ASI who wrote the Rozanamcha also conducted Enquiry in the matter . In the Rozanamcha Report no vehicle details etc were mentioned. FIR was registered after 11 days of accident and no enquiry was made by ASI from the driver/conductor or Compounder and no where he has made any reference of that Roznamcha (daily report) in his investigation report. The court has exonerated United India Insurance from the liability and has ordered that an action be initiated against the Investigating Officer of this case. 9/24/2024 41
Insurance Fraud Cases in Cuttack , Odisha With a view to control mala-fide activities taking place outside the Company , we had collected details /data of insurance cases and took up the issue with SP (Police ) Cuttack,bringing to light poor investigation and even attempt to fabricate evidences. As a result the Odisha police has initiated action against a few police officials ,which has received media attention as well. The most visible effect is in the WC Court ,which has seen drastic reduction in filing of new cases as well as withdrawal of cases. During the period from April 2015 to July 2015 total 72 cases( 57 MCAT Third Party Cases & were reported, whereas during the corresponding period in 2016 41 cases are reported ( 35 MACT Cases and 6 WC cases) In Appeal Cases ,arising out of such WC Cases ,earlier the Award used to be reduced by 15-20 % at present the awards are being reduced by 50-70 %. 9/24/2024 42
Overall impact of Preventive Measures taken by us is as under On complaint of Insurance Companies State police has initiated enquiries and even arrested their own officials found guilty of misconduct. Action has been initiated against others involved in the crime such as Advocates ,doctors , and vehicle owners . Corporate Management of Pvt Insurance Companies are also contemplating action in such cases. 9/24/2024 43
MEDIA REPORT IN CUTTACK INSURANCE FRAUD CASES In a recent media coverage of Bhubaneswar, it has come on record that a number of fraudulent MACT (Third Party ) claims were lodged with General Insurance Companies .The business was operated by a well oiled racket including Fake accident victims & Govt. officials . In one such case a fraudulent claim for Rs 40 lacs was filed against a purported accident which took place in July 2014 ,on Nation Highway in Cuttack Distt . Four claimants ,who were employed in the truck were reportedly injured in this accident. The vehicle was owned by a Jaipur based firm. The cleaner by the name of Santosh Raut filed the complaint. The Khuntuni police sent the four employees for Medical treatment ,investigated the incident and registered an FIR under Road Traffic Accident Case. During internal inquiry of Insurance company the vehicle owner gave an affidavit denying the purported accident & confirmed that claimants were not employed in his firm and the vehicle was off road for six months ,during the time accident was said to have taken place as mentioned in the FIR. The concerned RTO also supported the claim of Vehicle owner. 9/24/2024 44
SP Cuttack (Rural ) confirmed that a departmental enquiry has been initiated in the matter and action will be taken if there is discrepancy in the sequence of events. In similar insurance fraud cases an Inspector ranked officer was put under suspension after an enquiry established his complicity in fake insurance claim case & a police ASI of Bhadreshwar outpost in Cuttack and two others were arrested on similar charges 9/24/2024 45
9/24/2024 46 46
