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A claim was recently raised in the name of Janakinath Bose, an 82-year old man from Uttar Pradesh who had died due to a road accident and had a term insurance cover of Rs 10 lakh in his name. At the face of it, while this looked like an ordinary death claim, thorough investigations revealed that he had died of natural causes and that the body had been thrown in front of a truck to show that it was an accident.
Organised crime in the life and general insurance industry has taken a graver turn with groups using dead bodies of people who have recently passed away to claim insurance amounts on their behalf. Till now, such groups would file claims with fake names and get it passed from insurance companies.
"These groups have begun to engage in more violent activities to get the claims passed. Dead bodies are sourced from nearby areas for a fat sum and either drowned or thrown in front of moving vehicles to show it as an accident. They also have some doctors colluding with them in these activities," said the chief risk officer of a private life insurance firm.
The modus operandi is very structured and systematic. The group targets an individual and their family, over the age of 75-80 years with minor physical ailments. The family is befriended and those who are in the lower middle class or BPL category who are in dire need of money are targeted. Any death in the family is immediately reported to these groups who then begin the process of claims.
The body is disposed of in a manner that it shows an accidental death. The doctor who is also a part of this group, then gives out a death certificate which is then presented to the company as a proof for the claim. After the payout is made, a part of it goes to the deceased's family.
"Several cases have been rejected on grounds of mis-representation of facts. But, these criminals use such clever techniques, that they manage to deceive us sometimes. Since accident entail a higher claim payment in some term policies, they are using it to their advantage," said the managing director of a private life insurance company.
The same tactics are being used for claiming personal accident claims. On an average, Rs 1 lakh size of insurance covers are taken and then the same route is adopted to lodge a false claim. Insurers say that these claims are easily passed, except few cases.
With the promulgation of the Insurance Laws (Amendment) Bill, 2014 by the President, Section 45 of the Bill has come into force. This says that no claim can be repudiated after three years of the policy being in force, even if a fraud is detected.
This has sent life insurers into a tizzy. "On one side, we have criminals abusing the system and now the Bill also says that the claim has to be passed. The industry will now look at offering smaller ticket policies below Rs 15 lakh only in select regions and with a higher degree of caution," said the chief executive of a private life insurance company.
The executive added that in large ticket policies, especially above Rs 25 lakh, the insurance companies also exercise a higher degree of caution to ensure that only genuine applications for a policy are accepted. He added that the industry will also look to engage more claims investigators to ascertain the veracity of a claim.
According to Section 45 of the Insurance Act, 1938, no life insurance policy can 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 is able to prove that the claim was fraudulent, it need not be passed.
Now, under the proposed Bill, this has undergone changes. Insurers said that in the new Bill, several organised rackets of fraudsters would use the facility to defraud insurance companies. This would mean the life insurer would have the onus of proving that the policy had been taken for false purposes and this has to be done within three years of the policy being taken.
Life insurers had earlier sent a representation through the Life Insurance Council to the Rajya Sabha committee. Further, industry bodies have also taken up the matter with government officials. However, their request was not accepted.
Industry sources said there were several cartels operating in this space that take up policies and make fraudulent claims. They are said to remove all evidence so that a claim is not rejected for fraud.
Overall, industry sources said that while both public and private life insurers would be impacted, public insurer Life Insurance Corporation of India would be heavily impacted since it has a larger volume of policies.
In the earlier version of the Bill that was to be passed in 2008, it was proposed under Section 45 that no life insurance policy could be called into question on grounds of mis-statement or wrong disclosure after five years of the policy coming into force. This has now been revised to bring it to three. Insurers also fear that this would lead to a rise in litigations, since there could be different interpretations according to the legal system.
