Common fraud in life insurance

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fraud insuranceInsurance fraud has cost the industry tens of billions globally. It is an evolving threat in life insurance with an increasing trend. A study found that 80% of life insurance companies experienced fraud claims in 2017, and 83% said that fraud has increased in the past two years.

By definition, insurance fraud is a deliberate deception perpetrated against or by the insurance company for financial gain. There are many types of frauds in life insurance from fraud claims, forgery, phony policy, and the most common, application fraud by providing incorrect information to the insurance company while applying for a policy.

In life insurance, the would-be application fraudsters hide their true medical condition with the hope of getting a lower premium, or as our team often finds, for beneficiaries to claim insurance benefits without having to pay much premium when the insured die because of an illness, which the insurance company is unaware of.

Application fraud seems to be harmless compared to other frauds as it often only takes a bit of courage to hide the truth when filling the application form, or answering the phone call from the insurance agent. When other frauds may put perpetrators in prosecution or face a criminal charge, the only risk for application fraudsters is only for their application or claim to be rejected.

However, small or big, all frauds are a crime. Moreover, the impact of application fraud is huge for the life insurance company. To put application fraud into context, consider a life insurance claim with a benefit in the hundreds of millions of rupiahs that must be paid by the insurance company just a few months after the policy was issued. In the case of health insurance, a claim for a terminal illness must be paid within a few years of the policy being issued. When you multiply this by hundreds of similar incidents, an insurance company will surely find itself in a difficult situation.

If an investigation is conducted, it is likely that the insurance applicant concealed the insured’s real medical condition while applying for a life insurance policy. Finding a concealed truth is not always simple. Based on our claim investigation experience, we believe that scammers anticipate an investigation from the insurance company. It is common for the insured to have no recorded medical treatment history whatsoever due to the fact that they live in a remote area where health facilities are almost non-existent.

Our team discovered that an insured resided in a plantation five hours away from the nearest public clinic (Puskesmas). In another case, the insured lived in a small village where the public clinic only operates for half a day and medical records are kept in a haphazard manner. Furthermore, people live in traditional ways, and seeing a doctor is not a part of their daily routine.

Meanwhile, fraudsters who reside in a modern setting, such as in big cities with plenty of health services, also make it difficult for investigators to discover their pre-existing medical condition, which will invalidate their application or claim. The truth may also be concealed in a foreign hospital where the insured received their first diagnosis, prompting them to purchase life insurance. However, there is always a way to reveal the truth. People in the neighborhood or relatives of the insured might spill some of them. General practitioners nearby might have information. Canvassing hospitals, clinics, and other health facilities may yield significant information. This though requires a solicitation technique and an investigative approach honed for years.


Also Read:

Corruption, the Most Common Fraud in Indonesia

Fraud Risk: Your Company’s Leader Could Expose Risk

Fraud trend in post-pandemic era


Photo by Scott Grahamon Unsplash

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