Improper Payouts In Insurance

1865 Words8 Pages

1. Introduction
Insurance frauds cover the range of improper activities which an individual mayto commit to achieve a favorable outcome from the insurance company. This could range from staging the incident, misrepresenting the situation including the relevant actors & the cause of incident and finally the extent of damage caused.
Potential situations could include
a) Covering up for a situation that wasn’t covered under insurance (e.g. drunk driving, performing risky acts, illegal activities etc.)
b) Misrepresenting the context of the incident: This could include transferring blame to incident where the insured party is to blame, failure to take agreed upon safety measures,
c) Inflating the impact of the incident: Increasing the estimate …show more content…

On one hand, there is the challenge of impact to customer satisfaction through delayed payouts or prolonged investigation during a period of stress. Additionally, there are costs of investigation and pressure from insurance industry regulators. On the other hand, improper payouts cause a hit to profitability and encourage similar delinquent behavior from other policy holders.
According to FBI, the insurance industry in the USA consists of over 7000 companies that collectively collect over $1 trillion annually in premiums. FBI also estimates the total cost of insurance fraud (non-health insurance) to be more than $40 billion annually [ ].
It must be noted that insurance fraud is not a victimless crime- the losses due to frauds impact all involved parties through increased premium costs, trust deficit during the claims process and impacts to process efficiency and innovation.
Hence the insurance industry has an urgent need to develop capability that can help identify potential frauds with a high degree of accuracy, so that other claims can be cleared rapidly while identified cases can be scrutinized in …show more content…

Consultations with industry experts indicate that there is no ‘typical model’, and hence challenges to determine the model specific to context
c) Recalibration of model is a manual exercise that has to be conducted periodically to reflect changing behavior and to ensure that the model adapts to feedback from investigations. The ability to conduct this calibration is challenging
d) Incidence of fraud (as a percentage of the overall claims) is typically low- typically less than 1% of the claims are classified. Additionally new modus operandi for fraud need to be uncovered on a proactive

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