Insurance fraud – Implications for insurance companies

Insurance fraud occurs when someone deliberately fakes an incidents/accidents/injury or theft for the purpose of claiming insurance loss or perpetrated by an individual who simply has a chance to inflate a claim or get an exaggerated estimate for losses to his or her insurance company. Approximately some 5-10% loss of all insurance claims are fraudulent and less than 2% of those fraudulent claims are detected or denied. Fraudulent claims are weakened an insurer’s financial position and undermine its ability to offer competitive premium rates and to underwrite potentially profitable business.

Arson Fraud:

Arson fraud is the willful and malicious burning of property of value for profit derived from subsequent insurance claims. Sometimes some Business owners and individuals commit arson fraud to collect insurance money to pay off a loan or mortgage balance which may be in excess of the value of the property. The end result is that the owner is issued the replacement value of the real estate or associated property from the insurance company. Arson investigation is one the most difficult types of investigation. In Bangladesh lack of such expertise in this field

Automobile fraud:

one type of automobile fraud is the “caused” accident. Caused accidents are cases where there were real injuries or damages to the property but they are not caused by an accident at all. insurance companies have admitted that sometimes loss adjustors are in cohorts with the workshop agent to approve the inflated cost for monetary return.

Some of the things to watch out for, and which may indicate that a claim is fraudulent

•             The business is in financial difficulty.

•             Some of the machinery includes that is out of order.

•             The items that appear on the insured’s inventory are different from those that appear on the police report

An insurer should have a sound and prudent fraud management strategy to manage fraud risk arising from its operation. A structured checklist or fraud manual can greatly contribute to learning from each other and achieving a more homogenous and higher detection rate overall within the group.

Attempt to punish insurance fraud are multi-faceted. They include joint efforts by insurance companies, the Insurance industry association, the media, and law enforcement. Insurance companies have always made a strong attempt to curb insurance fraud at the policy underwriting stage. The insurance company should be resorting to conducting investigating training techniques and dependency on fraud detection software to curb insurance fraud.

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