Soon, pincode-wise fraud data to will be available to life insurers

Life will soon be more difficult for fraudsters filing false insurance claims, with the Insurance Information Bureau of India (IIB) analysing data that will help insurers keep a track on repeat offenders.

Many fraudsters buy insurance policies just to file claims worth a few lakh rupees.

V Manickam, Secretary General, Life Insurance Council - the industry body of life insurance companies - said that companies have already shared the data with IIB. He said that they will process the data and provide relevant information to the industry.

On an annual basis, the industry loses about Rs 40,000 crore to frauds. Manickam said about 8.5 percent of revenue is lost to fraud by insurance companies.

Sources told Moneycontrol that once this data is available in a reader-friendly manner, insurers will be able to make the underwriting process tougher.

"Once the data is available in a shareable format, we will be able to make tweaks in the underwriting practices," said a senior insurance official.

Here, the changes in underwriting would mean that certain pin-codes that are prone to fraud will have a tougher process of policy issuance and claims. Pin-codes that have been shown as being locations of fraud in the past will be under the insurer’s radar.

Section 45 of the Insurance Act

As per Section 45 of the Insurance Act, no claim can be denied after three years of the policy being in force. Insurers had opposed this provision of the Act saying that this will encourage fraudulent elements to buy policies and claims after three years.

"Frauds have been on the rise and there has been some misuse of some provisions of the Insurance Act. The pin-code initiative will help identify the problem regions and also price the product accordingly," said the head actuary of a mid-size life insurer.

Section 45 was aimed at reducing the claims payment time, and enable death claims to be settled without undue delays.

How will it affect policyholders?

Policyholders whose addresses feature among the list of pin-codes prone to frauds, will face additional questions at the time of policy issuance. As per law, insurance companies cannot deny policies on the basis of an individual belonging to a particular region/address.

However, insurance companies can seek a compulsory medical insurance for ticket-sizes prone to fraud. Most insurers have frauds where sum assured is between Rs 2 lakh to 10 lakh. Now, for this segment and a relevant pin-code, medical tests could be made mandatory.

Further, for cases of death claims, a thorough investigation will be done to ascertain the identity of the deceased.