Insurance, Claims & Fraud during Pandemic

The COVID-19 Virus has affected the world in a big way and has also had a negative impact on the global economy. India is among the 15 worst COVID-19 affected economies. In the testing time of pandemic, insurance proved once again significant and pivotal for customers and public at large. The regulator IRDAI, has also been instrumental since onset of the Covid-19 pandemic towards increasing the reach of insurance products and services to people in most suitable way.

The COVID-19 crises have presented several challenges to Insurance Companies, some of these faced specifically by General Insurance Companies in India are -

Motor Insurance:

·        Major dip in the sale off new vehicles is one of the biggest challenge

·        Claim surveys have gone down due to the impact of lockdowns

·        Customers who are not digitally savvy, were unable to renew policies proactively (though there was relief provided on this by Government by extending the mandatory TP cover)

·        Since usage of vehicles had dipped a lot, a lot of customers were in no hurry to renew policies and wanted to conserve cash.

·        Value of insurance was undermined as obviously there were no accidents or claims happening due to no usage.

Health Insurance: 

·        In India, 18% of urban population is covered and 14% of the rural population * (Circular Ref no. IRDA/HLT/REG/CIR/054/03/2020). This compared to Western countries is very low, and though Government has started various health schemes, they only cover sections of society. Only a couple of States and Union Territories have covered all citizens. The protection gap is huge!

·        IRDA has mandated all the General and Health insurers to start offering Corona Kavach - an indemnity-based health plan and Corona Rakshak - a benefit-based insurance policy, which pays a lumpsum benefit equal to 100% of the Sum Insured payable on positive diagnosis of COVID-19

·        This is the first-time health insurance occupied major mind space in the Indian consumers mind and not just from a tax saving perspective, but from a live saving perspective

·        Despite coverage, a lot of customers had to bear quite a bit of out of pocket expenses initially especially with regards to PPE equipment amongst others, and with exhausted sum insured’s even adequacy thereof got a lot of focus. Deviation in cost of treatment was sizably high

·        Non-availability of hospital beds meant that alternate routes like at home (domiciliary) treatment had to be undertaken, with or without advice from hospitals. These were in addition to assisted quarantine programs being run by certain agencies including hospitals and some other startups

Property and Business Interruption Insurance:

·        In India, protecting property was largely done through the Standard Fire & Special Peril (SFSP) policy which covers, Fire, natural disasters, etc. for both commercial and residential property.

·        BI or Business interruption is a separate policy which can be brought to protect loss of profit and other standing charges. It is not a cover which is widely bought.

·        Pandemic is an optional cover, even more rarely bought and is RI driven from an insurance company perspective. There were a lot of organizations whose businesses came to a standstill due to the pandemic and unfortunately did not have these covers, which led to an overall dissonance about insurance

·        There were quite a few claims, which extended beyond the erstwhile “Silent Clause” of 30 days, but whether payable or not was a grey area that needed close attention to individual claims. The government provided some relief up to a certain SI, but there was uncertainty amongst customers

·        A strong need was felt was pandemic pool, which is in the works

·        The Number of NATCAT events were on the higher side, which has now almost become the norm and not a variation

Agricultural Insurance:

·        Owing to the seasonal nature and largely agrarian economy of India, agricultural insurance accounts for 20% premium of the entire industry. The kharif season is next, there are chances of major impact. Agriculture in India is labor intensive, and hence in case of migration of daily wage labors, there may be challenges with harvesting and logistics.

·        IT infrastructure stability and cyber security must be ensured by the Insurance companies to provide bandwidth for remote access and standard cyber set-up. Digitization has been the key pillar in the growth of the insurance ecosystem- from marketing and policy issuance to claim submission.

In this testing time, insurance industry as whole has demonstrated and contributed towards the larger objective for the society. The insurance companies have taken the social responsibility to honor the claims, in the similar context miscreants/ fraudsters have also been busy to get notions to dupe insurance companies and squander the public money. Insurance fraud, including workmen compensation, casualty claims are on rise. According to Friss insurance Fraud report, 2020 the globally the insurance fraud had increased to 18% from existing 10%. Remote working- fewer inspection, less visits for verification have been crucial points in the context. Economic distress, loss of income and jobs have been large contributing factors for the increase in frauds in India.

The top pandemic fraud claims are-

·        Staged accident: Here Fraudsters purposefully cause a car crash and subsequently to make a fake medical bill

·        Inflated bills: Overcharging the expenses incurred, done on reimbursement claims. This is typically done by the devious collaboration of individuals and certain unethical hospitals, looking to earn a quick buck.

·        Non-hospitalization: Claim for person, who has not been hospitalized, done largely again through reimbursement claims and done by the devious collaboration of individuals and certain unethical hospitals, looking to earn a quick buck

·        Fake home injuries: injuring property/ self to propagate the claim.

Moreover, the old trending ways of insurance fraud has been contributing WRT-

·        Fake / Bogus insurance agents: people claim to be licensed agent to lure and pocket the premium.

·        Phishing/Spoofing/Spam: Unsolicited emails to steal your personal information.

Technology can play a crucial role in aiding claims analysis and payout. This also allows insurers to collect relevant claim data on a single dashboard, incorporating reporting and analytics to monitor business performance and key points relevant to identify and combat insurance fraud. Machine learning algorithms have excellent ability to learn from historical fraud patterns and recognize them in future transaction. Aside, video KYC & digital fingerprinting are two prominent examples of technologies that must be part of fraud detection system. But much more than this, setting fraud triggers based on past data and behavior, first through manual checking and then through the automated AI/ML route can help. But as all good fraud investigators will tell you, flags will do half the job, the instinct and competency of a fraud investigator helps identify, action up and mitigate fraud to its logical end!

Please share your feedback in the comment section

Thanks and Regards,

Sanjiv Dwivedi

Investigation & Loss Mitigation

Bajaj Allianz General Insurance Co. Ltd.