India lacks a law specifically targeting all aspects of insurance fraud despite the fact that insurers lost INR450bn ($5.9bn) due to fraud in 2019, according to Mr S K Sethi, founder and CEO of the Insurance Foundation of India and the founder Director of Ria Insurance Brokers.
In a commentary published in Business Today, he notes that most insurers in India lose between 10%-15% of premiums from fraud across all lines of their business, whereas fraudulent health insurance claims can even reach 35%. Further, about 90% of auto insurance frauds are the result of padded claims while the other 10% are from organised accident staging. In the life insurance segment, most frauds are seen where the sum assured is between INR200,000 and INR1.2m.
Mr Sethi says that in India, there is no specific provision in the Indian Penal Code for insurance fraud. A few sections that have some relevance are:
Section 205-false impersonation for the purpose of act or proceeding in suit or persecution;
Section 420-cheating and dishonestly inducing delivery of property;
Section 464-making a false document including signs, seals and forgery and
Section 405-criminal breach of trust.
However, these provisions are not adequate to prosecute a fraudster legally in cases of organised insurance frauds.
He says that the central and state governments shall also have to seriously think about having specific laws to counter insurance fraud and setting up insurance fraud bureaus. This is urgently required as the Indian Insurance Act does not contain a definition for insurance fraud.
Furthermore, due to the mounting backlog of pending judicial cases in Indian courts, taking legal action against insurance fraud is not a common occurrence and insurers often drop their pursuit of fraud cases where these involve amounts not big enough to justify the heavy investment of time and energy in taking the cases to court.
In addition, compared to other crimes, court sentences for insurance fraud are lenient, reducing the risk of severe or extended punishment, notes Mr Sethi.