Tax & Compliance

POLICY WORDINGS AND FUNNY CASE OF INSURANCE FRAUD.

Dear friends,

As we know that frauds are present in every section, where money involved. The financial sector is more vulnerable for fraud than other sectors. The frauds generally happen for sake of financial gain by applying dubious methods by the fraudsters. Insurance industry is the most vulnerable for various types of fares by policyholders, intermediaries , employees and others. Since insurance companies being custodian of the money of public , then it is important for insurance companies to take all available measures to prevent frauds and to protect interest of policyholders.

Health Insurance fraud is described as an intentional act of deceiving, concealing, or misrepresenting information that result in healthcare benefits being pai illegitimately to an individual or group.

These frauds may even affect solvency position of a company, its reputation ,business and efficiency of handling claims. The fraud may lead to charging of higher premium, rejection of renewals, higher insurance co-payments, denial of future coverage and also impacts quality of care services provided by the insurers.

The policy wordings play an important role in fraud management and servicing of customers. The insurance companies are always on default side in case of any disputes in policy wordings, because the Insurance Contract( Policy) is drafted by the insurance companies.

LET’S CONSIDER A CASE a very famous and humorous incident that happen long ago.

Once Mr. X purchased a box of rare and expensive cigars and got fire insurance cover for his cigars.

The insurance company also understood the importance of thee rarity of the branded cigars and insured it with utmost good faith.

The customer smoked the entire cigars within a month and claimed to the insurer that cigars were lost in a series of small fires( which indirectly means that he has used cigars for personal purpose).

The insurance company refused to honour the claim stating that the consumption of cigars will not qualify for the claims.

A case was filed before the court and court ruled in favour of the customer stating that the insurance company did not define in its policy as “ what is considered to be unacceptable fire and acceptable fire” and hence ,ordered the insurance company to honour the claim.

The insurance company honoured the verdict of the court and paid the claim. But the insurance company had him arrested on 24 counts of arson. With his own insurance claim and testimony from the previous case being used against him, the customer was convicted for intentionally burning his insured property and was sentenced to 24 months in jail and fine.

CONCLUSION: the above case seems funny but point out loopholes in wordings of an insurance policy. The fraudsters generally take advantage of faulty wordings to plan their activities. The prevention of insurance frauds should be the priority of an insurance company and its depends on its internal control management, risk management procedures ,fraud management philosophy and policy ,action taken for customer education, robust system of fraud monitoring , the training and education of claim handling and policy servicing employees etc.

DISCLAIMER :the article produced here is only for information and knowledge of readers. The views expressed here are the personal views of the author, same should not be considered as professional advise. In case of necessity ,it is advisable to consult with insurance professionals.

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