Irda has put the onus on insurance companies to curb frauds by putting in place a risk-management system
Insurance companies will now have to put in place a risk-management function to monitor risks across all lines of business on a continuing basis and initiate measures to address them. The anti-fraud policy will have to be approved by the board of all insurance and reinsurance companies and an annual review of the policy will have to be undertaken.
The Insurance Regulatory and Development Authority (Irda) has issued a circular where insurers will have to put in place measures to protect from policyholder, claims, intermediary and internal frauds. In the circular, the regulator has said that financial fraud poses a serious risk to all segments of the financial sector. “Fraud in insurance reduces consumer and shareholder confidence and can affect the reputation of individual insurers and the insurance sector as a whole. It also has the potential to impact economic stability. It is, therefore, required that insurers understand the nature of fraud and take steps to minimise the vulnerability of their operations to fraud,” says Irda.
The regulator says reinsurers can reduce their exposure to fraudulent claims from ceding insurers and reinsurance intermediaries by understanding the fraud risk management systems these counterparties have in place.
An act or omission intended to gain dishonest or unlawful advantage for a party committing the fraud, or for other related parties, may be achieved through misappropriating assets, deliberately misrepresenting, concealing, suppressing or not disclosing one or more material facts relevant to the financial decision, transaction or perception of the insurer's status.
Irda says the anti-fraud policy should cover the procedures for fraud monitoring, identify potential areas of fraud and cover coordination with law enforcement agencies. A well-defined procedures to identify, detect, investigate and report insurance frauds will have to be laid out by insurers. Fraud monitoring will have to be either an independent function or could be merged with existing functions like risk, audit, etc. The head of this function should be placed at a sufficiently senior management level and be able to operate independently.