All You Need to Know About Motor Insurance Fraud in India

25 November,2022 03:48 PM IST |  Mumbai  |  BrandMedia

Automobile industry sales took the brunt of the Covid-19 hard-stop as India saw its Motor Insurance sector slip from being the biggest share of the General Insurance segment in 2019-20 at 34.12 percentage to securing the second highest share i.e., 27.86 percentage this September 2022.



While the auto sector is still reeling from the aftereffects of the pandemic and is trying to regain its revenues as we progress from one festive season to the other, the axe in its regrowth is the sheer quantum of frauds taking place today.

Financial year end, March 2022, witnessed a whooping Rs. 1,200 crores loss owing to motor vehicle insurance frauds. Alarming as it is, merely 0.5% of insurance fraud cases are investigated which results in a loss ratio of around 4%-4.5%.

Fraudsters are getting creative by the day in finding loopholes through the insurance sector, taking advantage of unsuspecting policy buyers and insurance houses.

Magnifying Damages

Kerala unearthed a modus operandi of motor insurance fraud to the tune of more than Rs. 50 crores this February 2022. Insurance agents spun an elaborate scheme to trap insurance companies by faking accidents and claiming insurance payouts. Vehicle owners who met with minor accidents were made to sign claim forms for damages by the agents while they calculatedly portrayed it as major accidents in the claims documents, promising half of the payouts to the vehicle owners.

Falsification of Facts

Another kind of fraud that came to light this September 2022 in Mumbai, was misrepresenting the category of vehicle while purchasing insurance by third party online insurance agents. The scammers used multiple fake ids and sold 1,129 two-wheeler insurance policies in the name of four-wheelers and six-wheelers, siphoning off about Rs 1.53 crores.

Tele-targeting Deception

This August 2022, the most common mode of fraud was uncovered where the fraudsters posed as insurance agents, calling vehicle owners on the pretext of renewing their vehicle insurance policy and duped 440 innocents by luring them with false heavy discounts allegedly offered by some of the most reputed insurance players in the market. Procuring old claims documents of the vehicle owners, they forged the date, time, and premium amount to make it look like a renewed policy document.

With India hurtling towards becoming the 6th largest nation in terms of total premium volume by 2032 from 10th largest in 2021, with an estimated average year-on-year growth of 14%, this momentum cannot be continuously interrupted due to the myriad of frauds happening in the insurance sector. Automobile sector too is picking up its pace, with an increase of 21% in sales from September last year*s figures.

While we have looked at some of the instances where motor insurance has been falsified or wrongly claimed, there are yet more ways for scammers to hoodwink this insurance segment. Data analysis on customer policy information brought forward various forms of fraud that grapples the motor insurance sector;

1. Misrepresentation of vehicle category during purchase of a policy so that insurance companies can underwrite excess premium

2. Taking advantage of Own-Damage cover by not reporting an existing damage

3. False reporting of No-Claim to avail no-claim bonuses

4. False claims of self-damaging vehicles in own garage under Own Damages cover

5. Filing false claims on advice of Third party to make corruptive gains

6. Forging old insurance documentation for fake renewal of policy

Alongside fraud within the motor insurance sector, there are several other inconsistencies that are yet not addressed within the segment that plays a significant role in being a catalyst for imminent fraud to take place. Every fraudulent idea is born from a loophole that was not plugged-in time within the system. These detrimental ideas can be minimized if the existing gaps are sealed through tightened regulatory reforms and technology developments that combat these pain-points.

Let*s take a quick run through some of the inconsistencies that yet remain within the motor insurance sector;

1. Detailed customer profiles are not transparently shared by distributors to insurance houses

2. Improper due diligence of customers and vehicles data leads to incorrect filing of policies

3. Issuance of multiple policies against a single vehicle by Third Party vendors

4. Third party claims come as legal cases from multiple locations in the country making it hard for the Insurer to keep track of them

5. In Third party claim, negligible information is provided to the insurer for validation of claims

6. Due to the sheer volume of claims, investigation into each claim matter becomes expensive for the insurer.

From a regulatory standpoint, the Insurance Regulatory and Development Authority of India (IRDAI) this August 2022, organized its first hackathon - "Bima Manthan 2022" with the theme Innovation in Insurance. This hackathon aims to encourage enterprises from across geographies to identify and develop solutions that have the potential to make insurance available to every individual in a seamless and swift manner with the use of technology and protecting the interests of the policyholders.

It is a major Call-To-Action, especially for FinTechs as they get to explore their capabilities in developing tech-enabled solutions that consequently resolve the Problem Statements listed by the IRDAI;

1. Fraud mitigation/ prevention in motor insurance by using technology

2. Identifying uninsured motor vehicles by using technology and ensuring mandatory Motor Third Party

3. Automatic death claim processing using technological concepts such as Distributed Ledger Technology (DLT)

4. Technology-basedsed distribution of insurance products including micro insurance in "difficult terrains, less penetrable and potential areas" such as Ladakh, North-Eastern States, and Desert Areas, etc.

5. Use of technology to curtail mis-selling of insurance products

6. Development of Insurance Information Exchange (IIE) platform for providing services for onboarding the policyholders, policy servicing, and claims settlement that will be utilized by al insurance companies and the intermediaries

7. De-duplication of Insurance Policies to identify multiple policies from different insurance companies for a single policyholder

8. Development of a Unified Virtual Insurance Interface (in lines of UPI) for providing an end-to-end solution

The requisite that emerges for any tech solutions developer is acquiring customer and vehicle profile data to commence with deep data analysis in building products that address the Problem Statements of the IRDAI. While gathering voluminous data from different insurance houses and third-party vendors and distributors is cumbersome and not transparent, government data initiatives instead are a good starting point;

1. VAHAN - A comprehensive Vehicles Registration portal that holds Nation and State-wise motor data

2. V-SEVA by Insurance Information Bureau of India (IIB) - Collects, analyzes, and provides insights from the transactional data collected as per formats enumerated from all insurers doing insurance business in India, including motor

To be an active part of this IRDAI initiative against motor insurance fraud, Perfios, alongside its acquired group, Karza Technologies, is a leading technology provider in onboarding, verification, digital due diligence, underwriting, and claim automation that leverages its 14-year legacy of pioneering deep tech solutions enveloping advance data analytics and data aggregation.

Over the years concept products developed by Perfios has molded Fintech to become a category creator in the data domain. To transform insurance houses into agile, digital-enabled organizations, Perfios taps into its data enrichment solutions that can create new models that identify risks and presents detailed reports through real-time data capture.

It is a complex journey ahead for the triage, the insurers, the regulatory bodies, and the tech-solutions developers to tackle this motor fraud giant with digital weapons. While India is adopting digital at a faster pace than ever before, it is still a country of remote geographies where digital penetration is yet to take place.

We hope the IRDAI Hackathon proves to be the turning point in the history of motor fraud prevention in India and we urge vehicle owners and buyers to maintain strict vigilance while dealing with insurance and claims from any source, whether Third-party or Insurance agents. We hope that this has been an informative read for you today.

About Perfios: Perfios Software Solutions is India*s largest SaaS-based B2B fintech software company enabling 800+ FIs to take informed decisions in real-time. Headquartered in Bangalore, Perfios specializes in real-time credit decisioning, analytics, onboarding automation, due diligence, monitoring and more. Perfios* core data platform has been built to aggregate and analyze both structured and unstructured data and provide vertical solutions combining both consented and public data for the BFSI space catering to their stringent Scale Performance, Security and other SLA requirements.

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