6 May 2002

May 12, 2011

Use of Legal measures to handle unreasonable claim demands, exaggerated and fraudulent claims

Ramji Mishra, National Head-Claims( Legal & Compliance )

Objective
Increased Frauds Q&A
Discussions US: $80 to 100 bn Australia: A$ 2.1 bn UK : 1.6 bn 5 to 10% leakage

Litigation Vs. settlement

Need for proper evaluation before venturing into litigation

Legal measures

Best Practices
To share the best practices

Increased Litigation costs Legal action: A Deterrent

Fraudsters stay away from companies which take legal action & tough stand in fraudulent claims High number of cases going into litigation esp. Bodily injury claims

Objective

1 2 Typology of Fraudulent claim & evaluation for litigation

Contents

Litigation as a Deterrent

3 4

Key requirements for contested cases

Best Practices & cost Management

5 6
Q&A

Insurance Fraud Typology

Underwriting fraud Sourcing of business Premium misappropriation Fake Accident/ Loss Claim Frauds Staged Accident Accident genuine, Inflation of claim amount Diversion of funds Investment of Funds Stage of Business
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Mis-appropriation of funds Other investment frauds Type of Fraud

Insurance Fraud: Evaluation for litigation Soft Fraud! Deliberately inflating claims.
A claim may be extravagant but not fraudulent if the claimant is merely taking a bargaining position, as opposed to intending to recover more than that to which they are entitled Not fit for litigation Provided it is not dishonestly exaggerated

Hard Fraud !
Claims where no loss has occurred at all. False statements about the circumstances of the loss. False statements regarding compliance with contractual conditions. False descriptions of the subject matter of the insurance. Fit for litigation
Burden of proof of fraud is on insurer Investigation report Documentary proof Statement of key witnesses Caution Communication with such insured and the declination letter should be properly worded

Objective

1 2 Typology of Fraudulent claim & evaluation for litigation

Contents

Litigation as a Deterrent

3 4

Key requirements for contested cases

Best Practices & cost Management

5 6
Q&A

Litigation : a Deterrent
Meritorious claims should be paid promptly and pleasantly. Fraudulent, exaggerated or un-meritorious claims should be resisted vigorously The universal equation says: Incidence of fraud = The inclination + The opportunity The resistance It appears to be almost universal view that in any population: 10% of people are inherently honest 10% are inherently dishonest and the other 80% could go either way It is effective resistance which successfully manages fraud, whilst maintaining high levels of customer service Prompt Penal action / litigation & image of the company work as deterrent for potential fraudster
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Case Study 1 Basic Facts: Claim of accidental death of insured Said to have died in road accident Claims with multiple insurers life & non-life Claim also filed before Motor Accident Claims Tribunal (MACT) Total SI + Claim amount = INR 4 mn Police had filed Charge sheet, treating it accidental Role of Advocate!

Red Flags: Claim intimated and regularly followed up by an Advocate. FIR with Police 2 weeks after accident Road traffic accident. No satisfactory explanation for insured being in the location. Position of his body after death. Nature of injuries on his body. Claims with multiple insurers.

Case study Contd: Result of Investigation

Police Action
Complaint by insurer
The investigation was done by

Arrested 2 advocates, 4 ladies who posed as wife; uncle. Murder of an innocent labourer came to light. Earlier murder also came out Fake MACT claims 2 in which advocate had given his own car found.

SIU of TataAIG. The arrest of Advocates & other accused send the clear message to the market / potential fraudster not to mess with TataAIG. There was a marked reduction in fraudulent claims in the area.

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Case Study II: Marine Claim Fraud

Background: Client an exporter. Has open policies with us. Mostly, ICC-C cover. Sought ICC-C with total nondelivery & trans-shipment cover at Sri Lanka, for a furniture consignment to Canada. Claim for total non-delivery approx. INR 4.5 Mn. The loss:

Consignment stuffed in a container containing 2 others one for Sri Lanka & one for Malaysia. At Colombo, SL consignee allegedly took away Canadian consignment and SL consignment went to Canada. Claim lodged with AIG office in Canada by consignee.

Case Study II

Red Flags Sri Lanka:

Investigation findings - Canada: Consignee incorporated a few Consignee address nondays prior. existent. Shipping lines representative First purchase order, with a lot of holes: absconding. Delivery before 28 Feb, but Red Flags India: consignment started on 6 Mar
BL was issued by a NVOCC ( Non Vessel operating common carrier), incorporated in Singapore. Issued Non Delivery Certificate very quickly.

No port of delivery mentioned. Not backed by Letter of Credit. No product specifications.

Case Study II

Investigation findings:
Consignee remitted money in spite of being aware of nondelivery. Fumigation Cert after stuffing! The 3 consignments The one insured by us. Second, of another firm, meant for Malaysia. Third, meant for SL.

Findings the 3 consignments: First, was subject of loss. Second consignor, sister concern of insured. Third, Chennai firm linked to insured firm.

Case Study II

The Chennai firm: Not existing at the address, a residential flat. Owner informed, was a defaulter. Bank had seized the flat. No exports in last FY. Two exports in current year one involving loss with us and other, with CGU Australia.

Others in the mystery link: In case of CGU loss, 2nd firm of the triad had sent consignment, which had got mixed up at Malaysia. The NVOCCs Delhi address was again a flat and there was no firm by that name there.

Case Study II Clinching insured fronting for Consignee & NVOCC!

Consignor same Consignee Consignee & location - Chandigarh NVOCC same location Chandigarh

Consignor

Case Study II: Conclusion The insured/ consignor went to State Consumer Forum, Chandigarh, which dismissed the petition with costs saying:

The entire case smacks of fraud with the object of cheating the insurance company by claiming the insurance amount from them. In fact, it appears to be fit case for registering a criminal case of fraud and fabrication of documents against the complainants. We do not find any merit in this complaint and the same is accordingly dismissed with litigation costs of Rs.10,000/-. Tough stand / forceful litigation, against fraudster, always works as a deterrent tool for Insurer

Objective

1 2 Typology of Fraudulent claim & evaluation for litigation

Contents

Litigation as a Deterrent

3 4

Key requirements for contested cases

Best Practices & cost Management

5 6
Q&A

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Key requirement for defending Fraudulent cases:

Burden

of proof of alleged fraud lies on

Insurer
Standard of Proof (civil case): The balance of Probability The more serious the allegation made, the higher the degree of probability to be established. Investigation report Documentary/oral evidences Prompt Information to law enforcement agencies. Legal dept/lawyers to vet the correspondence made with policyholder To maintain consistency in all the communication. Appropriate law firm to be engaged for defending the case in court. Regular follow up with the law firm is must. Concerned Dept ( LOB) to take ownership of the case.

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Fraud is an endemic feature of insurance business. There is no silver bullet remedy and this is highly unlikely to change, but it can be controlled.

Objective

1 2 Typology of Fraudulent claim & evaluation for litigation

Contents

Litigation as a Deterrent

3 4

Key requirements for contested cases

Litigation Management & Best Practices

5 6
Q&A

19

Litigation Management :
Strong In-house Claims-Legal Department

Communication in fraudulent cases Declination letter in complicated claims Reply to legal Notices
Defense Council Selection: Right resource

on the right claim

Legal Spend : What should be, not what is Litigation Strategies: Right settlement at Discourage litigation. Persuade your neighbors to compromise whenever you can. As a peace maker the lawyer has superior opportunity of being a good man. There will still be business enough. - Abraham Lincoln.

the right time

Strong

SIU: Close coordination with Legal and concerned department Investigation should be properly documented.

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Best practices:
Declination of claim to be monitored/done by centralised Hub. To maintain standardisation Consistency in correspondence with insured

Early and efficient identification of suspect claims and prompt removal from the normal claims life cycle Improving knowledge sharing and education Enhancing routine data sharing both across the industry and with other bodies/organisations Securing successful criminal prosecutions Better educating the public that fraud is morally unacceptable

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Objective

1 2 Typology of Fraudulent claim & evaluation for litigation

Contents

Litigation as a Deterrent

3 4

Key requirements for contested cases

Best Practices & cost Management

5 6
Q&A

22

QUESTION & ANSWER

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Thank You