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What is Insurance
Insurance is the equitable transfer of the risk of
a loss, from one entity to another in exchange for
payment. It is a form of risk management
primarily used to hedge against the risk of
uncertain loss.
An insurer is the Company selling insurance.
The insured, or Policyholder, is the Person or
Entity buying the insurance policy.
The amount of money to be charged for
insurance coverage is called the Premium.
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Subject Matter of Insurance
Broadly, it may be divided into 4
Groups
1.Insurance of Property
(Motor, Building, Plant, Machinery etc.)
2.Insurance of Person / Life
(Personal Accident, Medi claim etc.)
3.Insurance of Liability
(Motor Third Party, Workman Compensation etc. )
4.Insurance of Profit
(Loss and Profit, Advance Loss of Profit )
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Indian Contract Act 1872
Indemnity is one of the Principle of General
Insurance.
Section 124 under Chapter VIII of Indian
Contract Act 1872 "Contract of indemnity"
defines it as under:-
A contract by which one party promises to save
the other from loss (In General Insurance it is
called Insured perils ) caused to him by the
contract of the promisor himself, or by the
conduct of any other person, is called a
"contract of indemnity".
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Insurance Contract
The transaction involves the Insured
assuming a guaranteed and known
relatively small loss in the form of
payment to the insurer in exchange for
the insurer's promise to compensate
(indemnify) the insured in the case of a
financial (personal) loss. The insured
receives a contract, called the insurance
policy, which details the conditions and
circumstances under which the insured
will be financially compensated.
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Offer / Proposal
There must be a definite, clearly stated
offer to do something. In General
Insurance , the printed proposal form is
available, which is required to be filled up
by Prospective Insured .
But in Marine Insurance, there is no
proposal form. The prospective Insured is
required to submit questionairre form
duly completed in all respect.
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Underwriting
In Insurance Contract, there is a special
Ingredient between OFFER and
ACCEPTANCE, which is Underwriting.
The acceptance of proposal / offer is
based on the analysis of risk involved in
that particular proposal.
Premium is also decided on the basis of
risk involved in that proposal
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UNDERWRITING
MAIN FACTORS FOR CONSIDERING UNDERWTITING
1. RISK
Risk includes the possibility of losing some or
all AND is usually measured by calculating
the standard deviation . A high standard
deviation indicates a high degree of risk.
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UNDERWRITING
AUTHORITY
Authority is a power or right
delegated to do something. In
General Insurance it is generally
delegated to Officers and the
Financial authority depends on their
Rank.
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Acceptance
Only what is offered can be
accepted. This means that the offer
must be accepted exactly as offered
without conditions.
If any new terms are suggested this
is regarded as a counter offer which
can be accepted or rejected.
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Acceptance
Acceptance can be given verbally
(But in Insurance, the acceptance
must be given in writing only), in
writing
The acceptance must conform with
the method prescribed by the offerer
for it to be effective.
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Consideration
Consideration is an essential element of a
contract. It may consist of a promise to perform
a desired act or a promise to refrain from doing
an act that one is legally entitled to do.
In a bilateral contract—an agreement by which
both parties exchange mutual promises—each
promise is regarded as sufficient consideration for
the other.
In a unilateral contract, an agreement by which
one party makes a promise in exchange for the
other's performance, the performance is
consideration for the promise, while the promise
is consideration for the performance.
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Abuse of Official Position
The position of power can be misused at any
stage during the process of applying, buying,
using, selling, underwriting insurance or while
staking a claim which can be broadly categorized
as under :-
1.Pre Insurance otherwise known as application
2. Post Insurance --- claims
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Pre-Insurance ie application
By Charging less premium as
compared to the risk offered
Ignoring the missing information
Not framing the policy in such a way
that all exclusions are included
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Post Insurance Stage
Eligibility
The benefit is paid to a person not eligible to receive benefit
because of various factors.
( Theft of Identity , where people steal the person’s
Identity & misuse it for committing frauds )
Claims
Where losses are concocted, exaggerated, inflated,
manipulated, stage managed.
Frequency of any Insurance Fraud is greater at the claim
stage in comparison to pre- Insurance Stage.
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Case Study – 1( Insurance of Life )
Death of Mr. Ram Prasad Verma,
owner of Insured vehicle Motor
Cycle No. CG 08 A 0106 covered
under Motor Insurance Policy. While
driving his own vehicle, collided with
Bullock cart ,died in the accident
following fatal injuries in the said
mishap.
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Case Study – 1( Insurance of Life )
This was the case of P.A. Claim and liability was
restricted to Rs.1 lac only, as Insured (owner/
driver)/ deceased was covered under Compulsory
PA Section of the subject policy.
MACT Case
Claimant / legal heirs of the deceased lodged a
claim for compensation under Sec. 163 A of MV
Act before MACT Rajnandgaon treating the
deceased as third party.
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Case Study – 1( Insurance of Life )
During the course of trial in lower court, no
witness/evidence was adduced by the office
against lodging the claim on self insured vehicle
u/s. 163 A.
Since deceased was not a Thirty party, claim was
not maintainable u/s 163 A of M.V. Act.
However MACT passed award against the
Company for Rs.7,82,589/ considering deceased
as Third party in the absence of defense witness
from the Company’s side
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Case Study – 1( Insurance of Life )
Advocate advised the Branch Office to go for an
appeal against the Award as Court had ordered
wrongly in contravention to the policy condition.
The Office has not made any efforts to go for an
appeal ignoring advices of our dealing advocate
and lost the Case.
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Procedure of General Insurance Claim
Intimation by Insured for accidental loss
to subject matter of Insurance
Registration of Claim by Insurer
Deputation of Surveyor / Investigator for
assessment of liability of Insurer
Assessment and submission of Survey
report by Surveyor
Scrutiny of Claim file
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Procedure of General Insurance Claim
Letter to Insured regarding
assessment of loss and to submit
required information / papers.
Approval of Claim by the Competent
Authority, after receiving the
complete information / papers
Settlement of Claim
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Case Study - 2
A Senior Assistant in one of the Divisional Office
of a General Insurance Company working in
Motor Third Party Claims Department for a long
time. His wife was working in the Accounts
Department of the same office.
In the compound where Motor Accident Claim
Tribunal was situated, there was a branch of
nationalized Bank. The tribunal has its account
also in the same Bank. The Insurance Company
has its payment account in the same Bank.
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Case Study - 2
This Senior Asst., over a period of time became
very friendly with some of the advocates in MACT
Court as also some clerks in the Bank. This was
made possible because of his regular visit to
MACT to meet advocates in his official capacity as
also to the Bank where the Company was having
the payment Account.
In Collaboration with some advocates and Bank
employees, he floated a charitable trust called
Maulana Azad Charitable Trust ( MACT ) and
managed to open an account in the bank in the
name of the same trust, which was existing on
papers only
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Case Study - 2
Against the award passed by the tribunal,
cheques used to be prepared in the name of
MACT and the same, instead of being deposited
in the tribunal, were deposited in the trust
account.
His wife being in the accounts department made
his task easier. His advocate friends and friends
in bank were helpful in ensuring that proceeds
are transferred to the trust without any problem
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Case Study - 2
A situation started developing wherein the claim
file status in insurance company’s office showed
that award has been satisfied where as in court’s
records settlement was still awaited. This
resulted in starting of execution proceedings
against the insurance company.
The senior assistant would then remove the office
note sheet and the original judgment from the
file and would prepare a fresh note sheet seeking
permission for immediate settlement of award to
avoid execution.
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Case study - 2
He used to wait for the Divisional Manager to be
on tour or leave and would go to the person
officiating the absence of Divisional Manager.
The Amount of second cheque would be
different from the original cheque in satisfaction
of the award because of interest part on account
of delayed settlement.
This continued for quite some time and by the
time it was detected more than 26 lacs had been
siphoned.
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Case Study - 3
Tempering with the Computer and
Generation of Bogus Policies under which
claims were paid
In this particular case, a Branch Manager of the
Company involved. The cases related to the year
1998 involving long-term JPA policies of three
year duration.
The Branch Manager was very computer savvy &
considered very hardworking . He used to help
his controlling Divisional Office / Regional Office
on regular basis in accounts and computer
related work. He was a trusted hand – always
available.
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Case Study - 3
At that point of time, at staff level not many
people were comfortable working in computer
environment. The Branch Manager used to do
quite a lot of computer related work himself.
Two cases discussed below with slightly differing
modus operandi
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Case Study - 4
Underwriting done Violating all
Underwriting Norms with a View to Pay a
Claim
A Particular Finance Company, which was in the
business of financing vehicles and machinery has
arrangements with a PSU Insurance Company of
Insurance purpose. Mostly the Insurance
effected was under motor policy. The Business
emanating from this company was booked and
serviced by a particular Dev. Officer working
under a particular branch office of a Co.
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Case Study - 4
On 16th March, the financer wrote a letter to the
SBM to issue a repossessed excavator which
originally belonged to some other Co. The
finance company in question repossessed the
excavator and leased it to say, ABC Engineers.
The earlier insurance of the said excavator had
lapsed long back. As per the instruction of SBM,
Dev. Officer issued Cover note, covering the
excavator from 17th March to 16th March of next
year.
The cover note was accepted in the office by the
SBM. Policy was issued in the joint name of
Financer and ABC Engineers for a specified sum
insured.
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Case Study - 4
The following aspects need special mention
The SBM and Dev. Officer, insured the
excavator without proper inspection even
though there was break in Insurance.
It was to be insured under Motor Insurance but
was insured under Engineering Insurance.
As the motor cover note has a column asking
for the date and time of inspection.
Apparently to circumvent this, Engineering
Policy route was taken
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Case Study - 4
● At that time, Branches were not authorized to
accept Engineering Insurance proposal on their
own without reference to Divisional / Regional
Office. Branch Office not only accepted the
proposal and issued the policy but did not inform
the higher office.
● The financer vide letter dtd. 27th March
,requested the Branch Office to enhance the Sum
Insured by more than 11 lakhs of rupees to
correspond it with the current replacement value
of the machine. The Sr. B.M. against appropriate
premium passed necessary endorsement. This
fact was also not brought to the notice of higher
office.
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Case Study - 4
● On 18th April , the insured ABC Engineer informed
the SBM that excavator was completely burnt
in the early morning of 18th April
● The SBM deputed surveyor for pre. survey. The
report was submitted on 1.6.1998 ,which clearly
stated that the machine was operating normally
until 4.30 am ,18th April as per the logbook.
● On 15th July the SBM was transferred to another
Branch in the same city. A new Branch Manager
took the charge.
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Case Study - 4
● ABC Engineer vide letter dt 13th Aug. sent
estimate of loss prepared by BEML dated 24th
April along with BEML letter dated 24th April
addressed to the insured. This estimate was
prepared by BEML after the machine was shifted
to their workshop and totally dismantled.
● The new BM sent these letters to Regional Office.
The matter then came to the notice of Regional
Office but they did not ask about the obvious
irregularities committed by the BO.
● Final Survey was deputed and in due course he
submitted his report. No doubt was raised on
any aspect of the claim.
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Case Study - 4
● The claim file was processed by Branch Office
and sent to Head Office through Divisional
Office / Regional Office with due
recommendations.
● Head Office approved the claim with some
observations, not very relevant for our
purpose.
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Case Study - 4
CBI filed an FIR and subsequently a regular case
was instituted in CBI designated court. CBI
advised the company to charge sheet some of
the officers of the company under CDA rules of
the company. Some were prosecuted in the
Court. Ultimately, some got acquitted and some
received imprisonment award. If CBI had not
come in the picture, the case would never have
been detected.
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Based on information, CBI enquired into the case.
The following facts came to light
a) The excavator was actually burnt on 15th March.
The matter was reported to BEML and their
Engineer has inspected the damage. Estimate
of loss has submitted at that time.
b) The Insured manipulated the date of estimate
and made it 24th April
c) It became clear that excavator was insured
when it was in totally burnt condition.
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41. Case of United India Insurance Co. , Jaipur
The brief facts of the case is that a boy aged 15 years died due
to fall from the roof of an unidentified bus and these facts
were reported in the Roznamcha reported by the compounder.
The ASI who wrote the Rozanamcha also conducted Enquiry in
the matter .
In the Rozanamcha Report no vehicle details etc were
mentioned. FIR was registered after 11 days of accident and no
enquiry was made by ASI from the driver/conductor or
Compounder and no where he has made any reference of that
Roznamcha (daily report) in his investigation report. The court has
exonerated United India Insurance from the liability and has
ordered that an action be initiated against the Investigating
Officer of this case.
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42. Insurance Fraud Cases in
Cuttack , Odisha
With a view to control mala-fide activities taking place outside
the Company , we had collected details /data of insurance cases
and took up the issue with SP (Police ) Cuttack,bringing to light
poor investigation and even attempt to fabricate evidences.
As a result the Odisha police has initiated action against a few
police officials ,which has received media attention as well.
The most visible effect is in the WC Court ,which has seen
drastic reduction in filing of new cases as well as withdrawal
of cases.
During the period from April 2015 to July 2015 total 72 cases(
57 MCAT – Third Party Cases & were reported, whereas during
the corresponding period in 2016 41 cases are reported ( 35
MACT Cases and 6 WC cases)
In Appeal Cases ,arising out of such WC Cases ,earlier the Award
used to be reduced by 15-20 % at present the awards are being
reduced by 50-70 %.
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43. Overall impact of Preventive Measures
taken by us is as under
On complaint of Insurance Companies State
police has initiated enquiries and even arrested
their own officials found guilty of misconduct.
Action has been initiated against others involved
in the crime such as Advocates ,doctors , and
vehicle owners .
Corporate Management of Pvt Insurance
Companies are also contemplating action in
such cases.
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44. MEDIA REPORT IN CUTTACK INSURANCE
FRAUD CASES
In a recent media coverage of Bhubaneswar, it has come on record that
a number of fraudulent MACT (Third Party ) claims were lodged with
General Insurance Companies .The business was operated by a well oiled
racket including Fake accident victims & Govt. officials .
In one such case a fraudulent claim for Rs 40 lacs was filed against a
purported accident which took place in July 2014 ,on Nation Highway in
Cuttack Distt . Four claimants ,who were employed in the truck were
reportedly injured in this accident. The vehicle was owned by a Jaipur
based firm. The cleaner by the name of Santosh Raut filed the
complaint. The Khuntuni police sent the four employees for Medical
treatment ,investigated the incident and registered an FIR under Road
Traffic Accident Case.
During internal inquiry of Insurance company the vehicle owner gave an
affidavit denying the purported accident & confirmed that claimants
were not employed in his firm and the vehicle was off road for six months
,during the time accident was said to have taken place as mentioned in
the FIR. The concerned RTO also supported the claim of Vehicle owner.
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45. SP Cuttack (Rural ) confirmed that a
departmental enquiry has been initiated in the
matter and action will be taken if there is
discrepancy in the sequence of events.
In similar insurance fraud cases an Inspector
ranked officer was put under suspension after an
enquiry established his complicity in fake
insurance claim case & a police ASI of
Bhadreshwar outpost in Cuttack and two others
were arrested on similar charges
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