Managing Risks: Fraudster blacklist urgently needed

The insurance industry must have heaved a sigh of great relief and satisfaction when the Federal Supreme Court upheld a ruling by a lower court to sentence a man to six months in jail after he set his own warehouse on fire (reported in Gulf News, March 28).

Insurance fraud is recognised internationally as a multi-billion dollar problem which is not restricted by jurisdictional boundaries.

Although at times, the insurance companies manage to detect the fraud and repudiate liabilities under their insurance contracts, due to a false sense of 'competition and self righteousness' prevailing amongst the insurers in the region, the news is rarely circulated in the industry, which could prevent a repeat or at least put the other companies into caution.

Still rarer it is to find someone taking the pains to prosecute the alleged fraudster so as to set an example and deterrence for others.

Fraud is something prevalent in all segments of society.

A recent survey made in the UK found that fraud costs Britons roughly £16 billion annually and this includes all kinds of scams that you read about in the media and the internet.

Insurance fraud, however, falls back on the insuring public in the form of increased premium charged by the industry.

In another survey into commercial insurance fraud conducted by Zurich Insurance in conjunction with MORI (Market and Opinion Research International) and Association of British Insurers (ABI), it was found that the commercial insurance fraud is costing at least £550 million to the UK insurance industry.

Extrapolated to the international level, the figure could work out to several billion dollars.

While most people think that a proportion of a typical insurance premium does go towards paying for insurance fraud, apparently giving them a 'justification' to defraud their insurers, it is shocking that, according to a recent survey, two in three people would dishonestly claim money from their insurance company, if they thought they could get away with it.

Many of the public who lodge false or exaggerated claims on their insurance companies do carry the feeling that 'it is acceptable behaviour'.

While the insurers in the region are not unfamiliar with the practices adopted by the fraudsters and they often conduct sophisticated investigations before paying out 'suspected' or 'tainted' claims, the loss to the industry through increasing number and quantum of claims could be curtailed if they decide to share information amongst each other.

There have been instances in the past when a fraudster claimed on the same transit damage from different insurers by simultaneously insuring a 'non existent or damaged cargo' with different insurers.

Data sharing amongst the insurers in the region can help prevent organised fraud by criminals working as part of a gang or individuals who make it a practice to shift insurers every year.

What is needed is to build up a blacklist of undesirable entities and persons and updating the list continuously electronically for members to access from, so that any proposal made by one of the blacklisted fraudsters is instantaneously rejected.

Also, on getting evidence of a potential or actual fraud, the concerned insurance company should proceed to the next logical step of criminally proceeding against the culprit.

Motor and Medical are two classes of insurance where the region experiences maximum claim instances in terms of number and quantum and it is believed that exaggerations and frauds are allegedly causing a severe strain on the insurance industry.

While 'mystery shopping' (a method by which a decoy from the insurance company is sent to a medical provider, seeking treatment for non covered benefits) is exercised by some insurers and Third Party Administrators (TPA), the positive outcome obtained from such steps are not unfortunately shared with other players.

A 'listing' of unscrupulous providers could prevent other insurance companies and TPAs from dealing with them.

Similarly, a database consisting of all motor vehicles in the country either reported stolen or written off in a total loss accident, if made accessible to all the insurers could, to a large extent, prevent motor insurance fraud.

The writer is Deputy General Manager with Al Rajhi Company For Cooperative Insurance, Riyadh. The views expressed herein are his own and not necessarily subscribed to by his employers.