What is Insurance Fraud? Types, Real Examples and Prevention Tips

Currently, insurance fraud is growing rapidly in India. This rapid increase in fraud is alarming for insurance companies and policyholders. If we look at news and reports, billions of rupees are lost annually due to fake claims, document tampering, and staged accidents. Many insurance companies face huge financial losses every year. It also impacts innocent policyholders because to overcome financial losses insurers raise premium fees. In the following blog, you will learn about the types of insurance, real examples, and prevention tips.

What is Insurance Fraud?

Insurance fraud is the act of deceiving an insurance company for financial gain. It includes deliberate misrepresentation, false claims, and other activities to receive benefits. Policyholders, insurance agents, or even criminal groups can commit insurance fraud.

Insurance fraud is not an issue for an insurance company but also for a genuine policyholder. As fraud increases, insurance companies compensate for loss by raising premium rates. 

Types of Insurance Frauds

Here is the list of Insurance Fraud Categories

• Automobile Insurance Fraud: Automobile insurance fraud includes fake accidents. In this fraud, fake crashes are set to claim exaggerated damages. Some people inflate damage or injury claims after accidents. In this scam, vehicles may be reported as stolen to get money.

• Health Insurance Fraud: Health insurance fraud occurs when people or healthcare providers trick insurers. It involves submitting fake information about health conditions to claim money. 
• Life Insurance Fraud: Life insurance fraud happens when people lie about their health or personal details. Some people fake their deaths to collect life insurance money.

• Premium Fraud: In this fraud, the customer provides fake information to receive lower premiums, such as incorrect number of employees, and risks to get lower premiums.

• Property Fraud: In property fraud, the policyholder either over-emphasises property damage. They even damage property on purpose to get insurance money. In some cases, they set fire for compensation.

The common Ways of Insurance fraud

Fake Accident

People create a fake accident and proof to claim money from the insurer. Usually, fraudsters stage crashes, exaggerate damages, or fake injuries.

This Typically Includes:

• Staged Collisions: Intentionally causing an accident.
• Fake Injuries: Claiming medical expenses for injuries.
• Manipulated Evidence: Tampering with accident scenes, vehicle damages, or witness statements to make the incident appear real.

When the person sets up the whole thing, it submits repair bills, exaggerates medical claims, or demands compensation for damages that never occurred.

Identity Theft

In this scam, an individual’s personal information is stolen and misused without their knowledge. Fraudsters use details for illegitimate activities like unauthorised transactions, loans, or claiming fraudulent policies.

Real examples of insurance fraud in India

Here are some real examples of fraud:

Woman Faked Death Fraud, Mumbai

In Mumbai Bhayander, a woman named Kanchan Pai faked her death twice within two years to claim insurance money worth rupees 1.1 crore. She and her family deceived four insurance companies and obtained rupees 70 lakh before getting caught.

How she and her family executed the fraud

Kanchan purchased life insurance policies from multiple companies. After buying them, her family submitted the fake death and cremation certificates to claim money.

First Fake Death (2021): Her son submitted documents, and insurers paid rupees 20.4 lakh and 25 lakh separately.

Second Fake Death (2023): This time, she used a different name, and her husband received rupees 24 lakh.

This fraud was discovered in January 2024, when insurers noticed inconsistencies in her Aadhaar and PAN details during a 41 lakh rupees claim. On investigations, they realized both claims were fake, and the family fled.

Man Fakes Death in Car Accident to Claim ₹7.4 Crore Insurance

A man with insurance policies worth 7.4 crores attempted to commit fraud by faking his death in a car accident. He had multiple life insurance policies and staged accidents to make it appear as though he had died.

Mumbai Man Fakes Death for Rs 2 Crore Insurance Claim

A 30-year-old man from Mumbai named Dinesh Taksal faked his death with the help of his two friends. He created this to claim Rs 2 crore from an insurance policy. He bought the policy in 2015 by using fake income documents and later staged a road accident in 2017 to claim the money.

To make insurance companies believe them, they used fake parents and submitted fake documents along with a body. However, LIC found discrepancies during their investigation, like suspicious property transactions, and found the truth.

Fake Motor Insurance Scam in Odisha

In Odisha, a major motor insurance scam came to the existence of a fake accident claim of Rs. 5 Crore. Where Keshab Chandra Mahanta was found linked to several suspicious accidents in just one year. Even after being arrested three times, his license was valid.

ICICI Lombard reported this fraud, which involved fake medical documents and staged accidents. Due to the complexity of the case, the Orissa High Court handed it over to the CBI.

Tips to Detect Insurance Fraud for Insurance Companies

These are some tips insurance companies can follow to detect fraud:

• Document Verification API: Insurance companies should use document verification API. It cross-verifies the details from the official database. The API confirms whether the submitted document is original or forged.
• Photo Analysis: Insurance companies should use AI-based image analysis tools. It will help in detecting tampered accidental and damaged images.
• Behavior Tracking: Insurance providers should monitor customer behaviour who file many similar claims repeatedly.
• Death Certificate Verification API: Many fraudsters use forged death certificates to claim money. Insurance companies can use the death certificate verification API before issuing money.
• Cross-Checking: Cross-verification of the submitted details with the official database is necessary. It will confirm, whether the submitted documents are genuine or not.
• Medical Bill Verification API: People usually use fake medical bills to claim money. Insurer can use Medical Bill Verification API to verify the bill while issuing money.
• Shared Databases: Insurance companies maintain and access shared databases to identify repeat offenders. This prevents individuals from filing fraudulent claims with multiple insurers.
• Use of Data Analytics: Data analysis is essential to predict the chances of fraud. It will help in identifying high-risk claims.
• Regular Audits: Insurance companies check claims through internal audits to spot anomalies. This helps them catch fraud early.

Steps policyholders can take to prevent fraud

Like insurers+, policyholders are always at risk of identity theft and data breaches. To keep yourself safe, you can follow the following tips:

• Keep Personal Information Safe: Don’t share your personal and financial data with unknown people or unsecured websites.
• Verify Documents: Check all insurance documents for accuracy. Ensure there are no errors in your policy.
• Immediately Report Lost Documents: If you lose important insurance documents or ID. Immediately inform your insurance company.
• Beware of Fake Agents: Only deal with authorized agents or company representatives. Verify insurance agents and their credentials before sharing any details.
• Be Honest: Always provide genuine information while buying a policy or filing a claim. False claims can lead to legal trouble.
• Monitor Your Policy: Regularly check your policy and claims. It will confirm no unauthorized changes or transactions are made.

Conclusion

Insurance fraud is rising day by day in India. It results in financial losses for insurers and higher premiums for genuine policyholders. It usually includes fake accidents, identity theft, and forged claims. To reduce this, insurers should use preventive measures and advanced technology for detection such as AI analysis, document verification API, etc. Policyholders can prevent themselves by keeping personal information safe and reporting suspicious activities.