Claims and Cover-ups - II: Deciphering Insurance Agent Fraud Schemes

Welcome to our latest article in the #ForensicForesight series focused on forensic accounting and fraud examination!

Responding to reader comments and suggestions from our last piece on insurance fraud, we're zeroing in on the specific issue of insurance agent fraud in this article. We will learn who these agents are, why they might commit fraud, and how to protect yourself from their deceptive tactics. We'll also provide essential tips for forensic accountants and fraud examiners to spot the red flags of agent fraud.

Consider this news report.

• A General Insurance Company has filed a police complaint against a group of over ten insurance agents for defrauding over 1000 policyholders and causing a loss of about ?1.5 crores. The accused offered four-wheeler insurance at reduced rates but fraudulently registered them as two-wheelers online. They pocketed the difference between the collected premiums and the lower two-wheeler premiums paid to the company. The scam involved sending forged policy documents to customers while keeping the actual documents, which were generated using the agents' email IDs.

Here, the scam is initiated by insurance agents. In this scam, the insurance agents exploited their position of trust and authority. Insurance agents are typically responsible for selling and managing insurance policies, acting as the link between insurance companies and policyholders. In this case, however, they abused their role by offering misleading deals, falsifying policy registrations, and misdirecting funds for personal gain.

So, what are the typical tactics used by agents?

5 Common Fraud Tactics of Insurance Agents

Insurance fraud by agents often involves misappropriating premiums through various tactics:

In the above example, the fraudulent scheme used by the agent is a combination of fund diversion, policy manipulation, and more!

As a result, the Modus Operandi of these kinds of frauds can include:

• Agents collect premiums and provide false documents, making customers believe they have valid policies when no actual policy exists.
• Agents accept payments for legitimate policies but divert the funds to their accounts instead of the insurer's.
• Customers often write cheques to agents rather than the insurance company, leading to misappropriation.
• Some agents facing financial struggles misuse their trusted position in the community to steal premiums.
• Sometimes driven by agents' financial desperation and the increasing competition from digital insurance options.

This brings us to an important question about what drives these agents to commit fraud. While we've previously explored fraudsters' motivations, it's worth revisiting some factors particularly relevant to insurance agents. Understanding these motivations is key to addressing and preventing such frauds in the insurance sector.

What Drives Insurance Agents to Commit Fraud?

How Can You Recognise Suspicious Agents Activities?

1. Unexpected Claim Issues: Discovering lack of coverage or cancelled policies due to unpaid premiums during claim filing.
2. Policy Document Delays: The agent repeatedly delays or makes excuses for not providing policy documents, citing reasons like technical issues or administrative problems.
3. Red Flags: Be cautious of unusually large discounts and use the insurer's policy genuineness check feature for authenticity.
4. Motor Insurance Verification: For motor insurance, validate policy authenticity on the respective vehicle authority portals. For example, In India, check the VAHAN portal, managed by the Ministry of Road Transport and Highways, before making payment.

Following are some tips to stay vigilant when buying an insurance policy.

Did you know that professionals like #CFE and #CA face numerous false positives and resource constraints? However, they persist in analysing policies to mitigate fraud, as even a few dishonest agents can lead to significant losses. As a forensic accountant or a fraud examiner, there are a few fraud risk criteria through which we can identify these risks.

Common Fraud Risk Criteria in Insurance

• Examining policy trends and connections between policyholders and agents to spot unusual premium payments or sudden changes in payment patterns.
• Checking identity cards for discrepancies in personal information like gender, address, and birth details and cross-referencing with company records.
• Investigating patterns in lapsed policies to detect potential fraudulent activities by agents.
• Looking for alterations in bank and contact details followed by immediate cash withdrawals, which could indicate signature forgery.
• Identifying short intervals between the termination of old policies and the initiation of new ones to detect commission-driven fraud.

As we come to the end of the article, we understand how insurance agent fraud presents a multifaceted challenge. These agents, driven by various motives, employ tactics ranging from policy manipulation to creating fake documents, all designed to deceive and profit at the expense of policyholders. As consumers, vigilance is key: verifying agents' credentials, monitoring policies, and understanding your insurance coverage are essential steps. For forensic accountants and fraud examiners, the battle against such fraud requires a keen eye for red flags and a thorough understanding of risk criteria. By staying informed and proactive, both professionals and policyholders can safeguard against the effects of insurance agent fraud.

We will examine various fraudulent schemes and highlight the role of forensic accounting in each of them in our forthcoming articles.

Keep checking this space!

The previous articles in our #ForensicForesight series are in the following links!

1. Starting a Forensic Accounting Practice - How to Succeed in the Field
2. Exploring the Emerging Practice: Fraud Risk Assessment in Forensics
3. Extending the Reach: CAs, CMAs, and CSs brought under the ambit of PMLA reporting entities.
4. Building a Robust Fraud Risk Assessment Framework: Best Practices and Tips
5. Uncovering Deception: The Emerging Role of Detective Forensic Accounting
6. Building the blueprint: planning a forensic engagement
7. Forensic Accounting Engagements: Exploring Standards for Comprehensive Planning
8. Piecing the Puzzle: The Art of Evidence Collection in Forensic Accounting
9. From Pieces to Patterns: The Intricacies of Evidence Analysis in Forensic Accounting - I
10. From Pieces to Patterns: The Intricacies of Evidence Analysis in Forensic Accounting - II
11. Unmasking Deception: The Interplay of Human Behaviour and Forensic Accounting
12. Tracing the Trail: The Role of Forensic Accounting in Money Laundering
13. Tracing the Trail: The Role of Forensic Accounting in Money Laundering – II
14. Procurement Pitfalls: How Forensic Accounting Exposes Deceptive Schemes
15. Diagnosing Deception: Forensic Accountant’s Role in Identifying Healthcare Fraud
16. Claims and Cover-ups: Deciphering Insurance Fraud with Forensic Accounting

Durgesh is an accomplished forensic accounting and fraud investigation professional.?He holds the distinction of being the first PhD in Forensic Accounting from the National Forensic Sciences University (NFSU), Gandhinagar, an Institute of National Importance under the Ministry of Home Affairs, Government of India.

He has trained thousands of professionals and law enforcement officials on financial crime investigation.??He is passionate towards research/teaching and?associated with NFSU as professor of practice. He regularly speaks and publishes internationally.