How to prevent Insurance Fraud?

He was polite, helpful and knowledgeable, and Delhi-based Anita Sinha had no reason to suspect the bank representative who came to pick the premium cheques for her insurance policies. "He advised me to include my younger daughter as a nominee as well," she says. Little did Sinha realise that she was walking into a trap.

The bank executive took photocopies of her daughter, Surabhi's, passport on the pretext of including her name in the policies. However, instead of paying the premium for the existing policies, he used the two cheques to sell Sinha two fresh policies.

There has been a disturbing rise in such cases in recent months. Two months ago, when a reader from Patiala complained of such a fraud, we thought it was a flash in the pan. However, it seems the problem is bigger. New insurance sales have come down and fresh premium collections declined 9.2% in 2011-12.

In the first half of 2012-13, new sales are down 3.5% over the same period in the previous year. So, unscrupulous brokers are resorting to such crooked ways to saddle unsuspecting policyholders with unwanted policies.

For an insurance company, any new business that comes at the expense of an existing policy makes no sense. "Such malpractice will, in the long run, affect the health and overall profitability of the insurance business," warns Metilda Stanley, senior vice-president, operations, HDFC Life.

According to IRDA, such fraud falls under the broader category of 'unfair business practices'. The regulator receives more than 1 lakh complaints in this category every year.

 How to prevent fraud

You can avoid joining this unhappy number by taking a few, simple precautions (see box). When you write the cheque in favour of the insurance company, specify the policy number. The cheque should be made in favour of 'ABC Life Insurance Company Policy no. XYZ'. The guidelines are a bit fuzzy in this regard.

Insurers accept cheques made to a specific policy number, but don't refuse those that are simply in favour of the company. Some life insurance companies advise policyholders to specify the policy number on the cheque, while others don't.

In fact, most premium renewal cheques do not specify the policy number. This makes them easy targets of fraud. Insurance regulator, Irda, is now considering making it mandatory for premium cheques to specify the policy number. "It is under critical examination. (Such a rule) would certainly help in combating the rise of cases relating to cheating and forgery," says Irda chairman J Hari Narayan.

What you should do

1)    Make the cheque in favour of the insurance company, but specify your policy number

2)    If made in favour of the company, wirte down your name and policy number behind the cheque

3)    Don’t hand over the cheque to anyone except the agent who sold you the policy.  If possible, send it to the insurance company yourself

4)    Use net banking to pay premium in order to completely rule out the chance of fraud

5)    If net banking is not possible, give ECS mandate to your bank so that your premium is directly debited from your account

6)    Don’t give photographs or photocopies of any document (PAN Card, passport, phone bill) while renewing the policy

On their part, insurance companies are also trying to prevent such fraud. "We shall soon implement a system, very similar to credit card, whereby the policy number will have to be mentioned on the face of the renewal premium cheque," says Yateesh Srivastava, chief marketing officer, Aegon Religare Life Insurance.

They are also trying to educate customers on ways to avoid fraud. "If you are buying a new policy, mention your name, telephone number, e-mail ID and the name of the policy opted for behind the cheque," says Suresh Agarwal, executive vice-president and head, individual distribution and strategic initiatives, Kotak Life Insurance.

However, writing behind the cheque is not foolproof. A 2010 RBI guideline says that if there is overwriting in the payee's name or amount, the cheque will not be honoured. However, there's no clarity regarding overwriting behind the cheque. Even so, if you put in lots of details, they will act as a deterrent. Moreover, too much overwriting on the  reverse of the cheque can be a red flag when it comes up for clearance.

Such incidents bring into focus the welcome calls that companies make to customers after the sale. These calls can help curb mis-selling and fraud. "If a customer has not paid premium for an existing policy, but has bought a new one, the welcome caller will bring this to his notice," says Pawan Mahajan, head of customer care, Bajaj Allianz Life Insurance. The customer has 15 days to return the policy and get a full refund. HDFC Life has on its own extended the 15-day deadline to 30 days for its customers. soruce: ET