Final Dissertation Repot On Insurance Fraud.docx

PROJECT REPORT ON

“Dissertation on Impact of Insurance fraud” BBA (Finance & Accounts) Guided by:

Dr. Sheetal Khanka Senior Assistant Professor

Rishabh shukla Enrolment No: R152216058 SAP ID: 500054571

School of Business University of Petroleum and Energy Studies, Dehradun, Uttarakhand, India February , 2019

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STUDENT DECLARATION

I hereby declare that this submission is my own work and that, to the best of my knowledge and belief, it contains no material previously published or written by another person nor material which has been accepted for the award of any other degree or diploma of the university or other institute of higher learning, except where due acknowledgment has been made in the text.

Rishabh shukla SAP ID: 500054571 Enrolment Number: R152216058 BBA-CORE 2016 – 2019 School of Business UPES

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CERTIFICATE

This is to certify that the project report entitled ‘DISSERTATION ON IMPACT OF INSURANCE FRAUD’ submitted by Rishabh shukla to UPES for partial fulfilment of requirements for Bachelors of Business Administration (BBA-Finance & Accounts ) is a bonafide record of the work carried out by her under my supervision and guidance. The content of the report, in full or parts have not been submitted to any other Institute or University for the award of any other degree or diploma.

Dr. Sheetal khanka Senior Assistant Professor School of Business University of Petroleum & Energy Studies

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ACKNOWLEDGEMENT

Each and every project of major study is well defined and subjected to successful delegation via numerous members involved within the project with their precious and well stated advice. First of all, I would express my gratitude to Dr. Sheetal Khanka for providing me with the opportunity, insight for society to opt for this topic of study and throughout guidance to embark on my project.

DATE – 15th febuary2019 NAME- Rishabh Shukla PLACE – University of Petroleum and Energy studies

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INTRODUCTION Insurance: Insurance is a means of protection from financial loss. It is a form of risk management, primarily used to hedge against the risk of a contingent or uncertain loss. An entity which provides insurance is known as an insurer, insurance company, insurance carrier or underwriter.

Fraud: law, fraud is deliberate deception to secure unfair or unlawful gain, or to deprive a victim of a legal right. Fraud itself can be a civil wrong, a criminal wrong, or it may cause no loss of money, property or legal right but still be an element of another civil or criminal wrong.

Insurance Fraud: Insurance fraud is any act committed to defraud an insurance process. This occurs when a claimant attempts to obtain some benefit or advantage they are not entitled to, or when an insurer knowingly denies some benefit that is due.  According to this India forensic Research, the Insurance Sector in India loses 30401 Crore of rupees every year due to frauds! In other words every insurance company loses 8.5% of its revenues to the frauds.

Problem Statement: To what extent Insurance Fraud can have its impact on Consumer?

Research objective Primary: Purpose of this study is to make people aware about how the basic concepts of insurance are miss used by big corporate and how it can lead to disasters. Secondary: To evaluate the lacuna in services of insurance and to identify the loopholes. And find out as whether there are sufficient measure to prevent

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LITERATURE REVIEW

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Types Of Insurance The business of insurance is mainly divided into two parts namely life and nonlife insurance also known as general insurance. As the name suggests life insurance cover a life of an individual whereas non-life cover various other important element that has monetary impact on a individuals life. 1- LIFE INSURANCE Life insurance is a contract between an insured (insurance policy holder) and an insurer, where the insurer promises to pay a designated beneficiary a sum of money (the "benefits") upon the death of the insured person. Depending on the contract, other events such as terminal illness or critical illness may also trigger payment. The policy holder typically pays a premium, either regularly or as a lump sum. Other expenses (such as funeral expenses) are also sometimes included in the benefits. The advantage for the policy owner is "peace of mind", in knowing that the death of the insured person will not result in financial hardship for loved ones and lenders. 2- GENERAL INSURANCE General insurance also known as nonlife insurance includes various other types of insurance in it like AUTO INSURANCE Vehicle insurance (also known as auto insurance, GAP insurance, car insurance, or motor insurance) is insurance purchased for cars, trucks, motorcycles, and other road vehicles. Its primary use is to provide financial protection against physical damage and/or bodily injury resulting from traffic collisions and against liability that could also arise there from. The specific terms of vehicle insurance vary with legal regulations in each region. To a lesser degree vehicle insurance may additionally offer financial protection against theft of the vehicle and possibly damage to the vehicle, sustained from things other than traffic collisions. 8

HEALTH INSURANCE Health insurance is insurance against the risk of incurring medical expenses among individuals. By estimating the overall risk of health care and health system expenses among a targeted group, an insurer can develop a routine finance structure, such as a monthly premium or payroll tax, to ensure that money is available to pay for the health care benefits specified in the insurance agreement. The benefit is administered by a central organization such as a government agency, private business, or not-for-profit entity.

AGRICULTURAL INSURANCE Agriculture in India is highly susceptible to risks like droughts and floods. It is necessary to protect the farmers from natural calamities and ensure their credit eligibility for the next season. For this purpose, the Government of India introduced many agricultural schemes throughout the country.

PROPERTY Property insurance provides protection against risks to property, such as fire, theft or weather damage. This may include specialized forms of insurance such as fire insurance, flood insurance, earthquake insurance, home insurance, inland marine insurance or boiler insurance. The term property insurance may, like casualty insurance, be used as a broad category of various subtypes of insurance.

LIALIBILITY We all have a legal duty to behave reasonably to others. If we injure someone or damage their property through negligence, we are legally obliged to pay compensation. Liability insurance is there to insure individuals and businesses against this risk. 9

MARINE Marine policies cover the property or 'interest' insured against perils of the sea such as bad weather, stranding, collision, fire and seizure, while aviation insurance covers damage on the ground or in the air, and liabilities for cargo and passengers.

FIRE A fire insurance is a contract under which the insurer in return for a consideration (premium) agrees to indemnify the insured for the financial loss which the latter may suffer due to destruction of or damage to property or goods, caused by fire, during a specified period. The contract specifies the maximum amount , agreed to by the parties at the time of the contract, which the insured can claim in case of loss. This amount is not , however , the measure of the loss. The loss can be ascertained only after the fire has occurred. The insurer is liable to make good the actual amount of loss not exceeding the maximum amount fixed under the policy.

FIDELITY INSURANCE Under it, the insurer undertakes to compensate the insured i.e. the employers against the losses suffered by him due to the employees. The losses may be due to fraud, dishonesty, and misappropriation of funds, goods or damages to property caused by the employees. In order to avail the protection under it, the employer is required to provide all material facts about their employees to the insurer and also, notify all changes in the condition of their service. For example, fidelity insurance by New India Assurance Company Limited. Under this policy, the insurance company agrees to indemnify the insured (employer) against a direct pecuniary loss sustained by reason of any act of fraud/dishonesty committed by employee.

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Reason behind insurance fraud

The “chief motive in all insurance crimes is financial profit.” Insurance contracts provide both the insured and the insurer with opportunities for exploitation. According to the Coalition against Insurance Fraud, the causes vary, but are usually centered on greed and holes in the fraud fight. Often, those who commit insurance fraud view it as a low-risk, lucrative enterprise. Drug dealers who have entered insurance fraud think it’s safer and more profitable than working street corners. Compared to other crimes, court sentences for insurance fraud can be lenient, so scammers may try to take advantage of the system. Though insurers try to fight fraud, some will pay suspicious claims, since settling such claims is often cheaper than legal action. Some reasons of insurance frauds are: 1: Monetary Necessity "How can I afford insurance? I am just a single mother. Between rent, food and raising three kids, how can I be expected to play by the rules?" It won't take much more to push this felon over the edge. She's struggling to live hand-to-mouth. She's desperate, and would consider any opportunity even if it were on the wrong side of the law.

2: Anger The anger-directed insurance fraud felon is the kind of person who thinks the world is out to get them. Loud and overbearing, they commonly speak their minds about how others stunt their success. Their employer, the government and big corporations are the ones they see as the enemy.

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"Not anymore," they say. "I'm gonna show them what happens when they mess with me."

3: Victim Mentality "So, I'm taking two extra week’s workers' comp? So what? They won't miss it. Besides, I'm just a little old lady. It's hard enough on a fixed income; I deserve this time." Nothing's ever her fault. It's "the system". Somehow, it's out to get her. She has a lifetime of slights built up in her mind and feels she is completely justified in taking advantage of the system any way she can.

4: Greed "Insurance companies are swimming in money. Who would miss a measly hundred grand? Yet, for me, it would change my life. I mean it's not like robbing a bank or anything. I'm just talking about setting things up so they roll in my favor for once." This felon is well-respected and has a good life. He is even a leader. But, all he can think of is short-cuts to more money. He doesn't see himself as a criminal, but he's driven to find an edge. And, he's willing to risk everything in the process.

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Insurance fraud is a major problem in India, since from the beginning of 21 st century. There is no doubt that existence of frauds is wide and diversified at large pecuniary scale for the insurance policies. Insurance fraud exists when individuals attempt to profit by failing to comply with the terms of the insurance agreement. Perpetrators of insurance fraud try to create losses or damage rather than joining others who have no losses but wish to keep themselves protected in case an unknown event should occur. Fraud can occur at any stage of an insurance transaction by any of the following: • Individuals applying for insurance • Policyholders • Third-party claimants • Professionals who provide services to claimants.

Classification of renowned Insurance Fraud cases 13

Year

Type of Insurance Fraud

Cost

June -2009

Health insurance

$8 Million

Couple charged with health insurance Fraud.

$61 Million

Feds arrest 26 in $61 million Medicare Fraud.

December2009

Health insurance

July- 2007

Fire insurance

$ 730,000 Million

November- Life Insurance 2007

$ 110,000 million

November -2016

Term Insurance

Rs.1 Crore

Descriptive gist

Burning down the house — for profit Vehicle give-ups: total loss, total fraud Woman Declares Herself Dead to Claim Insurance Money, Arrested.

The Impact of Fraud on Insurance Globally:  According to a recent Federal Bureau of Investigations report on financial crimes, approximately US$1 trillion dollars is collected in insurance premiums annually. 14

 The report also stated that health care expenditures represented approximately 16.5% of Gross Domestic Product of the US economy and that by 2012 the total health care spending will exceed US$ 3.3 trillion.

INSURANCE FRAUD STATISTICS: Billions of dollars are lost every year in insurance fraud. Some countries including the US have compiled some statistics in their attempt to combat this expensive economic crime.

For example, the INSURANCE INFORMATION INSTITUTE FACT BOOK, claims that insurance fraud cost insurers and corporate buyers of insurance more than US $80 billion. The COALITION AGAINST INSURANCE FRAUD (CAIF) contends that although it is hard to determine how big insurance fraud has gotten because so much goes undetected, and a complete research has yet to be done, they do know that : Health care fraud costs Americans $54 billion a year.

According to a study by the RAND INSTITUTE FOR CIVIL JUSTICE, more than a third of people hurt in auto accidents exaggerate their injuries to the tune of an extra $13 – $15 billion in insurance costs.

The JOURNAL OF THE AMERICAS MEDICAL ASSOCIATION states that, Nearly a 3rd of doctors inflate the severity of a patient’s illness to help them avoid early hospital discharge.

The CAIF states that fraud schemes result in; 1. The loss of a person’s savings, 2. endangering their health, 3. constant increase in premiums and consumer goods, 4. In some Instances, loss of life or quality of life. 15

Types of Insurance Fraud: There are two type of insurance 1) Hard Insurance 2) Soft Insurance

Hard fraud - is a deliberate attempt either to stage or invent an accident, injury, theft, arson or other type of loss that would be covered under an insurance policy.

Soft fraud - is sometimes called opportunity fraud and occurs when a policyholder or claimant exaggerates a legitimate claim. – For example, A car owner involved in a “fender bender” who pads the claim to cover the policy deductible is committing soft fraud. – Another example is exaggerating the number and value of items stolen from a home or business.

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RESEARCH METHODOLOGY As being a major concern we carried out various observation and analytical tools for determining the impact of insurance fraud on Indian financial system and economy, therefore we carried out various telephonic and face to face interviews schedules and questionnaires. Also we carried out and analysed data from various journals along with this we made use of Chi-square test and to develop our results and conclusions. Sample area and size----While segmenting the research group for our study, I opted for the banking delegates and an economist along with a few small-scale businessmen covering 50 people in all for my research study.

TABLE: 1… DEGREE OF INSURANCE FRAUDULENT CASES IN RELATION TO BANING FINANCIAL SYSTEM AFFECTING FOR 17

BANKING PROFESSIONALS AND SMALL SCALE BUSINESSES IN CORRELATION TO FREQUENCY OF PECUNIARY DEVELOPMENT/UPLIFTMENT. Degree of risk of Banking Professionals insurance fraudulent cases and mishappenings

Less than 50 25 pecuniary to economic development

More than 50 not pecuniary to 15 economic development

Small-scale businessmen

Ri

10

35

0

15

10

50

Cj 40

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Observed f(x)

Expected f(x)

o f(x)-e f(x)

(of(x)- e f(x))^2

(of(x)-ef(x))^2/e f(x)

25

28

-3

9

.321

10

7

3

9

1.285

15

12

3

9

.75

0

3

-3

9

3

CALCULATION: E 1, 1= 35*40/100 E 1, 2= 35*10/100 E 2, 1= 15*40/100 E 2, 2= 15*10/100 X² Calculated= 5.361 Now let α= 5% DEGREE OF FREEDOM (DOF) = (R-1)*(C-1) = (2-1)*(2-1) =1 X² tab= 3.841 Now since, X² Calculated > X² tab, therefore the hypothesis is rejected, this means that the insurance fraudulent cases less than 50 even are not pecuniary for economic development leading to increased debt on financial burden and decreased GNP.

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QUESTIONNAIRE Q1: What is your annual income? 2.5 lac and below 2.5 lac -5 lac 5-10 lac 10-20 lac 20 lac and above Q2: Are you married or not? Yes No Q3: Number of people in your family? 2 3 4 5 More than 5 Q4: Do you have any health insurance policy? If yes than specify No Q5: What will you take into consideration while opting for any health insurance policy? Availability of tax benefits Flexibility of policy o0ffered Reliability of services offered If other specify_______________________________________ 20

Q6: Have you or anyone else in your relation has encountered any problem in payments and reconciliations regarding health insurance policy yet? If yes, then specify No Q7: Are you aware of any nuances or mis-happenings regarding life insurance policy fraud case of Haryana related to 3.2 crore or any other? If yes please explain. Q8: Have you ever faced any problem regarding payments in life insurance policy or any of your friends or relatives faced the problem of fraudulent cases as such? If yes then specify________________________________________ No

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