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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6
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.

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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.

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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

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 Type of
Year Insurance Fraud Cost Descriptive gist

June -2009 Health insurance $8 Million Couple charged with health

insurance Fraud.

December- Health insurance $61 Million Feds arrest 26 in $61

2009 million Medicare Fraud.

July- 2007 Fire insurance $ 730,000 Million

Burning down the house —
for profit

November- Life Insurance $ 110,000 million

2007 Vehicle give-ups: total
loss, total fraud

November Term Insurance Rs.1 Crore Woman Declares Herself

-2016 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.

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 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.

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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

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BANKING PROFESSIONALS AND SMALL SCALE BUSINESSES IN
CORRELATION TO FREQUENCY OF PECUNIARY
DEVELOPMENT/UPLIFTMENT.

Degree of
risk of Banking Professionals Small-scale Ri
insurance businessmen
fraudulent
cases and
mis-
happenings

Less than 50 25 10 35
pecuniary to
economic
development

More than
50 not
pecuniary to 15 0 15
economic
development

Cj
40 10 50

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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_______________________________________
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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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