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Faced with organised rackets, insurance companies mull staying away from hotbeds of fraudsters
Shilpy Sinha & Sugata Ghosh
The Economic Times

Mumbai: Less than a fortnight ago, senior officials who have the last word on claims settled by private life insurance companies, met in Mumbai to discuss a menace they could no longer ignore.

Almost every month, fraudsters have been popping up in small towns across the country to carry out organised attacks on life companies. They come in all hues: faceless crooks in Punjab buying life covers with a bogus log-in on the Internet, as well as old-world racketeers armed with fake death certificates.

In the complex business of life insurance, the deal with the customer is simple: the family gets the cheque when the policyholder crosses over to the other side; indeed, to most, few things in life can be more black and white. But there can be 50 shades of grey when a death is less than honest — a truth that many private insurers are discovering every other day.

Insurers are stumbling on strange cases where the police, panchayat sachiv, lawyers and family members are hand-inglove to push claims where the policyholder is still alive, where a person is made to sign a policy on her death bed, and even where a policyholder is simply a fictitious character. While for ages insurance crimes have been a fodder for movies and thriller stories, what has surprised insurance companies this time around is the organised nature of the frauds and their rising number: cases of fraud have risen to 2-4 per cent of total rejected claims from well below 1 per cent a few years ago.

At the meeting in Mumbai attended by more than 15 private life firms (including the leading players), the officials identified the hotbeds for fraudsters

The hotbeds for fraudsters are: Sabarkantha, Modasa, Kheda and Mehsana in Gujarat; Jalgaon, Dhule and Nandurbar in Maharashtra; Ganjam in Odisha, and Morena in Madhya Pradesh.

Also under watch are places like Khammam (Andhra Pradesh), Kubernagar, Sunder Nagar and Bhavnagar (in Gujarat), and parts of Punjab where, though instances of frauds have been reported, the situation is not yet alarming.

The unofficial decision among life insurers is to stay away from selling policies in these regions — particularly on the Net and covers with high sum assured, said a person who was present at the meeting. The insurers will soon present a note on the situation for the Life Insurance Council to take up the matter with the Insurance Regulatory & Development Authority.

"There are some regions where frauds are happening in an organised manner," said Sunil Sharma, chief actuary, Kotak Life Insurance.

"There are cases where the level of income does not justify level of insurance. There are frauds in some areas of Haryana, Gujarat and places such as Muzaffarnagar in UP. There is a need for better coordination among companies to curb the menace."

According to the claims head of a mid-sized firm, fraudulent employees of a few insurance aggregators are also involved in false claims against policies bought on the Net. "It's easier on the Net as you do not see the person. They pay a few premiums and then make the claim...Often, a person whose personal details are misused may not be aware of the goings-on. There are cases where the so-called policyholder died before the cover was purchased. All documents can be faked...Even the Ombudsman, who has to go by hard evidence, has ruled in favour of fraudsters," said the person who refused to be named.

"There are ambulance chasers who tie up with family members to buy a policy for someone who is in a critical stage. They make sure that hospitalization and medical records are destroyed so that insurance companies find it difficult to refuse the claim on grounds of 'medical non-disclosure'...And, there are always those cases where a person buys covers from multiple companies, but these can curbed if insurers crosscheck with each other."

According to the industry official, tricksters also exploit the loophole in law by claiming the money after two years — a tactic that weakens the case for insurance companies. In a business where competition is fierce and targets and deadlines are punishing, swindlers take advantage of the incentive-driven salesman's rush to get business.

Agents who bring these businesses should be blacklisted and underwriting norms should be more stringent, said an executive with a private company. Insurers collect documents such as bank statements and tax returns, and policies above Rs 50,000 need PAN card number, but expert forgers make sure that companies do not suspect too much.

"Frauds started with term plans and have now moved to savings plans, such as money-back policies," said an agent. Still, these are early days. "We are hearing that claims in certain areas have gone up," said V Manikham, secretarygeneral, Life Insurance Council — the representative body of all life insurance companies in India.

"We do not have data to substantiate it," he said.In 2012-13, insurance companies had settled 8.46 lakh claims on individual policies with a total payout of Rs 9,370.22 crore. Around 18,485 claims amounting to Rs 568.42 crore were repudiated while 12,267 claims worth Rs 318.24 crore were pending at the year-end

LIC King Khan of personal loans
Sangita Mehta
The Economic Times

Mumbai: Not banks, largest insurer and FI is the biggest provider of secured loans The biggest provider of `secured personal loans' is not any high-street bank with thousands of branches and an army of direct sales agents. It's Life Insurance Corporation (LIC), the country's largest financial institution.

Indeed, the insurer has given more personal loans against security than all banks taken together.

In June, LIC surpassed the banking industry with secured personal loan outstanding of around . 60,000 crore.` In comparison, commercial banks disbursed secured personal loans amounting to Rs58,000 crore, according to Reserve Bank of India data and numbers shared by LIC officials.

While LIC lends against insurance policies sold by the insurer, banks give secured personal loans against fixed deposits and securities. LIC, unlike banks, does not give unsecured personal loans -a segment dominated by banks.

“Whenever a customer in difficulty approaches us to surrender hisher policy , we encourage the person to take a loan instead.This benefits us as well as policyholders. The policy continues to be on our book while the policyholder gets liquidity and does not lose life cover,“ a senior LIC official told ET.

LIC charges an interest of 10% on such loans -about a quarter or half-a-point less than the interest charged by most banks.The loan tenure is linked to the remaining life of the policy and the maximum amount disbursed is 90% of the surrender value of the policy . In case of death, the amount is adjusted against the loan and the balance is given to nominees.

LIC officials typically advise policyholders that it makes sense to continue with a policy rather than cancel it and take a new one as the premium outgo increases with age.

Loan against policy can be st policy can be availed against traditional pol icy where re turns are link ed to the bonus declared every year. Bulk of LIC's premium income is from traditional pol icies unlike private life in surers for whom unit-linked plans constitute a substantial portion of the assets under management. Nearly Rs 54,200 crore is disbursed by banks as loan against fixed deposits (FDs) and . 3,600 crore is provided as loan ` against equity , according to data compiled by the central bank.Banks lend up to 80-90% of the FD value at an interest that is one percentage point higher than the return on the FD.

Jeevan Shagun Table no. 826 Circular available at
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