Increase in the number of fraud cases in the insurance industry can force policy holders to cough up to 3-5 per cent more in premium. The fraud cases put additional cost pressure on the insurers, said Ernst and Young in its recent survey.

Forty per cent respondents have said that fraud cases have risen over the past one year. Even though the insurance industry in India is growing at 20 per cent year-on-year, fraud claims that are given out add to the overall number of claims, leading to losses.

According to the survey, fraud in insurance can increase costs for insurers by at least 1 per cent and can rise by more than 5 per cent in certain cases. Insurance industry relies heavily on third parties, such as distribution channel for selling its products, customer service to conduct due diligence of policyholders makes the industry prone to fraudulent practices.

“This necessitate the use of tools to identify the triggers for fraud detection and have the right control mechanisms for the process points to expose frauds,� said Ravi Seshadri, head of audit and compliance at Bharti Axa General Insurance Company.

The frauds affecting the industry are related to misselling and presentation of fake documentation at the time of policy issuance.

Risk of frauds also rises when the customer does not directly buy the product. “While taking the policy, policyholders should be careful and avoid handing-over cash to the agents or employees of insurance companies. Since there have been instances in the past where customers were duped and provided fraudulent documents,� said KG Krishnamoorthy Rao, MD and CEO of Future Generali India Insurance Company.