Commercial Crimes » Insurance Fraud
What is insurance fraud?
The main offence involving fraud is cheating. However CCID also investigates offences under forgery and criminal breach of trust. Insurance fraud means the fraud happened within the insurance industry.
It can be divided into three main categories:
- Fraud by an insider – Fraud by underwriters, agents or senior staff in the insurance company etc.
- Fraud by a policy holder – Policy holder makes a false claim, colludes with workshop owners etc.
- Fraud by a third party – Syndicates use the policy holder to cheat the insurer or buy an insurance policy using another person’s name with the intention to cheat insurer etc
How do the conmen cheat their victims in insurance fraud?
In order to understand how the conmen cheat their victim in insurance fraud, we should look into the modus operandi (M.O.) of the cases. There are so many M.O. in insurance fraud.
Third Party Bodily Injury Claim (Motor Policy)
The most frequently reported cases in insurance fraud fall under the ‘Third Party Bodily Injury Claim’ (Motor Policy). Fraudsters normally use very simple techniques to cheat the insurer. They use forged documents which are copied and amended from the original copy to show that an accident happened. Today, these people are smart enough to create a real accident, so that it’s difficult for investigators to prove the fraud.
Case Example 1: Third Party Bodily Injury Claim (Motor Policy)
- The syndicate member is a former legal firm staff
- He colludes with the solicitor, insurer staff, adjuster and bank staff.
- He uses the solicitor to submit claims through the insurer’s staff or files a suit in court and sends the documents to the insurer’s staff
- The insurer’s staff holds a managerial-level position at the insurance company
- The insurer staff’s appoints a claims adjuster to investigate and the lawyer to act in court
- The claims adjuster fabricates documents e.g. forges the police report, medical report, other documents etc.
- The insurer’s staff recommends a settlement amount
- The insurer settles directly with the solicitor or through a `consent judgment’ in court
- Settlement cheques are sent directly to the solicitor instead of claimant or plaintiff
- Account payee cheques are banked-in into the third party’s account with approval by the bank’s staff
- Syndicate members receive the money from the third party
Case Example 2: Third Party Bodily Injury Claim (Motor Policy) (Sympathy Claim)
- The victim is a lorry driver
- The victim is hit by a crane used to lift and place timber logs onto the lorry
- He is then paralyzed. The crane has no insurance coverage
- The owner of the crane lodges a police report saying that he drove a lorry and hits the victim while he was reversing the lorry
- The victim files a civil suit against the lorry’s owner and insurer
- The court orders the insurer pay the victim
- Sympathy is the main motive
Case Example 3: False Life Policy Claim
- The fraudster is a registered agent with the insurer
- He sells several life policies to a group of family members (brother, sister, in-laws, wife etc.) and pays the premium
- After one year, he submits a claim saying the policy holder died in a fatal accident
- He submits the claim with forged supporting documents, e.g. police report, post mortem report, death certificate, burial certificate etc.
- He verifies all supporting documents himself
- He uses a forged rubber stamp to forge documents
- A few months later, he submits another claim saying that other family members died in a fatal accident
- Within a few years he keeps submitting claims using that family, one by one until all of them have died in a fatal accident
- He finally makes a mistake when he uses a family member who was declared dead in the first claim as a claimant
- Only then does the insurance company realise that they have been cheated
Case Example 4: Medical expenses claim
An agent submits a claim saying that a policy holder had medical treatment at a private clinic. He colludes with the doctor who prepared the medical report. The medical report actually contains false information.
Case Example 5: False Life Policy Claim
- In 2004, one insurer lodged a police report saying that they received 20 forged insurance cover notes from the General Insurance Association of Malaysia (PIAM)
- PIAM received the cover notes from JPJ when owners of motor vehicles renew their road tax
- An investigation was carried out and CCID made a few arrests and managed to identify the printer that had been used
- It was later found that this syndicate printed a total of 110 cover note books which contain 50 cover notes per book
- All cover note books were sold to a few runners in Klang Valley and the East Coast
- The runners then sold these cover notes to motor vehicle owners at a very low price
- Motor vehicle owners use these cover notes to renew their road tax at the JPJ or post office
- On 2 January 2005, the Central Bank of Malaysia implemented eINSURANS where electronic cover notes replaced physical cover notes for road tax issuance
- Then, incidences of forged cover notes lessened
Case Example 6: Syndicates
- An enterprise company purchases a large insurance coverage for one of their employees from a few insurance companies
- A total of coverage is about RM6 million
- A few months later, the employee is found dead in what is classified as a hit-and-run case
- The employer submits the claim through a solicitor
- The company actually doesn’t operate any business
How does the public avoid falling for these scams? What are the dos and don’ts?
The public should buy their insurance policy from a registered insurance agent or buy direct from the insurance company to avoid forged cover notes or policies. The insurer enquire about the income of the policy buyer to deter syndicates from using this opportunity to scam the insurer.
The insurer must have a good system in processing claims, especially in recording all actions taken by their staff or agents (who acted and when) in order to facilitate the police with evidence if a fraud does happen.