Prevalence of Fraud in the Health Insurance Sector: An Overview

Abstract

The menace of fraud is rampant across all sectors of the industry, prevalent globally at every level. The firms end up incurring huge costs in fraud detection and prevention. The service industry, like that of the insurance industry, gives financial protection for the risks covered; the greed for monetary benefits in the form of fraudulent claims or earning higher brokerage for the intermediaries is an incentive for making easy money and thus committing fraud.

The Insurance Regulatory & Development Authority of India (IRDAI), defines the term ‘fraud’, as “an act of or omission intended to gain dishonest or unlawful advantage”. Insurance fraud creates a problem not only for honest policyholders but also for insurance companies. Insurance companies suffer a loss of 0% to 15% of their business revenue according to one study. The fraudulent health insurance claims have risen to 35% for some insurers as stated by another study. Frauds can be committed by executives within the company, intermediaries, or policyholders. According to the fraud triangle, there are three components that contribute to triggering the risk of fraud: (1) rationalization, (2) incentive, and (3) opportunity.

This article aims to study the various kinds of fraud prevalent in the health insurance sector and the ways to mitigate the same. The paper also delves into the impact of fraud on the profitability of the insurers; the higher insurance premium for policyholders and the lack of trust generated between the insured and the insurer due to frauds committed by few. The framework given by the regulator, for monitoring insurance fraud has also been discussed.