Motor Third Party Fraud Claims – How to counter losses

Many news is making headlines regarding motor third party claims like “Insurance companies are bleeding as far as motor T.P. claims are concerned, companies are paying interest in lakhs on the above claims per day. The incurred claims rates for motor T.P. claim is 300% and above. Claim statistics: It is shocking to note that around 1.5 Million MVC cases are pending in the Tribunal/High Court/Supreme Court. Around 4 lakhs new cases both injury and death) are being registered at the Tribunal every year. Though the private Insurance companies have less number of outstanding cases, each of the public sector Insurance Companies has about 2 to 3 lakhs of outstanding MVC cases. Fraudulent cases: Out of the huge outgo of funds through Motor T.P. claims at least 20% is towards fraud claims. The modem Operandi of a fraud claim generally goes like this on hearing of a road accident, an advocate immediately rushes to the spot. Volunteer to undertake an SOS on behalf of the victim (s) influences the relatives of the deceased or injured, pays some advance towards initial medical expenses, arranges for the necessary documentation to lodge and support an MVC case, conduct the trial and enjoys a very big share in the amount Awarded. Webster’s Dictionary defines fraud as the International perversion of truth to induce another to part with something of value or to surrender a legal right or “An act of deceiving or misrepresenting. Section 463 of IPC: “Fraud means an intention to deceive. Whether it is from any expectation of advantage to the party himself or ill will towards the other is immaterial. If Insurance Fraud was allowed to be a business then it would rank topmost amongst the highest profit-making business. Insurance Fraud is very simple to operate, difficult to detect and even if detected very difficult to prosecute. It is often taken for granted that Insurance Fraud is victimless. But it should be very well remembered here that both the Insurers and the Insured are the direct victims of this Fraud because due to fraudulent claims Insurers suffer huge loss and this loss is passed over to the insured in the form of hike in insurance premium. Thus for the fraudulent act of few everybody pays in return.

Fraud can be classified as:

I) External Fraud: these are usually done by outside sources and may include
a) Substitution of the vehicle especially when the actual which involved was running without Insurance cover at the material time of the accident. b) Substitution of the driver, especially when the actual driver involved did not have valid D.L. at the material time of the accident. c) False implication of vehicles in hit and run cases. d) Conversion of Non-RTA cases into RTA cases e) Filing cases at more than one tribunal for the same accident. f) Inflated Medical Bills g) Addition of names of the persons affected by the accident, either at the time of GR or while finalizing the charge sheet.
II) Internal Frauds: committed by a person within the Insurance Industry. They may include:
a) Issuing backdated cover notes to accommodate the accident which has already been taken place. b) Issuing fabricated and bogus cover notes or policy documents. c) Forging a cover note by interpolation of dates/names of insured/vehicle no. d) Acceptance of cover without inspection of vehicle after expiry of the previous policy or after the loss has occurred in a collision with the issuer of cover notes.

Commission of Fraud mentioned above may be done at various stages.

1) At the time of underwriting – granting cover knowledge fully the vehicle has met with an accident. 2) At the time of the accident – arranging or implicating/substituting vehicle and driver in the FIR. 3) At the time of Admission to Hospital registering falsely as RTA case and False Medico-Legal Certificates issued. 4) At the time of applying for compensation before the Tribunal by giving false information to employment, income, age nature of injury, dependency, and disability. Identification of Fraud: Though identification of fraud is not an easy job for the Insurer a thorough knowledge of MVC cases, The Motor vehicle Act, Criminal Acts, CPC and documents related in connection there to be needed to detect fraud.

Some of such documents which help in detection fraud are:

1) The FIR or first information record-gives information about the cause and nature of the accident, negligence of driver involved in an accident, vehicle no. name of the driver place of accident, names of victims and hospitals to which they are admitted. If there is any discrepancy /delay from the date of the accident to date of filing an FIR it is a clear indication of fraud wherein the time taken would be for implicating a vehicle with insurance or a driver with proper D.L. and the time taken to convert a non-RTA to RTA. Thus whenever there is a Delay in FIR the same should be viewed by the insurers very seriously and a thorough investigation to be made to find out the true reasons for such a huge delay. 2) Medico-legal certificate (MLC) issued by the Hospital where a victim is first admitted/treated and given to the police gives the best and most likely the best approximation to the truth. The wound certificate gives the details of the injury sustained and the date and time of admission. 3) Seizure Memo gives first information on the existence of the policy, name of the driver and also the driving license seized along with all vehicle records. In case the vehicle accessed or the opposite vehicle involved in the accident did not possess insurance or if the accused driver or the opposite vehicle driver (who may sometimes be the injured/claims) did not possess proper driving license will be remarked through this document. 4) The Panchanama / Sketch of the place of the accident gives information about the cause of the accident and negligence aspect. This is very helpful especially when two vehicles are involved to decide the amount of contributory negligence. 5) Inquest Report gives information about the deceased person, time of accident identification of a dead body, etc. 6) Post Mortem Report gives information about the time of death, age of the deceased and cause f death. This document is a very important confirmation of the fact that death was due to an accident. 7) The statement of witnesses given before the police Authority by section 161 (3) of CPC gives information on the person charged in the related criminal case. 8) The VMI report by the Motor vehicle inspector informs about the damage to the vehicle with the date of accident and inspection, besides information on the names of the owner and driver. From the above report whether the vehicle had any mechanical defect. From the damages mentioned in this report, the conformity as to the vehicle involved in the accident can also be had. 9) The charge sheet informs the negligence of the driver 10) Criminal court records – remarks Non-involvement of the vehicle or non-RTA causes of death/injury. Personal or above documents by the probing mind of a prudent insurer should result in the detection of frauds. In the light of the said probe, the effective investigation should be arranged for the corroboration of the initial facts as well as to dig out additional information to ascertain the truth. Investigation of claims: Insurers have their panel of investigators some of whom are advocates. The job of investigation is a big challenge for both the investigators and the insurers because they are required to collect documents/report of accidents which would have occurred 2 to 3 years ago. Many times the investigators do not find the police records or criminal records in the concerned police stations nor they are available in the criminal courts/JMFC. To overcome the above difficulty the only remedy available to Insurance companies will be to arrange for investigation of accidents as soon as they occur. For this, all the General Insurers have to come together and through an agreement appoint investigators who will visit the accident sport immediately and collect all necessary documents/information required by the Insurance companies. Such a step taken will help the insurance companies to keep a check on the fraudulent claims and there will be a remote chance of the documents being tampered at various levels. The above-mentioned suggestion has been practically implemented at some of the places by some of the General Insurers. Here the investigator immediately rushes to the spot and collects all material information required. The policy issuing company is immediately known and they can take all precautionary steps required.

The investigation is of two types:

1) Preliminary Investigation, wherein the police records like the FIR Charge sheet, IMV Report, 160 notice, sketch/ Panchanama, wound certificate and copies of which documents are usually collected from the Police Station where the crime/accident is reported. In case of death, the documents like the inquest and the order/judgment of the criminal case are collected from the concerned JMFC court. 2) In-depth investigation: On scrutiny of the preliminary documents bought from the police station if any discrepancy is observed like change in the Driver’s name mentioned in FIR and the charge sheet. The IMV report does not reveal any damages to the Insured vehicle. The vehicle number mentioned in the policy does not fully tally with that mentioned in the FIR. The wound certificate does not mention injury due to RTA/or not registered under MLC. In all the above cases an in-depth investigation by an experienced investigator is required.

An in-depth investigation report should be submitted well in time and should cover the following:

a) To obtain all the police records and to investigate the discrepancies if any found in FIR. The charge sheet, spot Mahazar, panchanama, Inquest, IMV Report, Spot Sketch, and witnesses to the accident.

b) To verify from the hospital all documents about Medico-Legal case, Medical treatment Medical Bills, wound / Disability certificate.

c) To collect all information regarding age, proof of address occupation, Income and financial status of the injured/diseased to be collected with documental proof.

d) To ascertain the relationship of the petitioner with the deceased i.e., to confirm if they are legal heirs.

e) To ascertain whether the petitioners have received any monetary benefit from any other government Agencies / Organizations.

f) Above all, the most important job of an investigator is to meet the insured discuss and take a statement to assess the genuineness of the accident and his relationship whether blood or friendly with deceased / injured. All the above will be effective only when the same is supported by documents because at a later stage the same is required to be filed before the tribunal to prove the contentions by the insurance companies.

For effective investigation the following norms should be followed:

1) As soon as any information is received from any sources regarding an accident an investigator should be deputed to the spot. 2) The details of the injured person should be collected from the residence of the victims and though their neighbors and relatives. The statement of the injured along with their photographs should be taken as documentary proof. 3) An investigator should specifically collect the details of the offending vehicle, a driver at the time of the accident, owner, RC particulars and insurance details so that any fraud in connection with the same may be detected at an early stage. 4) All the hospital records must be collected investigator should collect information regarding any nearby hospitals to detect why the injured was shifted to a far off Hospital from the accident place. 5) Any own damage claim made by the Insured should be connected with the MACT claim file. This will assist the Insurer in two ways.

a) Verification of facts and detection of early frauds.

b) Genuineness of the claim. If found for an early settlement through Lok-Adalat.

Effective handling of Fraud cases :

Internal frauds: Any claim arising out of accidents reported within 5 days from the issuance of policy commonly known as proximity. Claims should be carefully viewed by the insurers. If through investigation it is found that either cover is anti-dated to cover the accident or accident is ant-dated within the policy period by internal sources strict action should be taken through the vigilance / competent authority. Steps should be taken to punish the offending official-once such a strict action is taken it will be sufficient to check any future such action by any of the officials.

External fraud: All documents depicting the fraud should be marked before the tribunal.

1) Steps should be taken for adducing the evidence of the authors of all such documents (e.g. the regional transport officer in case of discrepancy with vehicle documents, offices/investigation office in connection with alterations in police documents, hospital authorities in connection with alterations in Medical Records, etc.

2) Specific plea on the issue should be raised in the written statement to be filed before the tribunal if fraud detected at a later stage the same should be raised through additional written statements at the Tribunal.

3) Exorbitant disability certificates submitted by the claimants obtained from Doctors other than the treated doctor should be challenged through the company’s panel orthopedic surgeon.

Fraud management is an essential part of any Insurance activity. Keeping a strict watch on Motor Third-party claims is even more important because of the large number of accidents and consequent injuries that take place, the reported compassionate approach of the courts to the plight of victims and the High Awards passed often disregarding the plea taken by the insurer. In this environment unless and until there is continuous vigilance against fraudulent practices whether internal or external it is possible for the insurance to lose heavily on Motor third party claims. Contrary to the general feeling of helplessness in case of frauds claims, insurers have several legal remedies available by attracting the attention the courts from Tribunal to the highest courts, discovering fraudulent claims through proper investigations, submitting strong documentary and oral evidence before the courts and relying on various provisions of the law in respect of frauds. It is pertinent to quote here that in United Insurance company Ltd., Vs Rajendra Singh and Ors reported in 2000 ACJ 1032 that the Hon’ble Supreme Court has held that no court or tribunal can be regarded as powerless to review its order if it is convinced that the order was arranged through fraud or misrepresentation of such a dimension as would affect the very basis of the claim as it would lead to a serious miscarriage of Justice.

The Motor Vehicle (Amendment) Bill 2007

One of the points proposed for amendment in the above Bill is “To provide for settling of the claims directly by the insurer to reduce the hardships of the accident victims.” This is going to be a most welcome feature for the insurance companies and also one of the most important and biggest steps that could be taken by the insurance companies to counter their losses in the motor third party claims. Direct settlement of claims by the insurer will be one solution to all the problems involved in filing and settlement of MVC cases. The lengthy procedure of filing the case in the Tribunal, leading evidence and pronouncement of judgments could all be thrown to the background and the following procedure may be adopted. When an accident occurs giving rise to any third party injury/death or property damage the owner of the vehicle should intimate the insurance company with the below-mentioned documents.
  1. Policy copy and all the vehicular documents like the Original Driving Licence, R.C. Route permit and fitness certificates.
  2. All police records including FIR and the charge sheet, Post-mortem and Inquest Report in case of death.
  3. Wound certificate, copy of MLC and all Hospital records, in case of injury. Bills and cash Memos of Medicines and Disability Certificate.
  4. In case of damage to any Third-party property, the insured should give notice to the insurance company immediately. So that the insurer arranges for a survey of the damaged property.
Once the above documents are verified and found to be in order. The insurer can assess the loss and settle the same with the consent of the claimant and deposit the same before the M ACT to avoid any further litigation and the Tribunal will distribute the amount amongst the petitioners. The claimants will also make a statement before MACT to the effect that there is no other entitled person to claim given compensation. Direct claim settlement will be beneficial to the claimant and the insurance companies. Since it will remove all the flaws involved in the present mode of settlement. The claimants will also receive timely compensation and be relieved with the mental harassment of running around the courts and reduce the costs involved. For the insurers also there will be a reduction of interest payment and also a reduction in the number of outstanding cases.

Apart from the issues already discussed earlier the below mentioned miscellaneous steps may also be adopted to reduce the loss in Motor third party claims.

1) Sharing of the percentage of the award amount by the Insured: It is the duty of every insured to report the accident to his insurers. Even R.P.A.D. letters sent to him are returned or sometimes though received the insured does not take the courtesy to fill the enclosed claim form and produce all documents for verification. This affects the insurer in two ways. Firstly if the insured vehicle is wrongly implicated the insurer will be unable to prove the same and secondly even if the claim is genuine the insurer is unable to settle the claim most of the time for want of vehicle documents. Why is this happening so? This lousy reaction of the insured is because judgment/Award by the Tribunal does not pinch his pocket. Any amount of award has to be borne by the insurer simply because of the fact the vehicle is covered by insurance. Through legislation, a portion of the award should be passed on the insured. A small portion of even 10% of the award amount from the pocket of the insured is more than enough to check all the fraud and deliberate negligence on the part of the insured. 2) Penalty to the Accused Driver: At least 50% of the accidents that occur are accidentally and the rest 50% is due to sheer negligence of the drivers on the wheels at the time of the accident. These are accidents by slight care and responsibility on the part of the driver that could have been avoided. Why are the drivers so negligent. It is only because they are not penalized for this negligent act of theirs. They have to pay only a nominal fine in case of injury and cause of death when they are convicted they may at the most undergo imprisonment for a very short period of 6 to 12 months, then again it is through legislation that the penalty should be increased. The driving license of the drivers should be seized and banned or a minimum period of 3 years (especially in death cases) and the Drivers also should be made to bear a portion of the award amount. Judiciary must take a more prominent place. Speedy disposal of cases with reasonable Awards should be the motto. Reasonable award what is meant is the present “unlimited liability” of the insures should be waived and like in the railway and airway accident compensation should be fixed separately for injury and death cases. Courts should not award any compensation when the injured/claimant has violated the law, i.e. when his vehicle was plying without insurance coverage and or when he was driving a particular vehicle for which he did not possess a valid driving license. The court should view fraudulent cases seriously and take action against the offending officials may it be a police officer, a doctor/hospital authority or an advocate. The insurers, on the other hand, should gear up themselves with good manpower, a well-trained investigation team and advocates with long-standing experience. They should remember the fact that they are in the market to do business and the MACT compensation is paid out from their premium income and not from any relief fund, sanctioned by the government. No doubt they are bound with social obligation but at the same time have to safeguard public money. Conclusion: All the machinery mentioned above is duty-bound to do their part of the job. It is only when each of the machinery plays their role will the control in several accidents and the outgo funds due to such accidents will get reduced. Therefore let’s all join hands lets not allow a “Few to make Fortune that too arising out of a Misfortune”.


Prathibha Shetty

Published in The Insurance Times, May 2010


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