IRDA suggests strict norms to prevent insurance sector frauds
New Delhi: To prevent fraudulent activities in the insurance business, sectoral regulator IRDA has asked insurers to follow stringent due diligence process for staff and agents besides identification of vulnerable areas within an organisation.
The communication, sent out to chief executives of all insurance and reinsurance companies, comes against the backdrop of concerns about financial frauds that could hurt the interests of customers as well as insurers.
In its 'Insurance Fraud Monitoring Framework', Insurance Regulatory and Development Authority (IRDA) has asked insurers to lay down procedures for monitoring and early detection of frauds.
"Fraud in insurance reduces consumer and shareholder confidence; and can affect the reputation of individual insurers and the insurance sector as a whole. It also has the potential to impact economic stability," IRDA said in a communication this week.
The insurers have to submit a compliance report with the regulator by June 30, 2013.
"Lay down procedures to carry out the due diligence on the personnel (management/staff)/ insurance agent/ corporate agent/ intermediary/ TPAs before appointment with them," it noted.
According to the regulator, it is required that insurers understand the nature of fraud and take steps to minimise the vulnerability of their operations to fraud.
Further, insurance companies have been asked to ensure that the risk management function is organised in such a way that the insurer is able to monitor all the risk and take steps to address them.
The IRDA classified frauds in the insurance sector under three heads -- claim fraud or policyholder fraud, intermediary fraud and internal fraud.
It also asked the insurance companies to frame anti-fraud policy and said that the company's board would review the policy on an annual basis.
Insurer shall inform both potential and existing clients about their anti-fraud policies, the IRDA said, adding that the insurer has highlight the consequences of submitting false statement for the benefit of policyholder in the insurance contract.