The Indian health insurance industry is grappling with a high incurred claims ratio, at 98.4% in 2015-16 according to official figures. Losses due to fraud and abuse are a serious contributor to this, from both internal and external stakeholders. The limited information available when writing policies, combined with the improving organisational efficiency of the fraudsters, has cost the industry millions over the years.

A survey conducted by one leading third-party administrator (TPA) found that 10% to 15% of health insurance claims, amounting to approximately Rs 600 crores (over US$90 million) were false. This does not augur well for an insurance vertical that achieved a growth rate of 21.7% in gross premium in 2015-16, the highest reported in the past five years.

Here are some of the key challenges and bottlenecks in health insurance that make it vulnerable.

Lack of adherence to a pre-authorisation process

Claims settlement is a layered process. A pre-authorisation is more like provisional authorisation, where a health insurer verifies if a certain procedure, drug, or service is medically necessary before it is rendered. By confirming the necessity for pre-authorisation, insurers control costs by reducing duplication and unnecessary treatments.

One of the first interventions, pre-authorisation is a vital piece that helps nip health insurance frauds in the bud. However, due to a lack of awareness on the part of the consumer or the insurer’s system not being robust enough, the key components of the process are often not fully adhered to. Reimbursement claims account to more than 60% to 65% in terms of number of claims getting reported, which means cashless claims paid within the health network are only at 35% to 40%.

Absence of specific laws related to insurance fraud and abuse

The Indian Insurance Act doesn’t yet have a definition for ‘insurance fraud’ and neither are any specific laws spelled out in the Indian Penal Code for such an act. The absence of strict punishment does little to deter fraudsters who, even when blacklisted, find ways and means to continue operating.

With a mounting backlog of cases in the judiciary system, taking legal action against a fraudster is not a common occurrence in India. However, the scenario is different elsewhere around the world. The prevalence of stringent laws and data exchanges to combat the menace has yielded positives in other countries of the world.

In the UK, for example, a significant chunk of the Financial Services Act 1986 is dedicated to curbing insurance fraud. Notably, organised fraud fell by around 30% in 2015 in the UK with insurers detecting 15,000 frauds valued at £174 million (equivalent to US$230 million) in one year.

Lack of fraud detection tools and technology

This area is perhaps the biggest loophole in the system, aiding fraudsters. For many years, insurers have resorted to traditional methods of fraud detection involving feet-on-the-ground investigative work. This approach can take years to obtain the necessary documentation, the legal proofs and bring the perpetrator to justice.

However, deployment of new types of data, ID and other external data for preventing identity theft, and predictive analytics can go a long way in curbing the threat. Identity theft can occur when someone allows a friend or relative to obtain their insurance identity card.

This type of identity theft is defined as stealing a patient’s personal information to receive health care services or even to buy medication. A large portion of these medical identity theft cases are due to consumers giving their health insurance cards to others. Once this information leaves the patient’s hands, it could be shared among cyber-criminals who could sell this data in underground markets.

Most medical providers are honest and work hard to look after their patients’ health. However, a few want to illegally increase the size of their bank accounts. Healthcare fraudsters inside and outside the industry include patients, payers, employers, vendors and suppliers, and providers, including pharmacists.

In all of these examples, data can be used to identify potentially fraudulent patterns – such as anomalies and outliers in treatment costs – and develop a set of rules to flag suspicious claims. For example, if a claim is made within 15 to 20 days of the policy being issued, that would be a useful indicator and a red flag, requiring investigation. Data mining and validation from multiple sources would lessen the processing costs for the insurer, while dealing with frauds.

Data analytic organisations are working on strengthening the existing rules as well as creating more robust rules, so that these patterns can be identified and supressed as fast as possible.

Lack of concrete fraud investigator training programmes

The absence of training programmes for fraud investigators and fraud specialists is another major obstacle for the industry in India. In countries like the UK, there are dedicated courses on managing fraud in the insurance sector where learners get a holistic view of fraud threats, they can understand global anti-fraud frameworks, and are taught ways to formulate effective counter-fraud strategies.

Institutes offering such courses also provide in-house training along with bespoke recommendations for dealing with specific sources of fraud. With the industry bleeding funds, and with healthcare holding such an important place in protection and development of the nation, such courses are overdue for India’s insurance ecosystem.

Absence of consumer education

Inadvertently, fraud can take place due to ignorance, or cases of misinformation or wrong information presented by the customer or medical provider: all cases that can create inaccurate or incorrect data.

It is in the best interest of the industry to create protocols raising awareness about insurance fraud, abuse, and its subsequent implications. Deployed at all levels, they should clearly define what constitutes a fraud, the penalties, and the punitive actions that follow upon confirmation.

Combating the threat, engaging all stakeholders

Process improvement, working through a collaborative approach, regulatory intervention, and adoption of new data sources, and predictive analytics: these are the need of the hour to protect the interests of the industry, and the interests of the honest policyholder.

Insurers need to be proactive and agile in capturing data first, followed by sharing more information and intelligence between themselves, on identities, policy history and claims history. It is going to take the earnest efforts of insurance, working with other partners like the hospitals and medical networks, government agencies, the regional data repositories – as we at LexisNexis Risk Solutions do in other markets around the world – to integrate the necessary technology for addressing fraud.

Follow the link to the LexisNexis Risk Solutions India website to find out more about how we support insurers. Follow these links to read more about specific solutions for life insurance, health insurance, and motor insurance.

  1. In India, health insurance is very much needed by everybody. In fact, it might even be the most important insurance coverage that everyone should surely possess. However, the same safeguard is exploited by a few people in different stages of the process, such that it results in a net loss for the insuring company.
    Although all of us are aware of the problem and the solution, nobody is willing to take the first step.

  2. Good article. It touched upon the critical focus areas for the regulator to work around in fraud prevention. We see some emerging initiatives and opportunities created to fight against fraud and abuse. Insurers have realised the importance of data analytics in data sharing, by following right data privacy law and policy within the ambit of insurance law. Let’s together we bring the change in the industry with the help of experts like LexisNexis.

    • In line with the above post, we need to hire FWA (Fraud Waste and Abuse) analysts/auditors to assess, and to arrest fraudulent cases, and for better loss ratios of at least 40% to 50%.

  3. Good listing. But, are insurers keen to repudiate the suspect claim? Most still wonder, “how can ask this to the hospital or the doctor?”
    I would say the organisational philosophy has to be of containing abuse, and going that extra mile, of course, within the established legal framework.

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