Insurers have to carry out proper due diligence before appointing staff, agents and intermediary.
IRDA recently came out with a framework for monitoring and preventing frauds in the insurance sector and asked insurers to carry out due diligence on their staff, including agents.
Stating that fraud reduces consumer and shareholder confidence and can affect the reputation of individual insurers and the insurance sector as a whole, the regulator has asked insurers to lay down procedures for monitoring and early detection of frauds.
According to the IRDA circular, “Insurers should lay down procedures to carry out the due diligence on the personnel (management and staff)/ insurance agent/ corporate agent/ intermediary/ third party administrators (TPAs) before appointment and agreements with them.”
Insurers have been asked to ensure that the stipulations on fraud detection, classification, monitoring and reporting are effective from financial year 2013-14 (FY14).
According to the rules, the board-approved policy should have procedures to identify areas of business that are potentially prone to insurance fraud and lay down detailed department-wise, anti-fraud procedures. The board-approved policy should also lay down procedures to coordinate with law enforcement agencies for reporting frauds on timely and expeditious basis and follow-up processes thereon, said the regulator. The board shall review the anti-fraud policy on at least an annual basis
Insurers will have to disclose the adequacy of systems put in place for detecting and preventing fraud and other irregularities, on an annual basis while filing their financial statements and auditors’ report with the regulator. Similarly, the statistics on various fraudulent cases that come to light and action taken should be filed with the regulator providing details of outstanding fraud cases; and closed fraud cases every year within 30 days of the close of the financial year, said Irda.