The Insurance regulator, IRDAI, is considering a proposal to make insurance frauds a parameter for calculating credit scores in a bid to curb an increase in such activity, reported Business Standard.
The proposal, which is a part of the recommendations made by a working group formed by Irdai and the General Insurance Council, suggests that insurance frauds should feature when the risk profiles of individuals are evaluated and should be used to calculate their credit scores, the report said.
A poor credit score can deprive a person of financial services such as loans and credit cards, and deter him from indulging in fraud.
While rationalising the proposal, the working group said a fraud attempt on an insurance company can be replicated with other institutions as well.
The proposal is being considered by the insurance regulator, as such frauds have been costing insurers dearly, with some estimates pegging their losses at over ₹45,000 crore a year. This has prompted insurers to jack up premiums for customers to offset such losses, the working group has said.
The worked group has proposed amendments to the Credit Information Companies (Regulation) Act, 2005, Credit Information Companies Regulations, 2006, and Credit Information Companies Rules, 2006.
These require an insurance company to become a member of at least one credit information company.
Insurance companies, along with other credit institutions, will be required to provide information and data relating to their borrowers or insurance fraudsters to the credit information company.
The proposed amendment also requires credit institutions and insurance companies to update such information on a monthly basis and ensure that the data provided is accurate.
In the case of individuals and entities, the proposed amendments require credit information companies to collect details of borrowers’ accounts such as credit limit, outstanding balance, repayment history, amount and period of default, primary or collateral security taken, as well as details of insurance fraudsters such as policy, premium, agent, intermediary, loss assessor, hospital or garage, or any other person involved.
It has also been proposed that KYC be done for all customers of general insurers while issuing policies, which would help in risk profiling and strengthening due diligence.