Inactive Insurance Information Center Fueling Fraud: Unchecked Multi-Million Risk Exposure
The failure to operationalize an Insurance Information Center in Nepal has led to a rise in fraudulent claims and duplicate policies across the insurance sector. Despite clear legal provisions, insurers are forced to settle suspicious claims due to a lack of centralized data.
The absence of an operational Insurance Information Center in Nepal's insurance sector is fueling instances of financial fraud. Although legal provisions exist within acts, regulations, and strategic policies, the lack of practical implementation is exposing insurers to severe financial risks.
A recent case involving a Rs 50 lakh death claim at a life insurance company highlights the severity of the issue. Following a death just 6 months after policy issuance, investigations revealed that the insured was chronically ill and undergoing regular treatment across the border in India. It was only after the reinsurer sent an email alert that the insurer discovered the individual held 5 policies across 4 other life insurance companies, with a total sum insured of Rs 2.20 crore. However, lacking concrete evidence to reject the claim legally, the insurer was forced to proceed with the payout.
Key issues arising from the absence of an integrated information system include:
- Non-disclosure and Fraud: Insurers are unable to verify prior coverage at the proposal stage if the policyholder conceals existing policies with other insurers.
- Wastage of Resources and Time: Individual insurers must expend excessive time, manpower, and financial resources conducting duplicate investigations.
- Weak Underwriting: Insurers are forced to conduct underwriting and claim settlements based on incomplete and weak data, escalating sector-wide financial risk.
Clear provisions to establish an Insurance Information Center are framed under the Insurance Act 2079 and the Insurance Regulation 2081. Had this center been functional, insurers could have verified the applicant's financial capacity and existing insurance coverage before issuing policies, thereby curbing fraud. Due to inaction by the regulator, the Nepal Insurance Authority, this vital mechanism remains confined to paper strategies.