This article was first published in the IIB Bulletin, Vol 2, Issue 1, pp6-7
https://iib.gov.in/IIB/Articles/IIB%20Bulletin%20Volume%202%20%20Issue%201%20Final.pdf43% of the estimated approximately Rs5000 crores fraud in the General Insurance Industry in India, as per the India Forensic center research 2011, is accounted for by the Motor Insurance Business. Staged thefts, Overstating damages/claims, multiple claims for the same damage through multiple Insurance companies and the misuse of No Claim Bonus (NCB) are just a few examples of fraud in Motor Insurance.
If a policyholder does not make a claim during the
previous policy year, a discount on the premium is given to reward the
policyholder while renewing the policy. However, if a claim is made, the
discount is not given. In such a scenario, the policyholder may go to another Insurance
company and take a policy on the vehicle, without disclosing the previous
claims.
In a Simulation exercise done using hypothetical
data, done by the Insurance Premium Rating Bureau, Thailand, it was found that
giving higher NCB can have a serious impact on the loss ratio of the companies.
For example, in figure 1 below, 155,876 vehicles came up for renewal in
Underwriting Year 2010. Out of these, 71,907 vehicles should not have got a
NCB. However, only 19,514 were not given NCB. Rest of the 52,393 vehicles got
NCB in the range of 20% to 50%.
Figure
1: Simulation of NCB 1st Year Renewal
Figure
2: Simulation of NCB 4th Year Renewal
These charts were first
presented at the Insurance Information and Ratemaking Forum of Asia, 2015 in
Kuala Lumpur, Malaysia on May 28, 2015 by Chutatong Charumilind and Konthorn
Chainiwattana, Insurance Premium Rating Bureau, Thailand. Reprinted with
permission.
Similarly, when these vehicles came up for renewals in subsequent
underwriting years, some vehicles were always awarded NCB that they did not
deserve. The resulting Loss Ratio for such vehicles, which were consistently
awarded wrong NCB, was a whopping 164% to the Insurer.
Plugging in NCB leakage is hence extremely important for the
Insurers.
Vehicle Claims History Search is a service provided by IIB to
Insurers, which is aimed at removing the information asymmetry between the
Insurer and the policyholder with respect to the previous claims. The use of
this service would ensure that vehicles which have had claims in the past are
not rewarded with No claims bonus. The Vehicle Claims History Search facility
also brings in efficiency as the Insurers do not have to depend on the previous
Insurers for verification of claims, it is a low cost option which can also be
integrated to the policy management system of the Insurers through the web
service provided by IIB.
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