To those handling claims in General Insurance, I would strongly suggest a deep study of “The Complete Adventures of Sherlock Holmes”. No better book to develop your lateral thinking. This is because criminal minds will always find ways to try and defraud insurers. Easy money and tax free to boot!
As Sherlock Holmes famously said: ” Watson! It’s all been done before! There is nothing original in this world — it is too boring”. In my long career as officer in charge, one incident stands out in memory for the ingenious manner in which a criminal mind worked.
I was Divisional Manager. One Branch under us had issued a Fire, etc, policy to a Cotton Spinning Mill. A big Fire was reported from their factory. We promptly deputed a senior and well respected Loss Assessor (Surveyor) to assess the loss. Thousands of bags of cotton were charred. The Surveyor reported to us that he and his team were physically counting the salvage to assess the loss. At the end of the day, they retire to their hotel. In the morning, they restart the counting. Their suspicions were aroused because the count seemed never ending. What the insured was doing was putting back the already counted charred bags to inflate the claim. We instructed the Surveyor to keep counting without raising any suspicion. Subsequently we gave him permission to destroy the salvage and he got the actual count.
We, me and the Fire department officer, had a suspicion that the storage block and the factory were communicating. With a view to collect some additional premium (if the 2 blocks were communicating, meaning there being no Perfect Party Wall separating the blocks, we could charge the higher rate), we decided to inspect the factory. We took the help of an experienced local engineer surveyor and visited the office which was inside the factory compound. As the MD of the insured was known to our surveyor friend, we went without appointment and entered his chamber. Well, truth has a way of coming out. We saw our Branch Manager sitting opposite the MD and they had bundles of 100 rupee notes on his table which was being given to the BM. On our unexpected entry, the MD recovered first and swept all currency bundles to his table drawer. The BM bumbled something to the effect that he was helping the MD to count the notes. We did not react, just informed that we have come to inspect the factory.
Well, the 2 blocks were indeed communicating and we could charge additional premium.
But the money episode set us thinking.
We needed to tread carefully. The client was politically well connected and also a local dada. We decided to go deep into the underwriting. We got a copy of the policy from the Branch. After some days we got Survey Report that had a policy copy attached. This policy was different from the one given by the Branch. We called the underwriter (typist) and showed him both the policies. He was firm that the second policy was not typed in the Branch type writer. This was in 1995 and we were still using type writers. On asked why he is so confident that the second policy was not typed by him, he point to some alphabet that had a tiny smudge, peculiar to his type writer which the second policy copy did not have. Apparently, each type writer had their individuality! The second one was typed on a relatively new type writer as per our staff.
Further, the first policy covered only Plant and Machinery. The second policy had new items: Stock, stock in process and finished goods! The total sum insured was the same.
The BM, in connivance with the insured, had reduced the sum insured under Plant and Machinery and created these new items, without altering the total sum insured so that the premium is unchanged. Brilliant!
The money we saw was the quid pro quo! But he had reckoned without us, honest officers.
The Plant and Machinery was financed by a large financial institution in Mumbai. So, they could be having the original policy. We sent one senior investigator to Mumbai. He returned with a photo copy of the original policy. Stock was not covered there.
We informed our vigilance department to investigate the claim.
To cut a long story short, the BM was put under suspension, demoted after Inquiry and transferred.
We informed the insured that stock is not payable. Repairs to the machinery was allowed. A small amount was offered as settlement by our Regional Office as the original claim was beyond our Financial Authority.
The story did not end there. The insured asked for arbitration. A retired Judge was the arbitrator agreed upon by both parties.
The arbitrator took the stand that, in as much as the insured had a policy on the company’s letter head, they were entitled to the claim in full! The insurer can take action against the BM! The RO had no other alternative, but settle the claim in full since there is no provision to appeal the award given by the arbitrator.