Non-life insurance companies are stepping up scrutiny of motor third-party claims amid growing concerns over fraudulent cases. Insurers are strengthening verification and investigation mechanisms as higher compensation awards by courts, a rising number of uninsured vehicles and attempts to present non-road incidents as genuine motor accidents continue to put pressure on the segment.
In a significant development, Go Digit General Insurance secured an order from the Madras High Court on July 29 directing the formation of special investigation teams at the district level across Tamil Nadu to probe fraudulent motor insurance claims. The court directed authorities to investigate cases involving staged or fake accidents, misrepresentation of facts, forged insurance policies, fabricated injuries and false medical reports and bills. It also directed that criminal proceedings be initiated against those found responsible.
The court further instructed the police to collect relevant evidence, including call detail records and other material that could assist investigations. It also ordered departmental action against officials found to have facilitated fraudulent claims or failed to prevent such irregularities.
According to insurance industry officials, the case came before the court following a rise in irregularities in motor third-party claims. The development has highlighted the need for closer coordination between insurers, police and other authorities to identify organised fraud and prevent wrongful payouts.
Growing challenge for the insurance industry
Krishnamoorthy Rao, Managing Director and Chief Executive Officer of Generali Central Insurance, said motor third-party fraud is increasingly becoming an industry-wide concern. The segment is already facing pressure because of higher compensation awards and the growing number of uninsured vehicles.
The industry is also witnessing instances where incidents that are not genuine road traffic accidents are allegedly being converted into motor accident claims. Such cases can put insurers under pressure to pay third-party compensation even when the circumstances surrounding the incident may not support a genuine motor accident claim.
The growing sophistication of fraudulent claims has made document verification, accident reconstruction and examination of medical records increasingly important. Insurers are also expected to rely more heavily on digital evidence and data-based checks to identify inconsistencies in claims.
Higher compensation adds to provisioning pressure
Insurers are simultaneously reviewing their financial provisions for motor third-party liabilities following a recent Supreme Court judgment that recognised loss of domestic care as a separate head of compensation.
Under the new approach, the value of domestic care has been assessed using a monthly income of ₹30,000, with periodic revisions to account for inflation and changes in socio-economic conditions. Earlier, compensation under such circumstances was generally linked to the victim’s income and calculated using an applicable multiplier.
The change could increase the long-term liability of insurers and require them to maintain higher provisions for potential third-party claims. This comes at a time when motor third-party insurance is already considered a challenging segment because insurers have limited control over the number and value of claims arising from road accidents.
Uninsured vehicles remain another concern
Despite mandatory insurance requirements, a significant number of vehicles continue to operate without valid insurance. Accidents involving such vehicles create additional challenges in securing compensation and recovering losses.
At the same time, a rise in fraudulent claims can make verification procedures more stringent even for genuine victims. Insurers therefore face the dual challenge of detecting fabricated claims while ensuring that legitimate third-party claimants do not face unnecessary delays.
The industry believes that stronger verification of accident records, insurance documents and medical evidence, combined with greater use of technical investigation and better coordination between insurers and law enforcement agencies, can help curb fraudulent claims.
The Madras High Court’s directions in Tamil Nadu are likely to strengthen the focus on organised motor insurance fraud. With rising compensation liabilities and increasing concerns over fake claims, insurers are expected to intensify scrutiny of motor third-party cases and strengthen investigation mechanisms in the coming months.
