Rising transactions with third parties, data privacy concerns and gaps in operational processes have augmented financial crime risks in the life insurance sector, an EY Fraud Investigation & Dispute Services report says.
The report, titled “Strengthening the life insurance industry in India by mitigating financial risks” says that 56% of life insurers reported an increase of up to 30% in fraud cases over the last two years; while 7% said that the increase was up to 50% for them.
The report also notes that many life insurers were still in the process of complying with the IRDAI-mandated fraud monitoring framework. One in every three life insurers said their organisations did not have fully established whistle-blowing mechanisms, enhanced third party due diligence processes or robust fraud-response procedures.
Mr Arpinder Singh, Partner and Head – India and Emerging Markets, Fraud Investigation & Dispute Services, EY, said: “The Indian life insurance industry is growing tremendously as a result of strong domestic demand, led by a young population with high disposable incomes. To secure and maintain this momentum, life insurers will have to invest in the latest technology enablers, and enhance data privacy and implement stricter corporate governance mechanisms to battle financial crime risks.”
More than half of the respondents stated that overall transaction monitoring capabilities in their company were in the early stages of development, while 30% indicated the absence of or limited transaction monitoring capabilities as the core reason for financial crime.
On rising risks leading to financial concerns, 40% of the respondents cited data leakage and cyber crime issues as the biggest risk; another 40% indicated unauthorised modifications to customer data or information and 28% named fake documentation at inception and claims as an area of concern.
Among growing vulnerabilities for life insurers in India, third party payouts and underwriting emerge as key concern areas while gaps in operations including disjointed systems, tracking and monitoring of critical data sets and ineffective job rotation within high risk functions and limited exposure or utilisation of data analytics or analytical capabilities remain other key concerns. Gaps in customer due diligence including methodologies to validate income sources vis-à-vis occupation pose another worry, says the report.
In its study, EY Fraud Investigation & Dispute Services conducted a survey with over 100 professionals, representing a majority of the public and private life insurance companies in India.