IRDA today came out with a framework for monitoring frauds in the insurance sector and asked insuers to carry out due diligence on their staff, including agents.
Stating that such fraud reduces consumer and shareholder confidence and can affect the reputation of individual insurers and the insurance sector as a whole, the IRDA asked insuers to lay down procedures for monitoring and early detection of frauds.
"Lay down procedures to carry out the due diligence on the personnel (management/staff)/ insurance agent/ corporate agent/ intermediary/ TPAs before appointment with them," the IRDA said in a circular to all insurance companies.
The insurers have to submit a compliance report with the regulator by June 30, 2013.
"It is required that insurers understand the nature of fraud and take steps to minimise the vulnerability of their operations to fraud," Insurance Regulatory and Development Authority (IRDA) said.
It asked insurance companies to ensure that the risk management function is organised in such a way that the insurer is able to monitor all the risk and take steps to address them.
The IRDA classified frauds in the insurance sector under three heads -- claim fraud or policyholder fraud, intermediary fraud and internal fraud.
It also asked the insurance companies to frame anti-fraud policy and said that the company's board would review the policy on an annual basis.
Insurer shall inform both potential and existing clients about their anti-fraud policies, the IRDA said, adding that the insurer has highlight the consequences of submitting false statement for the benefit of policyholder in the insurance contract.