The insurance industry continues at a very low level of automation even after it has been denationalised, opened to foreign competition and put under an independent market regulator. One reason is that foreign insurance companies raided public sector monopolies for people to head their joint ventures in India. These executives had the advantage of deep market knowledge and mastery over insurance law and regulation. But, they brought along the same manual systems and processes of their parent bodies. Many automobile dealers today have a higher level of automation than general insurance companies. Automation is key to the rapid growth and reform of the insurance industry and change can be hastened by a hard nudge by the regulator. In this article, we will only look at the auto insurance sector, which is especially riddled with problems of false claims and corruption.
The immediate consequence of manual systems and processes is that data collection is fragmented and only available in terms of gross numbers; it cannot be thin-sliced for detailed analysis or spotting market trends. For instance, every insurer has data on the number of claims made and processed in a given period. But wouldn’t the data be a lot more significant if insurers could pinpoint higher or lower claims on a particular company, specific car model or geographical location? This could help fix differential premia or provide early warning of fraud.
Common examples of fraud associated with this sector are issue of multiple insurance policies against the same vehicle to facilitate multiple claims or the fraudulent re-use of automobile registration numbers of junked/ totalled vehicles. Both usually happen with the collusion of insurance company officials, especially the latter, which involves a failure to comply with the legal processes. The biggest incident of fraud is by those who buy an insurance policy after a car accident to make a false claim by fudging the date of the accident. This, too, requires collusion by insurance officials and such deals are often brokered at gara-ges, which also add their own commission to the repair bill.
• Automation is key to the rapid growth and reform of the insurance industry
• Irda must begin discussion on scope and structure of a central database
What is needed is more transparency, through greater auto-mation of claims processing and a central database created through the initiative of the Insurance Regulatory Develop-ment Authority (Irda). The database would be like a web-based share depository, except that some data, such as a pre-existing insurance policy on a specific car number, would be available to all insurance firms. This database would have records of every vehicle purchased—owner name and address, model, registration number, engine and chassis numbers and insurance policy details. In this system, data collated from auto insurers may be adequate to complete the database. Information has to flow from branches of insurance companies to their head office and then downloaded to the central database at regular intervals. Key to this system would be data security of individual insurers. Irda needs to mandate the design and automation to ensure access and analysis without software compatibility issues.
Such a system will help eliminate the fraud of multiple insurance policies, by throwing up an alert of a pre-existing insurance on a specific car/engine/chassis number. The database is bound to contain the date of expiration of a policy and its renewal. Making it possible to flag a claim made too close to the issue of a fresh insurance policy, especially when there is a gap between its expiry and renewal. Similarly, cars junked when completely unusable will also have their details recorded on the database to prevent misuse by thieves or at least pinpoint failure in regulatory compliance.
Online processing of automobile claims is an $800 million business worldwide. An automated solution in India should include web-based automation processes, with a detailed back-end database of information on costs to speed claim processing with accurate and automatic inputs. In countries like the UK, automation service firms help upload data automatically from insurers to the regulator’s central database, with all proper security. In India, the creation of a central database will first require the automation of the claims processing system as well as the automobile dealer network within a specified time frame. Irda must kick off a discussion on the feasibility, scope and structure and quickly set an implementation deadline.