IRDA plans to link insurance frauds with individual credit score


credit score - vector graph is presenting man having his credit score report

In a recent development IRDA is planning to link insurance frauds with the individual’s credit score. This means that the credit score of an individual would be affected if found guilty of doing an insurance fraud.

This means the Pan card of an individual should be submitted at the time of taking the insurance policy which would be linked to the credit score. In case of any fraud committed in the future, the credit score of the individual would be affected as the fraud would be reported to the concerned authorities.

The credit score of an individual depends on his/her repaying capacity and repayment intervals. With the introduction of this concept the credit score of an individual would also be linked to insurance frauds.

Taking a loan is a conscious decision of an individual but the repayment of loan depends on many factors some of which might be out of control leading to failure in repayment of loans affecting the credit score.

Insurance is usually sold by insurance intermediaries in the Indian market and the claim settlement assistance is also provided by the insurance intermediaries.

The following scenarios can happen which might lead to insurance fraud:-

Scenario 1:- A layman might take an insurance policy on the advice of the intermediary and there might be a fraud claim raised by the intermediary of which the customer is not aware. In this case the credit score of the customer would be affected without his/her wrongdoing. Since the customer was not aware of the claim settlement process, how is it correct to punish the customer for the mistake of an agent?

Scenario 2:- Customer has made a claim which the insurance company declared to be fraudulent and this affected the credit score of the customer. Now the question here is how come the insurance company decides the fraud on part of the customer? We know how difficult it would be to increase the credit score once it is reduced. What if the court rules that the customer has not done any fraud? Will the credit score of the customer be replaced as usual by the insurance company?

Scenario 3:- Assume a situation where the identity of a person is stolen and insurance policy is taken out on that stolen identity. If there is a fraud claim reported on this identity, then the credit score of the customer would be affected for no wrong of him/her. How will this issue be addressed by IRDA?

Repayment of loan is not the same as insurance fraud as the inability repayment of loan can be decided as the failure to repay the loan leading to an affect on the credit score, but who will decide whether the action done by the customer is fraud or not?

Unless IRDA comes out with complete details on this issue after consultation with all the involved parties it would be difficult to implement this policy as of now.

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Susheel Agarwal

Namaste. I'm Abhinay Nedunuru, a Fellow of the Insurance Institute of India with a passion to make insurance simple and crisp. I write on insurance and investment. I have a passion for teaching and training in particular to insurance. I'm currently doing my PhD from IIM in Management.