Necessity of Insurance Claim Investigation

In countries with relative perfected market economy, insurance company's cooperation with professional investigation companies in claim handling has become a usual practice. In China, the insurance industry was formed in 1980s and became market-oriented since 1992. Today there are already about 22 insurance companies within the boundaries of China. Is it necessary to entrust professional investigation institution to conduct investigation as far as insurance claim, in particular, insurance claim fraud is concerned? To answer this question, the definition of insurance fraud, its injury and the necessity of claim investigation should be expounded.

Firstly, have a good knowledge about insurance fraud. At present, there still has not a uniform definition of it in China. However, it might de defined in viewpoint of economics and law. (1) From the view of economics, insurance fraud is considered as one kind of invisible economy. Invisible economy means one special economic component made up of economic activities that gain profit by evading the regulation, taxes and supervision of government. In western countries, it was once described as "one economic field with activities seriously affecting national economy growth and probably resulting in economic collapse if not being hindered in time". With characteristics of invisible economy, insurance fraud practically exists in monetary system. (2) From the point of law, the single term of "fraud" has two meanings in category of law in China: one means ordinary civil frauds; the other is crime of fraud. Insurance fraud is classified correspondingly into two types: ordinary civil insurance fraud and insurance fraud crime. They have both differences and similarities. As for differences, the former violates civil law while the latter breaks criminal law. So the social injury that caused and legal punishment are different. But they have common characteristics in the form, the approaches and the methods of fraud.

Then, how is the injury of insurance fraud?
To the general public, the rights of honest insured are violated because they have to pay higher premium. Insurance rates are increased because for a long time, the insurer has to accept the unavoidable risk of "get insurance interests by fraud" which, in the end, is overtaken by the insured. For example, American insurance companies have increased the insurance value by 10% in recent years in order to cover the losses of insurance due to fraud. A survey conducted by Australian insurance committee shows that 60% of correspondents believe the honest insured are biggest loser.

To insurance companies, insurance fraud is harmful in two terms: one is the direct injury to insurance company's property; the other is the fact that insurance company is forced to increase premium because of fraud and then lose competitive advantage in market competition. The latter is more harmful. If insurance companies ignore fraud and be indifferent to them, the increasing vicious compensation would lead to unbearable burden in the long run. On February 27 and September 26 2000, there happened two astounding bank cases in international financial cases. One was the bankruptcy of Balin Bank of UK, which had a long history as 233 years and was eventually broken by one 28-year old "trader of genius". The other was the big loss in reputation and capital of Japanese Dahe bank where one top manager conducted false account for 11 years and was found out finally. It seems these two events resulted from "the acting on their own" of employees. However, the essential reason was there appeared leaks in their internal control system, which led to serious consequences.

How to effectively prevent and stop the happening of frauds and their injuries with the diversification of fraud means and growing compensation of insurers? Investigation is one of feasible alternatives.
Insurance claim investigation means all-sides, multi-channel investigation and verification carried out with legal means so as to identify the truth of cases.

Insurance claim is one kind of social phenomenon whose complexity, as well as the variety of insurance, determines the complexity and variety of cases. Each case has its own characteristics that make it distinctive from other cases. Anyway, there also exist similarities between different kinds of cases. That is, all of them have following basic components: when, where, who, why, what object, what matter. Just based upon them and starting with known information, insurance claim fraud investigation is conducted to get unknown information with investigative skills, approaches and means.

The insurance claim investigation belongs to civil investigation. At present, in the insurance industry in China, it is company's internal department of claim handling who conducts investigation. Nowadays, some non-governmental institutions are formed who specialize in insurance claim investigation. Anti-fraud investigation has been somewhat strengthened. In countries where the insurance industry is highly market oriented, it has become a popular practice that claim investigation is put to professional investigation institutions. It is just debuting in China. Then, is it a necessity that professional institutions should conduct an insurance claim investigation? An analysis can be made in the following aspects:

Firstly, the investigators’ specialization should be included in it. Generally, personnel in professional investigation institutions have worked in such areas as public security, procuratorate, court and judiciary. They are well experienced in social affairs and cases investigations with acute insights and skills in investigation. In addition, insurance companies possess better investigation equipment and management software than unprofessional institutions.

Secondly, an analysis should have the specialization of business. With special background of investigation, the business of investigation institution is developed around investigation. Rich investigation experiences have been obtained, and a complete system of investigation has been formed. This is the specialization of its business.

Thirdly, some professional investigation institutions have great advantages in conducting foreign cases. Through evaluation of many famous international investigation associations, several investigative institutions, such as Beijing Steele Business Investigation Center, have become their member for life. Therefore, it can build its advantages with its quick, precise, high-quality services in conducting claim investigation on cases where the insurers met with events outside the boundary.

Besides, from the perspective of social labor division, various activities undertaken by insurance company such as the insurance and claims handling would be separated. Professional industry will perform the claim investigation in the place of the insurer. This trend corresponds with social development theory and also is proved by foreign markets. What's more, according to principle of fairness, dual identity of insurer's both as insurer and as claim handler will likely cause unfairness to the insured who requests compensation. Standing as the third party, investigation institutions can provide true and objective results. This again justifies their existence.

As a conclusion, investigation companies possess higher ability of investigation compared with that of insurance companies. See international counterparts, in economies such as Unite States and United Kingdom, all claim cases are delivered to investigation companies to be conducted. Then, decisions about compensation are made according to investigation results. And cases should be transferred to national functional departments if fraud occurs and a crime is involved. As for present situation of insurance industry in China, there still has a long way to go before a complete and standardized market system is established because it has a history as short as two decades. Today, some insurance companies make a try to entrust professional investigation institutions to undertake claim investigation. It works well. From the perspective of development, it is sure that the dual identity of the insurer and the investigator will be separated. It is certain that professional investigation institutions will carry out insurance investigation, which will make up a new kind of labor division. So insurance industry will cooperate continuously with professional investigation institutions in its development. A good system will be finally established.