INNOCENT UNTIL PROVEN GUILTY

I have no money but I have plenty of wits, therefore I can swindle people out of money. This gypsy proverb accurately describes the philosophy of swindlers. One of the areas that attract swindlers is insurance. In any country, there will always be people wishing to cash in on insurance companies. From the standpoint of swindlers, insurance companies are now more vulnerable than other financial institutions, such as banks. In general, fraud has always been part of the insurance business, but its scope is increasing with every year. For example, the financial crisis of 2008-2009 provoked a substantial rise in illegal manipulations with policies. In the United States alone, the insurance companies have to pay compensation to all sorts of swindlers to the tune of 15bn dollars annually, according to expert estimates.

While earlier instances of insurance fraud were of more individual character, now this kind of fraud is practiced by whole teams of swindlers. Basically, there are two main types of insurance fraud. The first type involves cases where the insurer is presented with claims based on a real event insured, but the amount of compensation claimed is illegally exaggerated. The second type involves cases that are associated not with real events, but with bogus or staged accidents. In any case, this is usually the work of organised gangs of fraudsters. The first type accounts for about 70 per cent of all cases while the remaining 30 per cent are linked with claims based on staged accidents.

Moreover, 70 per cent of all cases of insurance fraud relate to the sphere of car insurance. The most common types of car insurance fraud are intentional damage to insured property (road traffic accidents, car thefts, unlawful acts of third parties) and attempts to insure a car already damaged.

It is very difficult to estimate the real scope of fraud but expert estimates suggest that about 10 per cent of all claims for insurance compensation in the world are frauds. Such losses impair profitability and reliability of companies and ultimately adversely affect the credibility of the industry. Besides, this increases the amount of insurance premiums, which hinders the customer's interest in many products.

A key problem in combating fraud is considered to be the absence of a single source of customer data among insurers. Accordingly, it is necessary to organise the collection of data for all customers and the integration of analytical tools into existing business processes to create a single customer database. In some countries such as Poland, the Netherlands, the United Kingdom, Australia, and the United States, there are professional associations of insurance companies which have equal rights to access the database for all clients.

Azerbaijan's insurance market is still relatively small and its volume of premiums is equivalent to 500m dollars, but the market is going to be developed with the task of bringing the volume of premiums to 1bn dollars over the next 3-5 years. Thus, the issue of fraud in the insurance market will eventually become pressing for Azerbaijan too. "Currently, there are no professional fraudsters in the insurance market of Azerbaijan. However, the number of cases of insurance fraud is growing, though they can be characterised as isolated incidents. Most of these cases are associated with car and property insurance," insurance expert Xayal Mammadxanli told R+.

He said that insurance swindlers in Azerbaijan mainly use special tools to deceptively imitate the insured events, for example, exaggerate the size of insurance compensation due under Compulsory Motor Third Party Liability Insurance (CMTPLI). "Furthermore, there are other fraudulent acts such as retroactive registration of the insured event or forgery," he added.

Mammadxanli noted that in accordance with international practices, if the level of insurance fraud is on the order of 5 per cent of premiums in the market, the insurance market in such a country is considered to be highly criminal. "No such estimates have been made in Azerbaijan, therefore it is now difficult to tell the proportion of fraud on our market," the expert said.

Meanwhile, he believes that insurance companies are currently capable of identifying swindlers in Azerbaijan, as they are amateurs in the mass.

Each country has its own types of insurance where fraudsters are more active. In the United States, for example, fraudsters are most active in medical insurance. Thus, in 2011, US authorities arrested three immigrants from Russia suspected of health insurance fraud in West Virginia. A criminal gang consisting of Arsen Bejanyan, Sargis Tadevosyan and Igor Shevchuk intended to embezzle a couple of millions of dollars through fraudulent medical insurance claims.

In February 2011, US authorities arrested 111 doctors and other health care professionals for insurance fraud, whom the American media called the "Russian Mafia." They issued invoices for medical services that had never been delivered for a total of more than 160m dollars. This group was also led by an Armenian named Armen Ghazaryan.

Still earlier, in 2010, a network of fraudsters in the field of health insurance was exposed in the United States, which was thought to be the largest crime ring uncovered in this field in the history of the country. Fraud charges were brought against 94 persons suspected of the theft of 251m dollars from a trust fund of the Medicare insurance system.

"In Azerbaijan, most of the insurance frauds, as I have mentioned, are associated with car insurance. What we have in the area of health insurance looks more like abuses that have to do with drug price manipulation, which cannot really be classified as frauds. There have been no exposed instances of insurance fraud in the sphere of life insurance in Azerbaijan thus far. Meanwhile, frauds in life insurance are quite common in Russia and some other countries," Mammadxanli said.

Growth in the number of instances of insurance fraud resulted in that the leading Western countries began to create specialised organisations for fighting insurance fraud.

Thus, in the United States, the Coalition Against Insurance Fraud was created for this purpose in 1993. In addition, a special unit was organised under the State Insurance Supervision Service - the National Insurance Crime Bureau (NICB).

In Canada, the fight against fraud is carried out under the auspices of the Insurance Bureau of Canada (IBC), which unites most of the property insurance companies and brokers associations. In Canada, a compulsory investigation is conducted whenever a loss is in excess of 25,000 Canadian dollars.

In Germany, fraudulent schemes account for up to 10 per cent of all insurance claims, according to the German Insurance Association. Its experts accept applications for damages concerning suspicious cases, register them, check the validity of applications and establish whether the damage occurred as a result of an insured event.

In Great Britain, prosecution of unscrupulous clients of insurance companies is carried out by the Motor Insurance Anti-Fraud and Theft Register (MIAFTR) - an organisation set up specifically for this purpose. Its activity resulted in the creation of a database that, thanks to information exchange, allowed the insurers to save more than 25m British pounds, which would have been paid to fraudsters otherwise. In addition, a dedicated specialist unit of the City of London police, the Insurance Fraud Enforcement Department, was created with the purpose of investigating insurance fraud cases. One of the means of combating such fraud is the introduction of criminal liability.

Mammadxanli noted that the Criminal Code of Azerbaijan contains an article providing for criminal liability for fraud. "This is enough to regulate cases of insurance fraud. The main thing in such cases is to establish a fraud," he said. The expert believes that Azerbaijan needs specialist experts, such as special detectives which would be involved in establishing instances of insurance fraud.