Wednesday, March 1, 2017

Fighting Insurance Fraud in Latin America

Though they are a minority, fraudulent claims can amount to very significant sums of money, causing insurers to re-think their business practices and take action to mitigate the negative impact resulting from fraud. 

Insurance fraud is as old as commercial insurance itself. But awareness of its implications for the insurance industry in Latin America may be as recent as the late 1990’s.

It was at that time that insurers across the region started to form special departments to deal with the problem and modify their claim handling practices to include new tools. Anti-fraud checklists were developed, claim systems were modified to perform cross-checks and flag suspicious cases, investigators and specialized counsel were hired, and employees were given specific training. But most importantly, insurers began developing means by which they were able to share valuable information leading to detecting and fighting fraud.

All across the Latin American region, associations formed by insurers or independent organizations intending to fight fraud began to make their way into the market. In Argentina, an antifraud coalition of 50 top insurers representing 70% of the market was formed through the initiative of an organization called CESVI (“Centro de Experimentación y Seguridad Vial” – Center of Experimentation and Road Safety). CESVI has provided a platform for interaction among local insurers, with tools to facilitate constant exchange of information on insurance policies in force, losses and third party claims.

Similarly, organizations such as Prose-Chile in Chile, INIF in Colombia, AUDEA in Uruguay and AMIS in Mexico have spearheaded anti-fraud initiatives relating to sharing or pooling information. Some of these organizations sponsor annual events to further discuss and improve fraud detection.

In view of the fact that the cost of fraudulent claims is ultimately paid by the general public via higher insurance premiums, authorities are intervening to require action to fight fraud. Just as in the United States anti-fraud plans are mandatory for insurers in 22 states, in 2014 the Argentine insurance regulatory authority ordered insurers to present “Rules on Policy, Procedures and Internal Controls to Fight Fraud” for approval.

The 10-page resolution dictated by the local Insurance Superintendent constitutes a first step towards making the fight against fraud mandatory in Argentina. This might set a trend for other Latin American countries to follow in the future.

Fraud is a challenge for insurers and reinsurers in the region, just as is the case in the rest of the world. Although arguably Latin America may have gotten off to a slow start, there is growing awareness and much is being done by both the industry and authorities to fight the war against fraud to the benefit of insurers, reinsurers and the general public.   

Posted by Daniel Baron* and Marcelo Volpe

*Not licensed to practice law in Florida.

Marcelo Volpe is head of the Special Investigations Unit at La Meridional Cia. Argentina de Seguros S.A. and has responsibilities relating to fighting fraud in the Latin American region.