$18m insurance scam a wake-up call

PUBLISHED : Saturday, 17 June, 2006, 12:00am
UPDATED : Saturday, 17 June, 2006, 12:00am

Caution urged after cracking of syndicate that blinds mainlanders and files claims for compensation

The fraud-prone insurance industry has received a 'wake-up call' after authorities cracked a criminal syndicate making up to $18 million worth of bogus claims, spurring calls for greater care and caution in underwriting policies.

The case, although seen as an isolated one of this scale by the industry, highlighted the need for insurers to improve their due diligence when checking and establishing the circumstances of a claim, insurance-sector lawmaker Bernard Charnwut Chan warned.

'The easiest way is to raise awareness and be more watchful when underwriting. You need to pay more attention and have better quality controls,' he said.

Mr Chan stressed the case, which involved hiring mainlanders and blinding them in order to claim compensation, was not unheard of in less developed countries but rare in Hong Kong.

Mr Chan said insurers had to be mindful of the fact that Hong Kong and the mainland were essentially borderless.

'If you're a mainlander making 10,000 yuan a year, why would you insure yourself for $20 million?' he said.

He believed suspicions were aroused after insurers realised several claims for compensation stemming from the same kind of eye injury had been made to a number of companies.

Mr Chan added that insurers had sufficient measures in place to investigate and authenticate claims but a one-off fraudulent claim was hard to detect.

'There is not much more you can do,' he said. 'It really depends on the size and frequency of the claims.'

Hong Kong Federation of Insurers executive director Peter Tam Chung-ho agreed the case showed that insurance companies had mechanisms in place to detect irregular practices. However, he said insurers still needed to review the way they processed claims, including checking and establishing the identity of the claimant and the circumstances of the claim.

'You can say that the system is working but we still have to take a hard look at areas we can improve,' Mr Tam added. 'You can say that this is a wake-up call.'

Mr Tam stressed that the case demonstrated the high level of sophistication used by the syndicate in cheating the insurers, as it involved genuine Hong Kong identity cards. He added that everyone involved in the processing of claims, including doctors, worked in areas where fraud could occur and that greater caution was needed.

Mr Tam said authenticating claims involving the mainland was more difficult, but this was no excuse for not exercising caution.

'It is hard to check and authenticate in terms of distance between Hong Kong and the mainland as well as differences in the sophistication of the industry. But that is why we need to work harder.'