FOREIGN TRADE UNIVERSITY ECONOMICS AND INTERNATIONAL BUSINESS DEPARTMENT INSURANCE AND RISK MANAGEMENT LIFE INSURANCE FRAUD CASES IN US AND SOME RECOMMENDATIONS Class TMAE308 1 Lecturer Hoàng T.Life insurance is a contract between an insurer and a policy owner. A life insurance policy guarantees the insurer pays a sum of money to named beneficiaries when the insured dies in exchange for the premiums paid by the policyholder during their lifetime. Therefore, life insurance acts as a safety net to protect the insured’s loved ones who may financially depend on him after his death. For example, life insurance policy can help pay financial obligations such as rent or mortgage costs, funeral and burial expenses, school tuition, personal debt such as student loans or credit cards, and even, supplement the lost income, to help pay for daytoday expenses. Despite the original purpose of life insurance, many people have taken advantage of it and treated it like an “investment” to gain profit. Life insurance fraud can be in many forms, coming from both the agency and policy owners sides. It has unsurprisingly caused a huge loss to society.
LIFE INSURANCE: FRAUD CASES IN THE US & RECOMMENDATIONS Group TABLE OF CONTENTS Theoretical basis Research problems status Recommendations THEORETICAL BASIS Life Insurance A contract between an insurance policy holder and an insurance company, where the insurer promises to pay money in exchange for a premium, upon the death of an insured person or after a set period LIFE INSURANCE FRAUD common types The insured provides incorrect information on Application Fraud purpose for cheaper premiums Claims Fraud The insured fakes their own death or the death of their loved one for a life insurance benefit Forgery Other parties (a family member or spouse), access the policy and change its ownership or named beneficiaries Phony Policy Scammers “sell” fake policies to unsuspecting Fraud customers and pocket the premiums RESEARCH PROBLEM STATUS Overview of Life Insurance market in the US History and Development of Life Insurance 600-100 BCE, ancient Greece and Rome: concept "burial club" In the US: 1759 2018 Growth boom First life insurance company Direct LI Premiums surpassed $200 billion Total assets: $7 billion 1840 2021 Overview of Life Insurance Fraud in the US The 2016 RGA Fraud Conference: Insurance Fraud cost $40 billion/year American household $400-$700 in higher premiums/year Life Insurance Fraud cost $10-20 billion/year Actual Cost of Fraud Incalculable Overview of Life Insurance Fraud in the US 2022 estimation: cost of life insurance fraud: $74.7 billion 1%-3% of claims are either subject to an investigation for fraud or misrepresentation or are rejected outright 20% of life insurance claims are canceled during the contestability period Two cases of Life insurance fraud CASE CASE ANALYSIS ANALYSIS What leads to these fraudulent action? Life insurance: an exception to the insurance Indemnity principle No central index and no information sharing between firms The negligence of Insurance company Decision of the Court March 18, 2008: Helen and Olga were charged with two counts of first-degree murder and conspiracy to commit firstdegree murder They were sentenced to consecutive life terms without the possibility of parole CASE CASE STUDY STUDY 22 Queens Man and Woodside Woman Arrested in Conspiracy to Kill Guyana Immigrants for Insurance Money CASE SUMMARY James, 46, & Mallay, 61: charged with arranging the poisoning and shooting deaths of victims, in a close-knit Guyanese community in Queens and two in Guyana since the early 1990s Mallay took out a US$400,000 insurance policy on his own brother-inlaw before hiring a 'hit-man’ to gun down his relative in Queens in 1993 In another case, $300,000 was collected from the death of Mallay’s own nephew in Guyana, Hardeo Sewnanan Sewnanan was poisoned in June 1999 PARTIES PARTIES Plaintiff: Defendants: US Federal agents, prosecutors Richard James, 46, a Guyanese MetLife - one of the largest immigrant in New York, a well- global providers of insurance, known insurance agent in the annuities, and employee benefit Queens Guyanese community programs, 90 million customers Betty Mallay, 61, a Woodside in over 60 countries woman GENERAL INFORMATION Murder of Vernon Peter 1991, Mallay-a postal carrier for the US Postal Service, was arrested & convicted of theft from the postal service, sentenced to 15 months imprisonment While he was incarcerated, his mother died of a heart attack Mallay blamed these problems on Vernon Peter Dass recruited friends, Camuldeen Allie, "Barry" & "Fingers" to assist him July 28, 1993, the four drove to Dilly's home, using Allie's car Dilly came out of his home and Allie came behind him and shot him several times in the head The four then fled in Allie's car Peter collected $400,000 in insurance proceeds following the death of her husband and loaned Mallay $60,000 GENERAL INFORMATION Murder of Alfred Gobin September 1993, months after Dilly's death, Richard James and Ronald Mallay met at the home of Gulabie Gobin ("Gulabie") January 6, 1996, Alfred Gobin was murdered in Guyand Though Gulabie and her siblings never paid for her father's policies, they received at least $200,000 as beneficiaries Gulabie subsequently lent James and Mallay almost $60,000 GENERAL INFORMATION Murder of Basdeo Somaipersaud October 1994, without Somaipersaud's knowledge, James created a $100,000 policy on him, naming Virma Kassim, James' sister, as the beneficiary The policy provided that in the event of an accidental death, an additional $100,000 would be paid to the beneficiary Fall of 1997, Mallay approached Kenrick Hassan ("Kenrick''), a member of Mallay's extended family, and offered him $10,000 to kill Somaipersaud January 23, 1998, Somaipersaud was found dead in a park in Queens Somaipersaud died of acute alcoholism and chlorpromazine Maline Ramnarine, James' girlfriend, & Arjun, among others, received some proceeds from the policy GENERAL INFORMATION Murder of Hardeo Sewnanan October 1996, James negotiated and witnessed two $250,000 life insurance policies for Hardeo Sewnanan ("Sewnanan"), Mallay's nephew 1999, Mallay again asked Kenrick Hassan to commit murder, this time asking him to murder Sewnanan, Hassan declined but referred Mallay to his brother Derick Hassan Mallay identified his nephew Sewnanan to Derick and gave him $10,000 for the project January 8, 1999, Sewnanan died in Guyana of poisoning Mallay received $400,000 CASE ANALYSIS Revelation of the fraud case MetLife, James insurance company, received an anonymous tip alleging the accused was involved in a conspiracy to kill insured people for the proceeds Sewnanan died in Port Mourant from ingestion of alcohol & ammonia James was the agent and Mallay the beneficiary on at least policies written on Sewnanan’s life MetLife analyzed policies written by James and reportedly found “rate of death claims of individuals insured under policies written by James was 318 percent higher than expected or by chance and that a large number of deaths were violent or under unusual circumstances.” CASE ANALYSIS Fraud classification Principles violated This is a claims fraud case Insurable interest: Normally, someone buying a policy must show an “insurable interest” in the well-being of the person insured, usually by virtue of marriage, a blood relationship or economic factors Utmost good faith: Most policies name relatives as beneficiaries, but it is not unusual for a non-relative such as a business partner to be named Chasm in insurance policy: No central index or information sharing among life insurance providers in the insurance sector Get an amount of life insurance prior to passing away to arrange for personal and professional demands CONCLUSION The government stated: MetLife Inc discovered the scheme after noticing that 21 death claims had been filed on policies written by James within a few years They both avoided the death penalty in Brooklyn Federal Court though Jurors could not reach unanimous agreement on the sentence, so Ronald Mallay and Richard James will be sentenced to life in prison RECOMMENDATIONS RECOMMENDATIONS RECOMMENDATIONS RECOMMENDATIONS Data analytics Consistently train and educate claims team to stay current Ensure everyone in your organization, not just claims and underwriting, is aware of fraud schemes and can identify red flags Attend conferences Collaborate with business units