Insurance Scam

Ever wondered why your doctor/mechanic asks for insurance before treating your/your car?
Let me illustrate.
Here is what happened to me 2 weeks ago.
My car (maruti alto k10) developed a problem because some rain water seeped inside its clutch. The mechanic (maruti authorized service center) was ready to repair it in 2 hours and would cost me 150/- and 350/- to tow the vehicle. He additionally recommend me to get my upholstery cleaned which was smelling due to water stagnation.
Since it was a brand new car, and the cleaning of carpet would take 2 days, I thought of claiming insurance (Tata AIG)
Net result was that instead of the 2000/- that i had to clean for the entire process:
The total mechanic bill came to: 5200/-
Insurance paid 2500/- (3000/- – deduction of 500/-) and I had to pay 2,700/-.
On top of it, I lost no claim insurance bonus worth 1500/- and had to shell out another 300*7 days = 2100/- for autorichshaw charges to commute to my office. (even if i deduct for the fuel, i lost 1000/- and an added inconvenience of 9 days)
without insurance
mechanic: +2000
Myself: -2000 – 450 (auto – fuel) = -2450 and I would have got my car on the 3rd day.
with insurance
insurance company: -2500 + 1500 (no claim bonus) = -1000/-
mechanic: 5200/-
myself: -2700 – 1500 (insurance) – 1050 (auto) = 5250/- and I got my car on the 9th day.
During my MBA classes, I was told that options, like insurance, are a zero sum game. No wealth is created and it is just transferred from one account to another. (usually from the client to the broker)
Out here, it seems that the only person who gained was my mechanic.
You could have argued that I should have contested the excess charges. Well when one claims insurance, the mechanic provides you with itemized billing and with physical and photo graphical evidence of all the work he/she does. So it becomes very hard to contest.
I have heard of so many cases where some hospitals also inflate the bills when the client has insurance.
I wonder when will the customers realize that because of this malpractice, their insurance premiums are higher. Hence it is they who ends up paying 2-3 times for the same service.

street, Bengaluru South, Karnataka, India

2 replies on “Insurance Scam”

Insurance schemes are one of the biggest scams. Here is a story that merits an investigation. Insurance agents are paid a commission of about 25% of the premium collected (plus a 40% bonus if the targets are met) Although the practice is illegal, most agents offer a 10% of the policy premium back to the customer as a kickback. Now this kickback is a big source of money laundering.
If an agent sells all the policies in his name, then after paying the tax and kickbacks, hardly any commission would be left for him to earn his bread. Hence instead of selling the policy in his name, he would sell a part of the policy in a businessman’s name or the businessman’s spouse who is also registered as an agent. The businessman would hence use the channel to legalize his black money, the agent is able to reduce his tax burden and the black money gets dissipated to the policy holders who receive kickbacks. A neat and very simple arrangement.
As per LIC’s website, it has over 10,02,109 agents all across the nation. So it’s not as small as an operation that it sounds like. If you are still skeptical, ask your broker how come there are so many high profile agents from leading business families and he will spill the beans.

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