The Shanghai Public Security Bureau has busted an insurance scam that had made over 60 million yuan (about $9.3 million) in illegal profits. The case has revealed weak internal controls over insurance companies and a lack of consumers’ privacy protections, said the bureau at a press conference on Aug. 12.
The bureau said the scammers had misled consumers to cancel their existing policies and buy new ones. They then put the new orders under “new insurance reps” to claim special commissions and bonuses for new reps only.
Two of the three ring leaders were employees at an insurance company, managing a team of about 100 representatives. The other has over a decade of experience in the industry and was involved in finding recruits, some of whom were former insurance employees or stolen identities.
On July 13, the China Banking and Insurance Regulatory Commission issued a notice on the normalization of the banking and insurance industry. For the first time, “misleading or instigating insurance customers to cancel policies through non-standard channels” was included in the scope for a crackdown.
The bureau spokesperson said an insurance company that lost about $5 million to the scam didn’t verify the identity of the new sales reps or the origin of the new orders, most of which were not from people in Shanghai.
According to a bureau spokesperson, the insurance company became suspicious upon discovering policy cancelations concentrated in one area and repeated cancelations and new orders by the same customers. As a result, the company contacted the Shanghai Public Security Bureau, which began an investigation in August 2020. The bureau also received complaints from consumers around the same time.
Posing as dedicated customer service reps, the scammers would usually approach consumers via phone or in-person and “reveal” the drawbacks of their current policies, and then offer them full-refund cancelations, and a better alternative.
According to an April report from state-owned Xinhua News, the insurance industry is often fraught with false charges, false coverage, false cancelations, inflated premiums, and false claims. Their product design and internal control process are embedded with mechanisms to overcharge consumers. Therefore, the companies usually give in to false complaints with full refunds to settle with consumers and cope with auditing of regulatory agencies.
In his 2021 insurance industry report, Ren Zeping, chief economist of Soochow Securities Co., mentioned that the first wave of insurance policy cancelations occurred in 2008 when insurance companies’ solvency was challenged by the impact of the subprime mortgage crisis, coupled with a snowstorm in the South and the earthquake in Sichuan Province.
Unscrupulous people are taking advantage of consumers’ doubts, given many disasters, including the flood in Zhengzhou, the capital of Henan Province, said Alexander Liao, a China expert and Epoch Times contributor. In addition, Chinese consumers didn’t have confidence in the insurance companies nor their ability to fulfill claims, added Liao.
Xinhua News reported over 4 million Chinese were subject to various disasters during the first quarter of this year. These disasters included drought, flood, wildfires, sandstorms, and earthquakes.