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Author’s Biography
I am Rajashree, an experienced AML/KYC professional with a background spanning both the banking and insurance sectors. I hold a Fellowship from the Insurance Institute of India (FIII), which complements my on-ground experience in client onboarding, fraud risk mitigation, policy documentation and strengthening operational integrity.
Outside of work, I enjoy reading and writing and writing helps me explore ideas beyond the professional world. I’m always open to learning, sharing, and connecting—especially on topics around compliance, insurance, and risk management.
To follow and connect: https://www.linkedin.com/in/rajashree-p-mba-fiii-5b496343/
Introduction
Whether in the pre- or post-liberalization era, one of the most persistent threats to the Indian financial services sector has been fraud—and the insurance industry is no exception.
The insurance value chain involves multiple stakeholders, including policyholders, agents, brokers, Third-Party Administrators (TPAs), web aggregators, surveyors & loss assessors, underwriters, and claim handlers. With so many touchpoints, fraud can occur at any stage in the chain. While insurance fraud can be classified in various ways, for simplicity, let us focus on two broad categories:
- Policyholder fraud
- Non-policyholder fraud
When a policyholder commits fraud such as a soft fraud involving minor misrepresentations the primary impact is often limited to the insurer issuing the policy.
However, when a non-policyholder (such as a third-party service provider, intermediary, or syndicate) engages in fraudulent activity, the consequences ripple through the entire ecosystem. Such large-scale deceptions are better described as scams because they shake public trust and destabilize the market.
The 250 Cr- scam
Vcare Multi Trade Pvt. Ltd., incorporated in 2008 under the Companies Act, 1956, operated as a Multi-Level Marketing (MLM) private company insurance agent. As an MLM agent, Vcare maintained tie-ups with several life insurers, selling policies on their behalf. These included insurers such as Reliance Life Insurance, Future Generali Life Insurance, and Aegon Life Insurance. The company allegedly lured investors with false promises of exceptionally high returns and lavish benefits, such as luxury cars. Once investors began demanding their payouts, the company officials absconded. After an extensive decade-long manhunt, Prem Prakash Singh, the company’s chairman, was recently arrested by the Economic Offences Wing (EOW) for his involvement in a massive insurance-related scam. According to press reports, a total of 19 individuals has been arrested in connection with the scam. However, it remains uncertain whether the company’s promoters are involved or not1. Given the incorporation year and the extended search for the chairman, it is evident that policies issued between 2008 and 2015 by this agent on behalf of the insurers require urgent scrutiny.
What went wrong
- Although the company’s official website is now inaccessible, its LinkedIn page2 reportedly advertised a ₹30,000 investment scheme that claimed to offer monthly returns of ₹1,06,000, along with add-on incentives like Mercedes-Benz cars.
- To gain public trust, the company is believed to have made select payouts during the initial years, encouraging word-of-mouth promotion and fueling rapid investor acquisition which point towards the classic Ponzi scheme tactics.
- Post-2008, insurers tied to Vcare likely witnessed an unnatural surge in policy sales, a potential red flag that may not have been immediately investigated.
- Furthermore, there is a significant likelihood that the company engaged in mis-selling policies, deliberately misleading customers by providing inaccurate or incomplete information about insurance products.
Preventive recommendations
1. Licensing Enforcement: MLM private insurance agents must ensure that their recruits possess the mandatory IRDAI licenses and qualifications before being onboarded. If necessary, the regulator may consider issuing an amendment to reinforce this requirement.
2. End Relationships with Unlicensed Entities: Insurers should refrain from continuing business relationships with MLM private companies whose licenses have expired or lapsed.
3. Clarity in Contracts: Contracts between insurers and MLM agents must clearly outline the approved modes, methods, channels and terms and conditions through which policies can be marketed and sold. The agreement should also explicitly define the consequences of non-compliance, with a strong emphasis on safeguarding policyholders’ interests.
4. Product Restrictions: In coordination with insurance councils, IRDAI may consider defining a list of products that are not permitted to be sold through MLM distribution models.
5. Mandatory Training: Insurers should organize annual training programs for MLM private insurance agents, focusing on customer service standards and ethical business practices.
6. Regular Audits: Insurers engaging MLM agents should be required to conduct periodic audits at least annually—of such entities. IRDAI should also encourage insurers to report the audit proceedings in a structured manner.
7. Mandatory Non-Cash Payments: Non cash payment methods initiated towards the insurers need to be mandatorily implemented.
8. Public Awareness Campaigns: Insurers are encouraged to raise public awareness about potential fraud through appropriate educational programs.
9. Enhanced KYC Norms: Given past findings by the RBI regarding the potential misuse of MLM companies for fraudulent purposes, insurers must implement robust KYC measures, including:
- Identification and verification of Ultimate Beneficial Owners (UBOs)
- Scrutiny of Source of Funds (SOF)
- Scrutiny of Source of Wealth (SOW)
- Periodic reviews of client risk profiles
10. Streamlined Information exchange: In India, coordination and information sharing among insurers, the regulator, and law enforcement agencies need to be streamlined to ensure more effective and timely outcomes.
Conclusion
Despite increased awareness and growth in digital channels, insurance in India largely remains a push product—one that relies heavily on intermediaries to drive sales rather than customers seeking it out proactively. This dynamic makes it vulnerable especially to mis-selling, aggressive marketing, and at times, fraudulent practices. Scams like the one discussed not only affect the victims directly involved but also pose a greater threat to the credibility of the entire insurance ecosystem. It erodes public confidence and discourages future uptake of legitimate insurance products, which in turn affects financial inclusion, risk protection, and economic stability.
To move forward, it is imperative for all stakeholders’ insurers, intermediaries, and law enforcement agencies alike to work toward a culture of transparency, ethical practices, and customer-centric engagement.
2. https://www.linkedin.com/in/v-care-multitrade-2226253a/
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