Worried over fraud in the health insurance sector, Insurance Regulatory and Development Authority (Irda) plans to build an advanced detection and prevention system to check fraudulent claims.

In order to reduce the cost of insurance inflicted by fraud, Irda said it is proposing to build advanced detection and prevention systems at industry level to identify fraudulent claims before payment occurs and to improve the accuracy of fraud detection.

“Firms/organisations are advised to submit proposal to establish a comprehensive and complete solution for insurance fraud management within health insurance segment...,” Irda said, while inviting bids from eligible agencies for fraud prediction and detection analysis for underwriting and claims.

The regulator said it is looking to develop the system to enable the industry to underwrite the proposals effectively by getting up-to-date information, fraud alerts and medical history from the central database and also price products based on reliable database.

Among other things, the selected agency will have to assist the industry as well as the regulator with alerts related to fraudulent and suspicious transactions including overcharging, unlawful claim, false claims or multiple claims for same event in a particular region.

Further, it intends to minimise cost at industry level by centralising data without individual insurers having to necessarily resort to both software and hardware solutions for the purpose of fraud prevention.

The four PSU insurance firms — National Insurance, New India Assurance, Oriental Insurance and United India Assurance — had in July 2010 stopped the cashless facility in select private hospitals, alleging over-billing.

They had alleged that some hospitals were charging patients who have health insurance policies at rates which are much higher than the normal cost of treatment.

Irda has already constituted Insurance Information Bureau of India (IIB), a central repository of insurance industry data, which  is collecting, processing and disseminating data.

Also, the proposed system aims to assist insurers efficiently manage the claims by getting relevant information on fraud and claim reporting patterns, also ensuring that genuine customers do not face hassles.