0
[DATE]
[COMPANY NAME]
[Company address]
TABLE OF CONTENTS
INTRODUCTION ……………………………………………………………………………………………………….. 1
CHAPTER I: LITERATURE REVIEW …………………………………………………………………………… 2
1. Marine cargo insurance ……………………………………………………………………………………. 2
2. Insurance Fraud ……………………………………………………………………………………………… 2
3. Marine cargo insurance fraud……………………………………………………….………………….. 3
3.1. Definition ………………………………………………………………………………………………………. 3
3.2. Types of marine insurance fraud ………………………………………………………………………… 3
1. (BUSINESS, 2000) (Code, 1999)Current situation of maritime insurance fraud in
Vietnam …………………………………………………………………………………………………………………. 5
2. Case 1 Analysis: Insurance fraud case with the collusion between the insured and
insurance company’s employees ……………………………………………………………………………….. 5
2.1. Case Summary ……………………………………………………………………………………………….. 5
2.2. Reasons (assumptions) that make insurance agents’ managers colluded with the insured
to seek insurance benefits ……………………………………………………………………………………….. 6
2.3. Recommendations …………………………………………………………………………………………… 8
3. Case 2 Analysis: Insurance fraud by abnormal loss to the goods …………………………..… 11
3.1. Case Summary ……………………………………………………………………………………………… 11
3.2. Definitions of terms used in the case ………………………………………………………………… 11
3.3. Reasons (assumptions) that make the insurer have to bear the indemnity even though
there was fraud ……………………………………………………………………………………………………. 12
3.4. Recommendations for the insurance company ……………………………………………………. 14
3.5. Recommendations for the policyholders ……………………………………………………….…… 15
CONCLUSION …………………………………………………………………………………………………………. 17
REFERENCES ………………………………………………………………………………………………………….. 18
1
INTRODUCTION
Recent decades have witnessed an exponential progress in international trade as a result
of globalization, stimulating the economic growth of countries that are now so interconnected.
Without a doubt, transport plays an indispensable role in this process. Particularly, ocean
transport is responsible for carriage of 90 percent of world trade, making it the largest means of
transport in international trade. Shipping’s ability to offer economic and efficient long distance
transport puts it at the centre of the world economy. However, despite its advantages, ocean
transport suffers a multitude of risks associated with perils of the sea, namely hurricanes and
tsunamis. Hence, buying marine cargo insurance is deemed to be an efficient way to protect the
high-value consignments. Nevertheless, fraud in marine insurance has emerged to be a pressing
problem across the globe, including Vietnam. The insurance profiteering appears under a wide
range of sophisticated forms, causing dire consequences to marine underwriters, to the healthy
development of the insurance industry and to social security as a whole.
In Vietnam, with a coastline of 3400 km stretching from North to South, sea transport is
considered the most dynamic economic region in the world. Together with the increasing
participation in world trade, marine cargo insurance fraud is also experiencing an upward trend.
Taking advantage of legal loopholes and weaknesses of Vietnamese insurance enterprises,
individuals and organizations have committed acts of insurance profiteering. The issue of how to
hinder this misconduct and protect the integrity of the marine insurance industry is a novel and
difficult, yet practical mission for Vietnamese insurance companies. This is the reason why we
choose “Marine cargo insurance fraud through real cases in Vietnam” as our topic.
This report aims at proposing courses of action for Vietnamese insurance firms to avoid
marine insurance fraud in the future. By investigating two real cases in Vietnam, we attempt to
outline various factors responsible for the insurance fraud. This is followed by proper
recommendations and solutions to boost the competency of Vietnamese companies in detecting
and solving this problem.
Apart from introduction, conclusion, and reference, our report includes two chapters:
Chapter 1: Literature review
Chapter 2: Analysis of real cases in Vietnam
Owing to the lack of time, the assignment may still have many shortcomings. Therefore,
it will be a great pleasure for us to gain constructive comments from readers. After all, we would
love to express our appreciation for our instructor – Ms. Pham Thanh Ha throughout the Risk
Management course.
2
CHAPTER I: LITERATURE REVIEW
1. Marine cargo insurance
The Marine Insurance Act 1906 Section 1 defines “marine insurance” as follows:
“A contract of marine insurance is a contract whereby the insurer undertakes to indemnify
the assured, in a manner and to the extent thereby agreed, against marine losses, that is to say, the
losses incident to marine adventure.”
There is a “marine adventure”, in particular, when “any goods or other moveables are
exposed to “maritime perils” being “the perils consequent on, or incidental to, the navigation of
the sea”. (Parliament of the United Kingdom, 1906) It is to be noted that no particular form of
policy is required by these sections of the Act so that an insurance of the carriage of cargo by sea,
against the perils of the seas, may be in any form.
2. Insurance Fraud
To conquer insurance fraud, one must first know what insurance is. In basic terms, it is a
contract between an insurer and an insured. In a contract, the insurer indemnifies the insured
against losses, damages, or liability from an unknown event. A preexisting condition must not
exist for insurance to be valid. For example, obtaining automobile insurance after an accident is
not insurance and does not indemnify the insured for any injuries suffered. “Insurance fraud
exists when individuals attempt to profit by failing to comply with the terms of the insurance
agreement. Perpetrators of insurance fraud try to create losses or damage rather than joining
others who have no losses but wish to keep themselves protected in case an unknown event
should occur”. (Association of Certified Fraud Examiners, 2019) Fraud can occur at any stage of
an insurance transaction by any of the following:
• Individuals applying for insurance
• Policyholders
• Third-party claimants
• Professionals who provide services to claimants
Insurance fraud can come in two forms: (1) hard frauds and (2) soft frauds. A hard fraud
occurs when an accident, injury, or theft is contrived or premeditated to obtain money from
insurance companies. When a legitimate loss occurs, such as theft of a cell phone, and the insured
adds an item to the claim (e.g., a phone accessory) to cover the deductible, it is considered a soft
fraud. Soft fraud occurs when a legitimate claim is exaggerated.
3
3. Marine cargo insurance fraud
3.1. Definition
The definition of insurance fraud, which is stated above, can be used to explain the term
“marine cargo insurance fraud” in a more specific way. Since insurance fraud means the illegal,
dishonest activity to benefit from the event of one or many parties involved in the insurance
policy, marine cargo insurance fraud is the activity of parties in maritime insurance contract to
get financial benefit which should not be received or benefit which is more than the one they can
receive.
Fraud in the marine insurance context is frequently carried out by well–organised criminal
syndicates capable of committing complex and expensive frauds. These syndicates usually
concentrate their efforts on cargo insurance fraud, which requires substantial planning due to the
number of parties that need to be involved to execute such a fraud. For example, generous
insurance cover for cargo that never existed in the first place can be put in place by criminal
elements with a view to making a claim for its mysterious disappearance during the transit. For a
fraud of this nature to be successful, it is vital to secure the cooperation of a variety of individuals
including warehouse personnel, drivers, shipping clerks and surveyors.
3.2. Types of marine insurance fraud
3.2.1. Fraud committed by the insured at the outset
The most common form of fraud committed by the assured at the outset is leading the
underwriter to believe that the risk he proposes to undertake is less than it actually is.
Another form of fraud, which is less common, is to obtain insurance cover for a property
which the insurer does not own at the time the contract is formed. For example, fraudsters
usually obtain blank company invoices on which the details of the supposed cargo consignment
are then listed. The cargo is said to be located in a remote part of the world awaiting shipment
and the possibility of inspecting is very limited either due to logistics or shortage of time. After
the insurance policy attaches, it is claimed that the insured cargo has been lost as a result of an
unfortunate incident.
3.2.2. Fraud committed by the insured at the post-contractual stage
Insurance contracts are based on mutual duties of good faith, which apply both before and
after the contract is formed. After the formation of the contract, in practice, the insured’s main
duty is to act honestly when making a claim.
4
In order to benefit from a fraud, a fraudulent claim may be raised by the insured at the
post-contractual stage. This may be done by providing false evidence when in fact there was no
loss, or claiming for a loss that is not within the policy, or describing the circumstances that led to
the loss wrongly, or simply by exaggerating the extent of loss with an intention to get extra
benefit from the insurer.
3.2.3. Fraud committed by the insurer
Fraud committed by the insurer may arise from fraudulent misrepresentation made by the
insurer to induce the latter to enter into the contract, which is likely to satisfy the tort of deceit.
The insured may later find out that the policy has no practical use for him. Otherwise, the insurer
may fail to disclose certain attributes in relation to the risk to the insured prior to the conclusion
of the contract, which would have had an impact on his decision to enter into the contractual
relationship.
3.2.4. Fraud committed by independent agents of the parties
Insurance intermediaries play a primary role both at the formation stage of insurance
contracts and during the currency of the policy. The term “intermediary” has been used to refer to
independent agents of the insured (commonly known as brokers) and insurer (i.e. selling agents
and underwriting agents) and also employees of the insurance companies.
This type of fraud may arise from the collusion between the insured and the insurance
agents. The insurance contract is only concluded right after the loss occurs, and the agent or
employee of the insurance company will help to defraud the insurer by making false documents.
1. (BUSINESS, 2000) (Code, 1999)Current situation of maritime insurance
fraud in Vietnam
Globally, insurance fraud has become a severe problem. The figures released in 2019 by
the Association of British Insurers (ABI) reveal 107,000 fraudulent insurance claims worth £1.2
billion were uncovered by insurers – a 5% increase from 2018, and every 5 minutes a new
insurance fraud is uncovered (ABI, 2020). Especially in Vietnam, from 2008 to 2017, there were
over 78,000 insurance frauds occurred, up to the value of more than 1.1 billion VND (Minister of
Finance, 2017). Among those insurances, the fraud in the maritime industry is raising concern.
This stable growing fraud comes from the increasing exporting and importing activities over
years, as according to Mr. Nguyen Dinh Viet – the deputy head of Vietnam Maritime
Administration, in 2019 the amount of marine cargo through the port system of Vietnam
experienced a 14% growth. Most of the maritime insurance frauds in Vietnam happen after the
losses occurred rather than carefully prepared in advance, and the profiteers usually collude with
the related parties (insurance company’s employee, carrier, vessel’s owner, port staff, etc.).
The authors analyze this current situation through 2 typical cases that have raised
controversial discussions in Vietnam: the case of frauds by deliberately making the loss of goods
