Insurance fraud is constantly raising concerns among insurance companies and regulators, due to huge losses
caused to business every year. For every Rs. 100 premium earned by the insurance companies, they would be
paying Rs. 213 as claims. Motor insurance which contributes almost one third to the non-life insurance in India is
highly affected by fraud. Many insurance companies are showing loss due to high claim ratio in motor sector. The
motor insurance market in India is growing at respectable rate, and this provides greater opportunity for insurance
companies to tap this growing market. Nonetheless, the insurance companies face greater challenges in terms of
reducing claim processing cost, and detection and control of fraud. Hence, the purpose of this paper is to explore
the magnitude of the problem and methods to prevent and control fraud in motor insurance. And also study highlights
ways to reduce claim processing cost. The paper reveals the scarcity of research of such a topical issue in developing
economies such as India and suggests the urgent need to discuss among insurance companies about the effects
of insurance fraud on the industry, with a view to tackle the problem. This should also be complimented with the
establishment of “Insurance Fraud Bureau” that would promote public awareness campaign on the evil effect of
fraud on the economy.