Songun Reinsurance Fraud?

The big question is why anyone reinsured them to begin with and why the insurance companies don't just refuse to pay the claims when they aren't allowed to send adjusters. I guess every scam works until it's discovered. The article explains what "reinsurance" is:

The cash-strapped regime of North Korea, which has a worldwide reputation for its criminal dealings in weapons sales, drugs and near-perfect counterfeit U.S. $100 bills, may have found a new illicit source of hard foreign currency: international reinsurance fraud.

A growing number of major underwriters around the world strongly suspect that communist dictator Kim Jong-Il's regime is running an elaborate major insurance and reinsurance scam on them, to the tune of tens of millions of dollars or more.

The alleged fraud involves a wide variety of North Korean industrial and personal calamities where insurers have been presented with perfect government-controlled documentation of accidents, including deaths, along with carefully gathered photographic evidence, all compiled in a startlingly brief time.

That paperwork is coupled with a resistance to letting foreign insurance adjusters examine some of the most crucial physical evidence, except after long delays and under a watchful eye, if at all.

The growing concern in the reinsurance industry is that the property damage being claimed is vastly overstated, and the circumstances of some alleged accidents may have been altered, or that deaths for which insurance payment is claimed may have had nothing to do with the accidents.

Death is hardly a rare thing in North Korea, where millions are estimated to have expired from famine, flood and government repression in the past decade — but the number of apparently ordinary people in the dictatorship who have suddenly been found to have foreign-backed life insurance is raising insurers' eyebrows.

The chief concern is that only the Kim Jong-Il regime — a government that is known to be brutal, unscrupulous and desperately short of foreign currency — controls the information required to trigger the payments.

According to Michael Payton, a lawyer who represents several of the major insurers, the full extent of the reinsurance claims may involve more than $150 million. U.K. insurers facing these claims have only just begun to talk to each other about the potential scale of their North Korean losses.

North Korean insurance risk is also handled in a wide variety of other Western European markets, and as far away as Russia, India and Indonesia.

So far, there is little attempt to begin discussing the fraud possibilities across those national boundaries.

"I've never seen anything like it before," said Payton, senior partner in the London-based international law firm of Clyde & Co., which specializes in insurance law. "The apparent involvement of the state in every detail of these claims, coupled with the impossibility of obtaining the usual corroborative facts independent of the state, makes these claims unique, in my experience."

The suspected scam involves the huge international market for reinsurance, in which insurers reduce their risk on every kind of accident, from environmental catastrophes and crop failure to airline and auto crashes, by reselling much of their policy exposure to other syndicates of insurers outside their own countries. Huge sums are routinely covered in reinsurance; globally, the reinsurance market last year was valued at some $1.5 trillion . . .

The central focus of concern is the absolute control of ownership and information in North Korea by Kim Jong-Il and his regime. All North Korean insurance is controlled by one state-owned firm, the Korea National Insurance Corporation (KNIC), formerly known as the Korea Foreign Insurance Company, which in turn purchases reinsurance coverage abroad for risks that it has assumed in its domestic market.

Normally, most domestic insurers will use one, or at most two firms of brokers to obtain reinsurance. KNIC may use many, according to industry sources, and the brokers may well have no idea what business their colleagues are doing, or in what reinsurance markets.

"The North Koreans are extremely clever at spotting the gaps in the market," an industry source says. "There is no transparency."

Suspicions in London began to gel in July 2005, when North Korea reported that a medical rescue helicopter had crashed into a government-owned warehouse that authorities said was crammed with disaster relief supplies.

The entire contents of the warehouse, which ran to hundreds of thousands of items, were destroyed, KNIC said, submitting within 10 days a list compiled by the relief center of every single commodity that it said had been lost.

Along with the lengthy list came a reinsurance claim for more than 40 million euros, or almost $50 million at then-current rates, for 95 percent of the damages. The reinsurance was placed through London, but the risk was spread among reinsurers worldwide.

"They provided details including tens of thousands of children's gloves, handkerchiefs, leather gloves, toilet soap and washing soap, within 10 days," Payton said. "In the chaos which follows an accident of this kind, that is unheard of.

"A similar loss report in Britain might take months to compile." [...]

Tags: North Korea, Kim Jong Il, insurance, reinsurance, Juche-coupes