New Delhi, February 14:
With incidents of so-called “digital arrest” scams rising sharply across India, the government, banks, and insurance companies are now exploring a new form of protection that could offer financial relief to victims. According to a report by The Economic Times, discussions are underway to introduce an insurance policy that may compensate individuals who suffer monetary losses due to digital arrest frauds.
The initiative is being seen as a major step toward strengthening India’s cyber fraud protection system, especially as such scams continue to target vulnerable citizens, including senior citizens.
Government Takes Active Steps Against Growing Cyber Fraud
The government has become increasingly concerned due to the rapid rise in digital arrest-related scams, many of which have resulted in victims losing lakhs and even crores of rupees.
As part of the response, a government-backed committee has reportedly been formed to design a mechanism that could work alongside digital tools such as a UPI “Kill Switch.” This proposed kill switch would allow users to immediately freeze or halt suspicious transactions in real time.
If successfully implemented, India could become one of the first countries in the world to provide a structured fraud insurance mechanism specifically for cyber scams of this nature.
Insurance Industry Considering New Model
Tanuj Gulati, President of Prudent Insurance Brokers, said that victims often fall prey to such scams either directly or through pressure exerted via trusted contacts. He noted that regulators and insurers are actively discussing ways to protect individuals who are forced into transferring money or sensitive data under psychological intimidation.
However, he explained that existing cyber insurance policies usually cover fraud only after it occurs and often exclude cases where the victim voluntarily authorises the transaction—even if done under extreme fear or coercion.
This is a major challenge because in most digital arrest scams, the victim technically “authorises” the transaction, making it difficult to claim insurance under current policy frameworks.
Supreme Court Calls Digital Fraud a ‘Robbery’
The seriousness of the issue has also been highlighted by the Supreme Court, which recently described digital fraud cases involving more than ₹54,000 crore as nothing short of a “robbery.”
The court has urged the central government to establish a Standard Operating Procedure (SOP) to prevent such crimes and create a stronger response mechanism.
RBI Working on Compensation Framework
The Reserve Bank of India (RBI) is also reportedly working on a framework to compensate customers for smaller digital fraud losses. Under the proposed structure, eligible victims may receive refunds of up to 85% or ₹25,000, whichever is lower, depending on the nature of the case.
Digital Arrest Scams Rising Rapidly
Digital arrest scams have increased significantly over the past few years. In these frauds, criminals impersonate police officers or government officials and threaten victims over video calls, often claiming they are involved in illegal activities.
Victims are then pressured into transferring money, sharing banking credentials, or revealing personal information. Senior citizens are often targeted due to their savings and limited awareness of cyber fraud techniques.
Government records indicate that between April 2021 and November 2025, authorities managed to prevent cyber criminals from receiving nearly ₹7,647 crore. However, of the total ₹52,969 crore stolen, only ₹167 crore—around 2.18%—was successfully recovered and returned to victims.
Why Current Policies Fail to Cover Such Losses
Experts point out that the key reason victims fail to receive compensation is that the transactions are officially authorised by the account holder, even though the authorisation is made under fear and manipulation.
Gulati stated that insurance works on a large-scale risk-sharing model, and the real challenge will be ensuring affordable distribution of such policies. He suggested that banks could integrate these insurance products with credit cards or savings accounts, allowing wider coverage.
He also added that pricing and deductibles will play a critical role in keeping premiums affordable while controlling risks such as moral hazard.
A Potential Game-Changer in Cyber Security
If implemented, this new insurance framework could offer much-needed relief to thousands of victims who currently have limited options for financial recovery. It could also strengthen trust in India’s digital payment ecosystem, particularly as UPI continues to expand rapidly.
The proposal is still under discussion, but experts believe it could mark a significant shift in how India handles cybercrime-related financial losses in the future.
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