Fraudulent insurance claims on the rise

It is estimated that as much at 32% of all claims submitted in any year are fraudulent.
The misdemeanours can range from the mundane to the nightmarish, says MiWayLife CEO Craig Baker. Picture: Shutterstock

Tough times tend to elicit desperate behaviour from people. The slow economic growth, coupled with macroeconomic uncertainty, of the past few years have resulted in a marked increase in the amount of insurance fraud being committed in South Africa.

According to the South African Insurance Association, local insurance fraud is in line with international trends and statistics. It estimates fraudulent claims in South African insurance could amount to as much as 32% of all claims submitted in any year.

In other words, almost a third of insurance claims in the country are laced with some element of dishonesty.

“We have seen a definite increase in the number of claims that have an element of adverse selection, mostly due to people withholding material information when taking out the policy, with the intention of claiming against a specific benefit shortly after the policy being in place,” says Craig Baker, CEO of MiWayLife insurance.

“We still do not have exact percentages,” says Garth de Klerk, CEO of the Insurance Crime Bureau “but my personal opinion is that total costs of fraud plus fraud management is astronomical. We are talking billions in the combined industry.”

These have increased even more in recent times, he adds.

“Tough economic conditions in SA are definitely making people desperate – there are just not enough jobs to go around. We have also recently seen a number of big name companies being negatively affected by governance and compliance issues which again will result in job losses and increases the need for people to be dishonest to merely survive. There has in the past been an atmosphere of corruption and this also makes it seem like the norm to ‘steal a little’– its starts off small and then because people realise how easy it is they then graduate to bigger and better – this is normally when we detect them as they get greedy.”

Crimes 

These frauds aren’t only costing insurers and policyholders – they are costing civilians their lives. “What we are seeing is that again there is a physical impact in the Life side where people are dying for policy benefits, and we need to work on this issue as a community to protect our citizens against these murders,” says de Klerk.

Baker agrees, adding that misdemeanours can range from the mundane to the nightmarish. For example, hospital cashback policies are a significant driver of fraud. “These insurance schemes often pay from several hundred to several thousand rand to a person for each day they spend in hospital to cover loss of earnings or supplement unanticipated costs. We see unscrupulous doctors admit ‘patients’ that are not sick to hospital. The ‘patients’ claim from medical aids‚ who then pay for an unnecessary hospital stay.”

We see much of this happening in the psychological area as it is more difficult to disprove than a physical impairment or injury. The real concern is that so many of our people genuinely suffer from a variety of psychological disorders that there is high likelihood of many people going untreated in favour of fraudsters that have access to these networks. We know that given the nature of these disorder, that this can cost lives too.”

Consequences

But for every large-scale insurance criminal taking out a myriad of policies, there are at least ten smaller crooks trying to be opportunistic when misfortune strikes.

“There are different groupings of people, and Rene Otto CEO of MiWay very nicely highlighted this at our recent conference,” says De Klerk.

Loosely speaking, according to De Klerk, there are two different types of insurance fraud: those who take out policies disingenuously with the intention of stealing and those with existing policies who either pretend something was stolen when it wasn’t or who over-inflate the values in their claims when something is legitimately stolen.

Although it may be tempting to ‘cheat the man’ by trying to weasel some extra money out of insurers, it’s simply not worth it. Many fraudulent claims result in legal action against the claimant, who can be prosecuted even after a claim has already been paid out. With the Insurance Crime Bureau working hard on centralising crime detection and prevention in insurance, this likely means your chances of getting another insurance policy in SA could be over – for the rest of your life.

Costs

It is a common misconception that a rise in insurance fraud costs just the industry. In fact, it is often the honest that must pay, ironically, and not always in ways immediately visible.

This cost of fraud is thus borne by both the insurance industry, and the public, as the costs of providing insurance is increased, says Garth de Klerk, chief executive officer at the Insurance Crime Bureau. Simply put, fraud detection is expensive and insurers’ fees must increase as the cost of doing business increases, just like in any other field. So monthly payments are likely to get higher the higher the level of fraud is.

However, another significant cost to the average policyholder is time. Ultimately, the amount of bandwidth each insurer will have to spend investigating each fraudulent case will ironically mean delaying payouts of legitimate claims that come through to them, costing honest people time and peace of mind.

“We are carefully watching the industry and see several interesting developments such as peer to peer insurance where people want a greater hand in deciding who they share risk with,” concludes Baker. “This points to the fact that people know other people that they would not want to insure with their own money, the good news is that the industry is getting organised and companies are starting to work together for the authentic policyholders to address this scourge.”

Fraudsters, you have been warned.

COMMENTS   8

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“So monthly payments are likely to get higher the higher the level of fraud is.”

How does this justify passing on your business risk as an insurer to your customers?

I don’t see supermarkets upping their prices after armed robberies.

@michaeljames15. That is a very interesting way to look at it. We believe we have found an interesting way to solve this problem through the use of decentralization.

Please have a look at http://www.pineapple.co.za.

Would love to hear your thoughts.

In this way the upside potential is also passed to the consumer and limited downside.

So to compensate for these fraudsters the rest of the insured must suffer with incrementing premiums way above inflation. Surely there is a simple solution like evaluating the claims, assessing them and then paying out against assessed loss in these cases. Repudiate claims and black list those who have perpetrated fraud and institute legal proceeding in all instances

hereshoping
I have had insurance in South Africa since 1963 and have had 1 claim in 1983 for contents in a deepfreez for 200-00 rand. Touch wood, I have never claimed for car damage or any other that I can remember. Why should my insurance cost as much as other people who have been unfortunate enough to have claimed many times. Surely with computers you can check on peoples claims and make them pay more for their insurance while folk who do not claim should have some benefit. Just my 2 cents

@hereshoping…….Man, have you never heard of NO CLAIMS BONUSES ????????????????????

And then there is my case, not unique at all. I had a vehicle damaged by force majeure. The insurance company and their preferred panel beater took ages but nothing happened until I threatened to rent a car and claim it back through the small claims court. Suddenly I was paid R45k for the damage but got it satisfactorily repaired for R17k by a non-approved panel beater (NOT backyard business). Offered to pay the difference back but I was told to keep it. WTF? Panel beating business and the insurers require serious investigating, as announced by the competition commission.

Both my cars – Audi Q5 and Renault Megane – is significantly over insured by OUTsurance, as well as 3 other companies I got quotes from.

Every car I researched for potential purchase is over insured by 20-30% by the Insurance companies relying on TransUnion numbers

My cars are thus better off being stolen or written of than to sell.

So if I was so inclined, my car can get “stolen” and I will get R50,000 more than to try and sell it. So maybe some of the fraud is happening due to poor practices by the industry.

I have tried multiple times to get my values correct. Even dropping it to trade value, but still 20% over insured.

I had to fight with Discovery after they decided to increase my monthly premium, citing things such as cost of repair, and the risk associated with the vehicle I am driving (a VW of course), and this was based on the research they have conducted. I asked them will not accept such nonsense as I have never claimed and why should I suffer based on the reported claims by other policy holders. Premiums should be based on ones risk profile over the years, its very easy to get that information instead of being lazy and applying the general approach based of some stats compiled for the purpose of milking the policy holders.

End of comments.

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