• Honest consumers pay price for insurance fraud:
The economic pinch has resulted in an increase in fraudulent claims, and the expenses incurred to detect fraud are ultimately borne by policyholders in the form of higher premiums. Joseph Booysen reports
SLOW economic growth and unemployment have resulted in an increase in fraudulent insurance claims, estimated to cost the industry billions of rands, says Garth de Klerk, the chief executive of the Insurance Crime Bureau.
De Klerk says although the bureau did not have exact figures, his opinion is that the cost of fraud and fraud management is astronomical.
“We are talking billions in the combined industry. These have increased even more in recent times. Tough economic conditions in South Africa 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 merely to survive,” says De Klerk.
He says there has been a climate of corruption that makes it seem like the norm to “steal a little”. It starts small, and once people realise how easy it is, they steal more.
“This is normally when we detect them, as they get greedy. These frauds aren’t only costing insurers and policyholders, they are also costing civilians their lives. What we are seeing is that there is a physical impact in the life side where people are dying for policy benefits, and we need to work on this issue to protect our citizens against these murders,” he says.
According to the South African Insurance Association, local insurance fraud is in line with international trends and statistics.
The association estimates that up to 32% of all claims submitted in any year could be fraudulent, and almost a third of claims are laced with some element of dishonesty.
Craig Baker, the chief executive of MiWayLife insurance, says the insurer has seen an increase in the number of claims that have an element of adverse selection, mostly because of people withholding information when taking out the policy, with the intention of claiming against a benefit shortly after the policy has been in place.
Baker says that misdemeanours range from the mundane to the nightmarish, and hospital cashback policies are a significant area 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 schemes, which pay for an unnecessary hospital stay. We see much of this happening in psychology, as it is more difficult to disprove than a physical impairment or injury,” he says.
Baker says the concern is that many people genuinely suffer from a variety of psychological disorders, and that there is high likelihood of many people going untreated in favour of fraudsters who have access to these networks.
“We know that, given the nature of these disorders, this can cost lives too,” says Baker.
De Klerk says two different types of person perpetrate insurance fraud: those who take out policies with the intention of stealing, and those with existing policies who either pretend something was stolen when it was not or who over-inflate the values in genuine claims.
He says many fraudulent claims result in legal action against the claimant, who can be prosecuted even after a claim has 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 South Africa could be over for the rest of your life.”
De Klerk said it is a common misconception that a rise in insurance fraud costs just the industry. “In fact, it is often the honest who 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. 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,” says De Klerk.
The South African Insurance Association estimates that up to 32% of all claims submitted in any year could be fraudulent, and almost a third of claims are laced with some element of dishonesty.