Spike in fraudulent insurance claims dogs industry

FRAUDULENT long-term insurance claims running into the millions reached record highs last year, an industry body says.

These claims nearly doubled to 8,306 by the end of last year, with the highest incident occurrence recorded in KwaZulu-Natal and the Western Cape. Most irregular claims were submitted for death and funeral policies.

Peter Dempsey, deputy CEO of the Association for Savings and Investment SA, which represents money managers and life insurance companies, said dishonest policyholders had either lost their cover or spent time in jail.

The association does not collect statistics on the numbers arrested or prosecuted, but syndicates were involved in 13 cases.

The South African Insurance Crime Bureau has pursued criminal cases against fraud suspects, most recently a search-and-seizure sting against a Limpopo broker accused of lodging false claims worth R250,000 against Sanlam.

The Association for Savings and Investment SA said its insurers had reported cases in which fraudulent documentation was submitted for death and funeral claims worth R86.8m. In other documented instances, individuals took out insurance for terminally ill people, even though there was no blood relation.

The second most attractive area for fraudsters was disability claims, in which withholding or misrepresenting information nearly cost the industry an estimated R342.8m. Would-be fraudsters were caught through early detection systems, preventing R755.2m in losses.

“The core of this method is electronic data mining, whereby all client data is scanned to such an extent that discrepancies are noticed immediately,” said Mr Dempsey. Claims assessors had a set of red flags that could trigger an investigation.

Life insurance firms also had internal fraud awareness initiatives, including fraud hotlines to which staff and the public could report fraud anonymously.

If left unchecked, fraudulent and dishonest claims would, over time, increase claims on life companies and force them to recover losses from customers through premiums, he warned. Many factors had led to the average life insurance premium decreasing in recent years, he said.

If left unchecked, dishonest claims would force (insurance firms) to recover losses from customers