Funeral insurance tops sham claims

LIFE INSURERS detected 3 708 fraudulent and dishonest claims to the value of R1.06 billion in 2018.

The 2018 fraudulent and dishonest claims statistics, released this week by the Association for Savings and Investment South Africa (Asisa), show that the total number of irregular claims was lower in 2018 than in 2017, but the claims value remained almost the same. In 2017, life insurers detected 5 026 fraudulent and dishonest claims worth R1.13bn.

Donovan Herman, convener of Asisa’s claims standing committee, says although life insurers are frequently accused by the public of trying to avoid paying claims, the numbers tell a different story. In 2018, life insurers paid 99.3 percent of claims made against fully underwritten individual life policies alone, to a value of R15.1bn.

Herman says there has been a significant decrease in misrepresentation and nondisclosure across all long-term insurance categories from 2017 to 2018. Misrepresentation occurs when a policyholder deliberately provides misleading information to a life insurer, while material nondisclosure refers to the failure of policyholders to disclose important information about a medical condition or lifestyle.

According to Herman, most of the fraudulent activity in 2018 took place in the funeral insurance space.

Herman says 35 percent of all fraudulent and dishonest claims were detected in KwaZulu-Natal, followed by the Eastern Cape, with 18 percent, and Gauteng, with 17 percent.

The Western Cape was responsible for 9 percent of claims declined due to fraud and dishonesty.

The other provinces were responsible for 5 percent or less.

Below is a summary of irregular claims detected for different types of long-term insurance cover.

◆ Funeral claims. Life insurers rejected 1 915 funeral claims worth R176.4 million in 2018, of which 1 127 were found to involve fraudulent documentation. Another 156 fraudulent claims showed syndicate involvement, and in seven cases beneficiaries were found to have caused the death of the policyholder.

◆ Death claims. In 2018, longterm insurers declined 698 irregular death claims worth R417.3m. Fraud was detected in 481 cases, while seven cases involved syndicate fraud and another 15 dishonesty by financial advisers. A further 195 claims were declined due to misrepresentation and/or material non-disclosure.

◆ Disability claims. Misrepresentation and material nondisclosure by policyholders was by far the biggest reason for disability claims being declined in 2018. Out of the 530 claims not paid, 463 were rejected due to misrepresentation or material non-disclosure. In 2017, however, some 775 claims worth R516.5m were rejected.

◆ Hospital cash plans. Fraudulent and dishonest claims against hospital cash plans continued to show a decline in 2018. A total of 519 claims worth R3.2m was declined, compared with 2017 when 989 claims worth R6.1m were rejected.

◆ Retrenchment benefit claims. Dishonest and fraudulent retrenchment claims decreased from 126 in 2017 to 46 in 2018. Life insurers declined 39 claims due to misrepresentation and nondisclosure and seven due to fraud.