Statistics on insurance fraud
IN the USA, it is believed that insurance fraud costs the economy around US$100 billion every year while in South Africa it ranges from R1,2 billion to R5,25 billion per year. But in Zimbabwe no-one really knows as the industry has been a bit shy to fully expose this menace. Does this then mean that Zimbabwean insurers are not aware of this growing menace? Certainly not! Some Zimbabwean insurer accepts that a lot of fraudulent claims are settled every now and then. Some are even aware of the various methods used to perpetrate this fraud. Some underwriter acknowledges that something needs to be done to fight this endemic So the question is as Zimbabwe, what are we waiting for? Data shows the shows the estimated percentage incidence of Insurance fraud by class of business in Germany, United Kingdom, and France.
e level of fraud varies by class of business, the largest portion being the opportunistic one, carried by registered insureds each amounting to very little but collectively building up to bullions of United States Dollars.
Insurance fraud increases the cost of insurance premiums, it erodes and destabilizes the insurance pool, it threatens the sustainability of the insurance industry amongst other effects. Some notable Quotes on Insurance Fraud are:
Factors that contribute
In no order, the common Insurance Fraud drivers are: Economic challenges or hardships, changes in organizations e.g., people leaving and others exploiting the gaps left by those who would have resigned, employee disgruntlement within organizations over issues of remuneration, inadequate controls, decline in ethical and moral standards, increasing reliance on computers to detect fraud, human desire to get something for nothing, perception that insurance fraud is a victimless crime, the view that insurance fraud is a high reward low risk proposition, low enforcement priority coupled with inadequate laws to deal with insurance fraud amongst other
Common pitfalls
e current common pitfalls to combating insurance fraud are: Legislation, our legislation does not provide for conviction where potential fraud has been proven?, Competition, fraudsters have the liberty to change underwriters as no verification is done with outgoing insurers due to lack of information sharing, Repudiation, insurers tend to only repudiate claims in cases where fraud has been proven before the claim has been settled, Lack of statistics to quantify the impact of fraud on the industry and finally the denial mode about scope and impact on bottom line of insurance companies.
•Prevention of fraud: e following are the various ways in which fraud can be prevented: Increasing internal controls in organisations
•
Criminalising insurance fraud through enactment of appropriate legislation
• •
Rotation and training of employees
Need to be abreast with technology to avoid
being outpaced
•
Reduce reliance on repudiating fraudulent claims but rather criminalize those who would have been caught on the wrong side.
•
Enhancing the role of government in economic growth & development through creating employment and reducing the impact of economic hardships on people
Finally, in dealing with fraud the aim is to re•cover
losses. You also need to deal with the police, courts to recover your money above everything else.
•
Increasing publicity & awareness campaigns on the consequences of fraud
•prior orough risk analysis/inspections/surveys
to acceptance and at loss situations
Scrutiny of wordings to ensure they give con•cise
definition of what is covered and the exclusions thereby avoiding unnecessary gaps
•
Use of excesses/deductibles making clients part and parcel of the risk management process with insurers.
•
In the long term, establishment of institutions to combat fraud like the Zimbabwe Anti-corruption Commission (ZACC) and Special Investigation Units (SIUs) within insurance companies whose objective is to weed out insurance fraud. For the SIU to be effective it is imperative that it investigates a minimum set percentage of claims submitted; it must understand all insurance policies issued by the insurer/reinsurer, it should be well trained on the elements of the crime of insurance fraud and what is necessary to cause a prosecution to begin, it should also be well trained on the information needed to use fraud as a defense to a civil suit. Yet, the SIU team will rely on information supplied by Claims Personnel. Hence the claims personnel themselves must be trained to recognise potential insurance fraud. To be able to do this, claims personnel must learn to recognise the “red flags” or indications of insurance fraud. In other words, if we do not have in place defined and systematic policies and processes for identifying and dealing with fraudulent claims; then most probably our loss experience is being adversely affected.