Combating Insurance Fraud and associated organised crimes
The Re-insurance Group of America carried out research which confirmed that 1 in 30 claims submitted were fraudulent amongst insurance companies in America, Middle East, Europe and Asia. It costs the global industry billions of dollars annually. South Africa is no different and has not been immune from this unfortunate phenomenon with the South African Insurance Association (SAIA) recording that as much as 32% of all claims in general were found to be fraudulent as of 2017 and this costs millions, if not billions to the local insurance industry.
Most of the fraudulent claims experienced can be defined as ‘soft fraud’ ones where everything about the claim may be legitimate but someone decides to inflate figures or include on the claim form items that were not part of the claim. This is opposed to ‘hard fraud’ where one intentionally lies from the onset when a claim never happened in the first place.
Addressing the insurance fraud problem
The South African Insurance Crime Bureau aims to address insurance fraud and related crimes by fighting organized insurance crime and fraud. They have collective resources ranging from insurance companies, law enforcement agencies and other stakeholders. This is all done for the good of more than just the industry but the society as a whole in facilitating the detection, prevention and mitigation of insurance fraud and assist in the prosecution of offenders.
The reasons why people commit these crimes and fraud vary significantly but at the top of the list is obviously for financial gain or avoiding a financial loss. Improper covers and inaccurate advice or understanding may also lead to people being dishonest about claims. I followed a conversation some time ago on LinkedIn and some people perceive that fraud is caused by distrust between insurers and policy holders with some people not seeing a problem with soft fraud claims.
Most commonly people commit fraud by using their existing policies to falsely claim for ‘stolen goods’ or to exaggerate the value of their claim. And some take out a new policy intending to use it fraudulently. Industry claim handlers would easily be able to easily pick up inconsistences on claims and that becomes the first point of call in fraud detection and prevention.
Garth de Klerk, the chief executive of the Insurance Crime Bureau, identifies a ‘climate of corruption’ where wrongdoers get away with smaller acts of fraud, and then they start committing bigger crimes. What these offenders do not realise is that they are not only stealing from insurers but also from policyholders, as this type of fraud inevitably leads to higher premiums for everyone. Well-organised syndicates cashing in on the opportunity to make money from insurance fraud and associated crimes are also undoubtedly driving the increase of insurance fraud in South Africa.
The consequences of insurance fraud to perpetrators
Insurance fraud is a crime with serious implications. As a policyholder, any misrepresentation or failure to disclose information may lead to your policy being cancelled or in some cases being reported to the police.
Total honestly is crucial if one wants to remain covered by the industry’s insurers. It only takes one dishonest statement to lose all your cover or for the insurer to refute the entire claim. If Insurers feel the facts have been misrepresented they are more likely to thoroughly investigate a suspicious claim by any means, digital or otherwise.
If one commits insurance fraud, insurance companies may not insure you again in the future and you could ultimately end up with a criminal record or behind bars. Every new application will most likely ask, ‘have you or any person being insured ever had insurance cancelled or cover refused?’ and because of the sharing of information among insurers (obviously within the confines of POPI) one may find themselves uninsurable. And again, what other option does one have besides to be honest after the first experience?
The onus remains with the policyholder to provide accurate information. As the policyholder you must inform the insurer of any material changes to personal circumstances and make sure all your information is kept updated and relevant. Whether soft or hard, it is in everyone’s best interests that insurance fraud and crimes are stopped and mitigated as much as possible, all done for the greater good of all stakeholders.
Report insurance fraud
Reporting insurance fraud helps insurance companies stop fraud and apprehend fraudsters and helps everyone ultimately. Insurance fraud can be reported anonymously via the toll-free Insurance Fraudline 0860 002526; by sending an sms to 32269 or by emailing to firstname.lastname@example.org.
Talk to your local Garrun broker if you have any further questions.