Fraudulent insurance claims on the rise
Tough times tend to elicit desperate behaviour from people. The slow economic growth of the past few years, along with macroeconomic uncertainty, have resulted in a marked increase in the amount of insurance fraud being committed in SA.
According to the South African Insurance Association, local insurance fraud is in line with international trends and statistics. It estimates that fraudulent claims in South African insurance could amount to as much as 32% of all claims submitted in any year.
In other words, almost a third of insurance claims in the country are laced with some element of dishonesty.
"We have seen a definite increase in the number of claims that have an element of adverse selection, mostly due to people withholding material information when taking out the policy, with the intention of claiming against a specific benefit shortly after the policy is in place," says Craig Baker, CEO of MiWayLife insurance.
"We still do not have exact percentages," says Garth de Klerk, CEO of the Insurance Crime Bureau, "but my personal opinion is that total costs of fraud, plus fraud management, are astronomical. We are talking billions in the combined industry."
These have increased even more in recent times, he adds.
"Tough economic conditions in SA are definitely making people desperate; there are just not enough jobs to go around," says De Klerk. "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.
"There has in the past been an atmosphere of corruption and this also makes it seem like the norm to 'steal a little'. It starts off small, and then because people realise how easy it is, they graduate to bigger and better. This is normally when we detect them as they get greedy."
These fraudulent activities aren't only costing insurers and policyholders; they are costing civilians their lives. "What we are seeing is that again there is a physical impact in the Life side, where people are dying for policy benefits, and we need to work on this issue as a community to protect our citizens against these murders," says De Klerk.
Baker agrees, adding that misdemeanours can range from the mundane to the nightmarish. For example, hospital cash-back policies are a significant driver 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," says Baker. "We see unscrupulous doctors admit 'patients' who are not sick to hospital. The 'patients' claim from medical aids' who then pay for an unnecessary hospital stay.
"We see much of this happening in the psychological area as it is more difficult to disprove than a physical impairment or injury. The real concern is that so many of our people genuinely suffer from a variety of psychological disorders that there is a 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."
But for every large-scale insurance criminal taking out myriad policies, there are at least 10 smaller crooks trying to be opportunistic when misfortune strikes.
"There are different groupings of people. Rene Otto, the CEO of MiWay, very nicely highlighted this at our recent conference," says De Klerk.
Loosely speaking, according to De Klerk, there are two different types of insurance fraud: those who take out policies disingenuously, with the intention of stealing; and those with existing policies who either pretend something was stolen when it wasn't or who over-inflate the values in their claims when something is legitimately stolen.
Although it may be tempting to 'cheat the man' by trying to weasel some extra money out of insurers, it's simply not worth it. Many fraudulent claims result in legal action against the claimant, who can be prosecuted even after a claim has already 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 SA could be over - for the rest of your life.
It is a common misconception that a rise in insurance fraud costs just the industry. In fact, it is often the honest that must pay, ironically, and not always in ways that are 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, De Klerk.
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.
However, another significant cost to the average policyholder is time. Ultimately, the amount of bandwidth each insurer will have to spend investigating each fraudulent case will ironically mean delaying payouts of legitimate claims that come through to them, costing honest people time and peace of mind.
"We are carefully watching the industry and see several interesting developments, such as peer-to-peer insurance, where people want a greater hand in deciding who they share risk with," concludes Baker.
"This points to the fact that people know other people that they would not want to insure with their own money. The good news is that the industry is getting organised and companies are starting to work together for the authentic policyholders to address this scourge."
Fraudsters, you have been warned.
MiWayLife is an authorised FSP (No 45741) and its product offering is underwritten by Sanlam Life Insurance Limited, a registered long-term insurer. MiWayLife is a division of Sanlam Life Insurance Limited - Reg No. 1998/021121/06