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ASISA: Fraud worth R1.1 billion prevented by life and investment companies in 2022

30 November 2023 Association for Savings and Investment South Africa (ASISA)

South African life insurers and investment companies detected 8 931 cases of fraud and dishonesty in 2022. While losses worth R1.1 billion were prevented, the industry lost R77 million to fraud in 2022.

This week, the Forensic Standing Committee of the Association for Savings and Investment South Africa (ASISA) released its most comprehensive set of fraud statistics yet, which for the first time includes fraud reported by investment companies and a new category for sales fraud. Previously, ASISA released only fraudulent and dishonest claims statistics reported by life insurers.

Jean van Niekerk, convenor of the ASISA Forensic Standing Committee, explains that the detailed fraud statistics provide a better overview of the magnitude of the problem the industry is grappling with. The statistics also send a strong message that the industry’s preventative measures to combat fraud are working.

He says the committee significantly increased its focus on data collection and trend analysis in the past year because early detection of changing trends is key in the fight against fraud and dishonesty.

Furthermore, collaboration by the forensics departments of life insurers and investment companies with other crime prevention initiatives is delivering promising results, says Van Niekerk. The Fraud Symposium, with representation from the financial sector and law enforcement, is one initiative committed to addressing crime in the financial sector as a priority.

According to Van Niekerk, other successful preventative measures deployed by life insurers and investment companies include the use of big data, machine learning, artificial intelligence, improved data sharing, and enhanced authentication mechanisms such as biometric customer identification.

He warns that the consequences of being caught for fraud are severe and can result in criminal charges and potential jail time.

The new ASISA fraud statistics are divided into five categories, as outlined in the table below:

ASISA Fraud Statistics for 2022

Category

Number of detected incidents

Prevented amount

Actual loss

Sales fraud (fraudulent attempts by call centre agents, tied agents and independent financial advisers to benefit from commission/fees) 

5 095

R719 688

(R0.7 million)

R14.1 million

Fraudulent applications (misrepresentation, non-disclosure, impersonation, identity theft)

314

R84.4 million

R11.3 million

Fraudulent and dishonest life insurance claims (fraudulent and dishonest attempts to claim benefits from risk policies)

2 618

R770.5 million

R17 million

Fraudulent withdrawals and disinvestments (linked investment service providers, collective investment schemes, retirement funds)

709

R182.1 million

R23.7 million

Other fraud (fraudulent attempts to obtain investment policy benefits and bribery and corruption)

195

R28.2 million

R11 million

Total

8 931

R1 065.9 million (R1.1 billion)

R77 million


Sales fraud
Over half (57%) of all fraud cases recorded by ASISA members in 2022 were classified as sales fraud. Sales fraud worth only R719 688 was prevented and companies lost R14.1 million. Van Niekerk explains that since ASISA members published their sales fraud figures for the first time in 2023, trends will only emerge in 2024.

According to Van Niekerk, deliberate attempts by sales agents (call centre agents and tied agents) and independent financial advisers to benefit financially through the earning of commission and fees instead of acting in the customer’s best interests are considered extremely serious by the industry.

He explains that sales fraud involves dishonest intermediaries writing up policies for clients without their knowledge to earn commission from the life insurer. He says in some cases, dishonest intermediaries colluded with human resources staff to obtain employee payment information. He adds that there have also been cases where fraudulent business was written using existing customer details.

He says actions taken against dishonest sales agents include the debarring of advisers by the Financial Sector Conduct Authority (FSCA), dismissal, the cancellation of broker contracts and criminal charges.

Fraudulent and dishonest claims
Fraudulent and dishonest life insurance claims (2 618) comprised 29% of total cases in 2022. However, the Rand value of these claims significantly exceeded all other fraud categories in 2022, with R770.5 million in losses prevented and actual losses of R17 million recorded.

By comparison, honest policyholders and beneficiaries received claims and benefits payments worth R578 billion from South African life insurers in 2022. The payments included claims against life, disability, critical illness and income protection policies, and retirement annuity and endowment policy benefits.

Van Niekerk says that compared to 2021, when 4 287 cases were detected, there has been a significant decrease in fraudulent and dishonest life insurance claims. However, the value of losses prevented remained sizeable, dropping off only slightly from the R787.6 million thwarted in 2021 across all lines of risk business.

According to Van Niekerk, the drop in claims fraud in 2022 is aligned with slower sales of new policies. Some 1.2 million fewer recurring premium policies were sold in 2022 than in 2021.

Van Niekerk reports that funeral insurance once again attracted the highest incidence of fraud and dishonesty in 2022, followed by death cover, disability cover, hospital cash plans and retrenchment/loss of income benefit cover.

He notes with interest the increase in the value of fraudulent and dishonest disability as well as retrenchment and loss of income benefit claims. While the number of dishonest disability claims was lower in 2022 than in the previous year, the value of the losses prevented increased by R68.6 million. Similarly, the value of fraudulent and dishonest retrenchment and income benefit claims jumped from R1 million in 2021 to R99.7 million in 2022.

Van Niekerk says these risk products are often targeted during times of economic hardship by desperate policyholders. He says retrenchment and loss of income claims are flagged as fraudulent when submitted even when there was no retrenchment or loss of income.

Loss of income benefit products are relatively new on the market and, says Van Niekerk, were created to help entrepreneurs protect themselves against sudden loss of income. These products have increased in popularity since the pandemic, but have unfortunately also attracted fraud and dishonesty, according to Van Niekerk.

“We have seen cases where opportunistic self-employed individuals and entrepreneurs selectively provide information relating to loss of income to make it appear as if they have suffered a complete loss of income,” says Van Niekerk.

Fraudulent and dishonest claims statistics

 

2022

2021

 

Cases

Prevented amount

Actual loss

Cases

Prevented amount

Actual loss

Funeral claims

1 922

R90.7 million

R3.8 million

3 268

R104.1 million

R24.1 million

Death claims

399

R322.3 million

R12.9 million

452

R455.2 million

R5.2 million

Disability claims

164

R255.1 million

0

352

R186.5 million

R9.4 million

Hospital cash plan claims

98

R2.8 million

R316 043

(R0.3 million)

204

R2.1 million

0

Retrenchment/ loss of income benefit claims

35

R99.7 million

0

11

R1 million

0

Total

2 618

R770.5 million

R17 million

4 287

R748.9 million

R38.7 million

Fraudulent withdrawals and disinvestment
The third-highest number of fraud cases was recorded for withdrawals and disinvestments from linked investment service providers (LISPS), collective investment schemes (CIS), and retirement funds. These cases comprised 8% of the total number reported for 2022, with a value of R182.1 million prevented and R23.7 million lost.

Fraudulent and dishonest claims across the provinces
Most fraudulent and dishonest claims were uncovered in KwaZulu-Natal (KZN), followed by Gauteng, the Eastern Cape and the Western Cape.

Province

Number of Cases

Percentage

KZN

3 122

34.96%

Gauteng

1 711

19.16%

Eastern Cape

1 319

14.77%

Western Cape

1 020

11.42%

Free State

440

4.93%

North West

327

3.66%

Limpopo

310

3.47%

Northern Cape

258

2.89%

Mpumalanga

209

2.34%

International

194

2.17%

Uncategorised

21

0.24%

TOTAL

8 931

100%

 

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