Life industry outsmarts fraudsters

Life companies reported a drastic reduction in the number of fraudulent life insurance claims to 654 for the first half of this year from the 1 651 claims uncovered over the same period last year. Alarmingly, however, the rand value of the fraudulent claims submitted shot up by almost R23-million from R99.5-million in the first six months of last year to R122.3-million this year ending June.

Gerhard Joubert, CEO of the Life Offices' Association (LOA), praised the alert claims and forensic departments of member life companies for having prevented millions of rands from falling into dishonest hands.

He says it is important, however, to view the rejected fraudulent claims in the context of honest claims settled during the same period.

"While claims worth R122.3-million were rejected in the first six months of this year because of fraud or other irregularities, life companies settled honest claims worth nearly R80-billion over the same period, a 13% increase over the first half of last year."

Joubert points out that if life companies did not apply strict underwriting and claims assessment procedures, honest policyholders would end up subsidizing those that are dishonest in their disclosure and claims.

"If left unchecked, fraudulent and dishonest claims would over time substantially increase the claims experience of life companies. And such a trend could force companies to push up premiums."

Fraudulent documentation

Joubert says the most drastic increase in the value of fraudulent claims submitted was in the fraudulent documentation category where the claims value shot up from R10.1-million for the first half of last year to R39.4-million during the first half of this year.

The actual number of cases, however, more than halved from 372 to 177.

He says this was due to some of the big life companies having thwarted a couple of fraudulent death claims worth several millions each.

The most common modus operandi in the fraudulent claims category is the submission of fraudulent death certificates.

"One of our member companies reported a fraudulent death claim worth R5.3-million. Suspicious forensic investigators found that the death certificate had been signed by a doctor who had never seen the body, that the deceased registered as a tax payer after he had already died, and that the fingerprints on the death certificate did not match those of the death register at Home Affairs."

Another substantial death claim was received by a member life office for a death which had allegedly occurred in a neighbouring country as a result of a car accident. The deceased was also meant to have been cremated in that country.

"Further investigation revealed, however, that all the documentation including the death certificate, police report and cremation certificate were falsified and that the death had been staged by the life insured and his girlfriend. He had taken out several life policies with three different insurers a couple of months before his alleged death. During the investigation it was uncovered that he was facing nine counts of fraud and that he had significant debt."

In a third case the death certificate stated that the insured had died of a heart attack. Closer investigation showed, however, that the insured person had committed suicide within the first two years of the life policy, the period during which life companies do not pay for suicide claims.

Non-disclosure and mis-representation

Joubert says although material non-disclosure continues to be responsible for the highest number of fraud cases, life companies experienced a substantial reduction in the number of cases during the first half of this year compared to the same period last year.

"It is encouraging to see that cases are down to 291 for this year to the end of June from 682 during the first half of last year. The value of cases has also come down to R54.7-million from R68.6-million."

Material non-disclosure refers to the failure of policyholders to disclose important information about a medical or lifestyle condition. Joubert explains that policyholders are legally obliged to honestly disclose all information likely to influence the judgment of the insurer when determining appropriate policy terms and premiums. Information generally regarded as material by a life insurer includes medical history, state of health, family medical history, life style, and financial status.

He says cases of mis-representation also declined from 437 to 121, although the rand value increased from R18.9-million to R25-million.

Mis-representation occurs when policyholders do not fully disclose the seriousness of a medical or lifestyle condition on application, because they know that if the underwriter was made aware of the full risk they would in all likelihood be required to pay a higher premium.

Joubert says since life companies usually detect material non-disclosure and mis-representation, it is far better for policyholders to pay the appropriate premium and have certainty that their death or disability benefits will be paid out when they die or become disabled.

He says the number of non-disclosure and mis-representation cases may have come down as a result of increased consumer awareness about the risks of not properly disclosing all relevant information when taking out a life insurance policy. 

Beneficiary, syndicate and intermediary involvement

Joubert says fraudulent claims involving beneficiaries, syndicates and intermediaries reduced substantially. 

This year only 41 cases to a value of R1.2-million involved beneficiaries and syndicates, while there were 55 cases during the first half of last year worth R1.4-million.

Intermediary involvement in fraudulent claims also reduced significantly from 105 cases during the first half of last year to 24 for the same period this year. But unfortunately the few that took their chances made sure that it would be worth their while if they succeeded. The value of fraudulent claims involving intermediaries increased from R499 000 to R1.9-million.

Geographic spread

Geographically, the highest number of fraudulent claims were submitted in KwaZulu -Natal (47%), followed by Gauteng (20%), and then the Eastern Cape (8%).

Joubert says the KwaZulu-Natal figures were pushed up this year after one life company uncovered a significant number of fraudulent claims by syndicates in KwaZulu-Natal in the second quarter of this year. These cases accounted for almost half the cases reported in that province.