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Are evolving tactics necessary to combat insurance fraud?

26 May 2014 Jonathan Faurie

Fraud is the deliberate misrepresentation of facts in order for one person to gain financially at the expense of government, an organisation, or another individual. If we bare this in mind, then the insurance industry is rife with fraudulent activities, both from policyholders and from certain intermediaries who try to defraud policyholders.

This is not a new issue, and has been a bugbear for the industry for a number of years. But are we making any headway in combatting this? Who has the biggest role in combatting insurance fraud?

Being aware of the environment

In order to combat fraud, we need to be aware of our environment and the sectors which are becoming soft targets for fraud. Author of The Art of War, Sun Tzu, said that knowledge of one's environment can give a distinct tactical advantage when going into battle.

One of the areas that has been a soft target for fraudsters in the short-term sector is the motor vehicle insurance market. Speaking at the second annual Insurance Fraud Conference, Censeo Founder, and inaugural Chairperson of the South African Insurance Crime Bureau (SAICB), Servaas du Plessis, pointed out that although the South African market is different to that of the US and the UK, there are international trends which are making their way into the South African market.

While these countries are making headway into combatting fraud in their industries, du Plessis points out that this will be harder in South Africa.

"South Africa faces a number of unique challenges. These include a very large uninsured vehicle population which creates an opportunity for vehicle cloning, the absence of a centralised register for written-off and demolished vehicles, poor border controls allowing criminals to move vehicles out of South Africa into Africa and corruption,” says du Plessis.

Finding loopholes in the system

He adds that there are two glaring avenues that are creating loopholes for fraudsters in the South African market.

The first issue it that there is a very large uninsured vehicle population in South Africa. This presents a problem as there is no proper record of written off vehicles, a large number of which are still being driven on South Africa's roads.

The second issue is corruption. Du Plessis points out that there are some companies in the industry that have a policy to automatically approve claims under a certain threshold. Policyholders then continuously submit claims that is within these thresholds in order to supplement their income.

"The underwriter is the main line of defence when it comes to combatting fraud. Are they doing the proper checks and are they paying attention to redflag situations? The intermediary is also a key role player in this instance because they pass on this information onto the underwriter,” says Du Plessis.

Tweeting FAnews at the conference, MUA Managing Director, Christelle Fourie, questioned the commitment of certain intermediaries. "Unfortunately, we find that certain intermediaries often refuse to cooperate during investigations because they are scared to lose a client,” says Fourie. When questioned about this, Du Plessis acknowledges that it is a problem which needs to be handled within the company's internal structures.

Information sharing is crucial

A significant part of a successful war is intelligence gathering. Telematics is playing an important role in combatting insurance fraud. Companies who embrace telematics ensure their clients that it is not being used as a policing mechanism. However, if a client submits a motor vehicle accident claim saying that the accident occurred during broad daylight, the company can cross reference this information, through Telematics, to make sure that it didn't happen at 1 am on a Saturday morning on the way home from the local pub.

Big data is playing a major role in the insurance industry, and Censeo Chief Financial Officer, Leon Towsen points out that the information received from the SAICB has unearthed significant insurance fraud trends.

"Statistics from the SAICB shows that while there is a high number of fraud cases occurring in the first year of the policy's inception, most fraud cases in the short-term industry occur in the second year of the policy's inception. This then decreases as the policy matures,” says Towsen.

He adds that statistics also show that a large portion of claims are recorded within the age group of 30 years old to 60 years old. Some of these cases are due to the fact that a number of policyholders have vehicles insured on their names, but let their children – who are not registered as regular drivers of the vehicle – drive the vehicles. They then process the claim as if they were driving the vehicle at the time of the accident.

The case of the modern day Lazarus

Funeral insurance is another area where fraud is currently running rampant. Towsen shows that KwaZulu-Natal is leading the pack when it comes to funeral insurance while the Eastern Cape and Gauteng are runners up in contributing towards this problem.

"One of the major causes of this type of fraud is forged documents. Someone reports a death only for officials to look into the case and find out that the dead person is in fact alive and well. This is increasingly being driven by syndicates who are forcing families to process these claims in order for them to receive a portion of the pay-out,” says Towsen.

Some of the other reasons include the misrepresentation of facts and no insurable interest.

The problem in combatting this is that a lot of these policyholders are located in rural areas of the Eastern Cape and KwaZulu-Natal. However, a more pertinent problem is that migrant workers from Lesotho who are not South African citizens are claiming on South African policies. With forged documents, such as falsified identity documents, Lesotho citizens are getting South African funeral policies which their families claim on, while the policyholder is alive and well.

Editor's Thoughts:
One must remember that fraud is not combatted by finger pointing. If we are to root the problem out of the industry, then every stakeholder needs to be involved in the process. What is the true role of the intermediary in this on-going war? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

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