Challenging the norm

Fraud is regarded as one of the biggest risks that the insurance industry faces on a daily basis. This is troubling for insurers and for brokers who do their level best to preserve the integrity and profitability of the industry as some clients try to push the envelope when it comes to claims and disclosure.

This is probably one of the challenges that will have the biggest impact on the industry this year. While there are no official studies which draw a direct correlation between tough economic times and increased levels of fraud, one has to think that desperate times call for desperate measures. Further, one cannot blame insurers for scrutinising every claim to its core in order to establish its legitimacy.

While insurers should be doing this as part of their daily business activities, common sense says that they will be polishing the lenses of their stronger microscopes.

The common thread

Perpetrators of fraud can be very unique in the way that they go about their business. However, there are common themes when it comes to fraudulent claims. At the recently held Insurance Risk Conference, Salome Coetsee, Associate Director: Fraud Investigation & Dispute Services at Ernst & Young, pointed out that recent studies into the industry presents interesting information.

She said that inflating claims and overstating claims make up some of the biggest cases of fraud in the industry. Other fraudulent claims may include claims for injuries that have not occurred (which is particularly prevalent when it comes to road accidents), claims for services not rendered, and claims from multiple policies.

Beware of the red flags

I have written on this on a number of occasions, and the watch points seem to be increasing all of the time. Coetsee pointed out that one of the major red flags when it comes to fraud detection includes claims straight after the inception of a policy or straight after an amendment to a policy (usually when cover is increased).

Other red flags include the provision of vague information, when the policyholder’s income doesn’t warrant the insured amount, claiming only for big ticket items when there is a break-in, and of course a high frequency of claims and losses.

Internal agents

There is no doubt that the biggest threat when it comes to fraud is from policyholders; but Coetsee points out that the risk of internal fraud is just as pertinent and is growing in a market where technology is making it harder to commit fraud.

She added that some of the watch points to look out for when it comes to internal fraud includes adding additional coverage to a person’s policy without a request, making a false statement at claims stage, renewing a client’s policy without warning (this is more a client focused risk than an insurer focused risk), and the submission of false information.

The guessing game

When it comes to fraud, insurers are quick to admit that it is a problem, but are reluctant to quantify the problem. When asked how much of an effect fraud is having on the industry in Rand terms, Coetsee pointed out that it is a guessing game because insurers are reluctant to openly discuss such information.

We can only go on what has been previously reported in the industry. Servaas Du Plessis, CEO of CENSEO, relayed figures from 2014/15.

According to the 2014/15 South African crime statistics, 186 cases of commercial crime were being perpetrated daily. The majority of these cases, 55 of them, were perpetrated in Gauteng while 31 cases occurred in KwaZulu Natal, 28 cases occurred in the Western Cape and 16 cases occurred in the Eastern Cape on a daily basis.

If we look at the cases that CENSEO has processed, we see that the impact on the insurance industry is significant. While no definitive period has been given for these figures, Du Plessis pointed out that fraud costs the short-term industry in the region of R1.5 billion while fraud has cost the life industry just over R278 million. Stolen vehicles cost the industry just on R171 million.

Editor’s Thoughts:
One wonders how the industry is expected to combat fraud when we are not aware of the impact it is having on companies (in Rand terms). Perhaps the days of guarding this information are coming to an end. Be open about it and work with brokers to resolve the issue. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].

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