Fraud remains a major insurance industry challenge

Gareth Stokes, FAnews Online Editor

Each year insurance claims assessors from both the long and short-term insurance industries investigate thousands of questionable insurance claims. Unless the alleged perpetrator is in the public eye the ordinary citizen is none the wiser. An example of a newsworthy case is that of Czech ‘fugitive’ Radovan Krejcir who was recently charged with fraud relating to a R4.5m claim he allegedly made to an insurance company after obtaining medical papers stating that he had cancer. Krejcir’s doctor has turned State witness – though recent cases underpinned by ‘bought’ testimony have failed dismally.

We will probably hear the outcome of the Krejcir insurance fraud case because the press is interested in various other criminal allegations levelled against him. And there’s a good chance he will ‘slip’ the fraud charge. His lawyer has already told the media that he was ‘misled’ by his doctor... As we wait for the case to unfold, stakeholders in the local insurance industry are hard at work to identify, prevent and prosecute instances of fraud.

Fraudulent claims soak up 15% of short-term premiums

A recent report by Standard Bank estimates that short-term insurance fraud in South Africa accounts for approximately 15% of premium costs, which equates to roughly R3 billion each year! That’s why Jonathan Holden, Executive: Operations at Lion of Africa Insurance, has urged local insurance companies to join initiatives such as the SA Insurance Crime Bureau (SAICB) to work towards a reduction in insurance fraud – and hopefully a halt to related insurance premium increases. “With potential insurance premium increases on the horizon, the industry at large needs to come together, share information and act fast in order to safeguard and protect consumers financially,” says Holden.

The SAICB uses highly sophisticated technologies to track identify and eliminate fraudulent activities in the industry. The organisation was established in 2008, and currently consists of 10 member companies, including 1st tier, ABSA, Hollard, Lion of Africa Insurance, Momentum, Miway, Mutual & Federal, Regent, Outsurance and Santam. The SAICB collects claim statistics from all member insurance companies and works very closely with the South African Police Service (SAPS), the Hawks, the South African Revenue Service (SARS) and the justice system to identify areas of fraudulent claims. The bureau has also undertaken various projects to assist the police in ‘clearing’ police vehicle pounds.

They’ve enjoyed numerous successes to date. Three cases of fraudulent activity amounting to approximately R580 000 were recently uncovered by the SAICB, and they are investigating a further 16 cases worth approximately R36 million! Holden says their affiliation with the bureau has enabled Lion of Africa Insurance to cross check claims with recent police reports from roads blocks and spot checks in order to assess the credibility of certain vehicle claims. Based on this information insurance companies can take the decision to restrict certain policies or to adjust premiums.

When the deceased ‘rises’ from the dead

There are plenty of fraud concerns in the long-term space too. Claims investigators are frequently confronted with miraculous healings and deceased ‘rising up’ from the dead, among others. Clayton Thomopoulos, Associate Director, Risk Advisory at Deloitte observes: “The risk of fraud within the industry continues unabated!” He was presenting at a recent RGA Technical Seminar on the topic: Technology, innovation and collaboration as a solution to fighting fraud. He said that although cooperation between companies had improved, thanks to efforts by the Association of Savings and Investments South Africa (ASISA), there was still plenty to be done.

A decade ago the primary trend in the life fraud landscape was the use of fraudulent documentation to trigger a payout. This document was easy to pick up and it was relatively simple to catch fraudsters using this technique. But over the past few years fraud syndicates have evolved to present genuine documentation based on false pretences. “As times changed you would verify the documentation and it would be genuine, bypassing the detection barriers the industry had developed,” said Thomopoulos. The result is that death and disability claims investigation has become incrementally more complex. Investigators now have to trace the documentation to its source and conduct thorough follow ups.

“If the industry wants to effectively combat the fraud risk it will have to adopt similar innovative approaches to those applied by criminals,” said Thomopoulos. We have to take the past experiences and apply them to current scenarios… Given the successes of the SAICB in combating insurance fraud in the short-term space it will hopefully not be long before a similar collaboration occurs among long-term stakeholders.

Editor’s thoughts: The SAICB is playing a vital role in combating insurance fraud in South Africa… It’s probably a good idea for more short-term insurers to ‘sign up’ to the program – and perhaps to extend the organisation to cover the long-term industry too. Is enough being done to combat insurance fraud? Please add your comment below, or send it to gareth@fanews.co.za