It’s not unheard of for even the most law-abiding of citizens to ‘pad’ their insurance claims, inflating either the costs or number of items they’ve lost. After all, these people have legitimately suffered crimes, accidents and injuries – they’re just trying to redeem some of the damages.
It’s a victimless crime that only affects big, faceless corporates, whose deep pockets can afford some losses anyway, right? Or so the rationale goes. The truth of course is that insurance companies, protecting their bottom lines, simply pass on those costs to other premium holders. So the more claims, as happened with the spikes in 2021, the higher the premiums are likely to be for everyone.
It doesn’t help that large chunks of claims are false. The Insurance Crime Bureau estimates that in 2019 as much as 20% of the R35 billion that companies paid out on short-term insurance claims were likely to have been fraudulent.
But there is an even darker side to insurance fraud, far removed from the ‘harmless’ attempts to replace old household appliances. The Association for Savings and Investment South Africa (ASISA) has reported that South African life insurers in 2021 detected well over 4,200 fraudulent and dishonest claims totalling some R787.6 million in value.
Some of these claims have cost real lives, as Garth de Klerk, CEO of The Insurance Crime Bureau, a non-profit company dedicated to fighting organised insurance crimes and fraud in South Africa, recently told students of Milpark Education.
Fraud, De Klerk explained, is motivated by a slew of factors. False and padded claims for instance are typical of opportunistic crimes, often prompted by desperate circumstances where a windfall can come in handy. Poverty, too, has become a considerable lever, with “the pressure of poverty in South Africa driving crime”, he said.
One particular area of concern is the increase in professional crimes. Organised syndicates are believed to be behind the growing number of kidnappings, for instance. This, suggested De Klerk, is perhaps an opportunistic response to an increased demand for kidnap and ransom insurance, which in turn could be a reaction to reports of a surge in kidnappings. Identification theft and the staging of fake car accidents are also part of the repertoire of such organised groups.
Life insurers have found mounting evidence that syndicates are behind a recent uptick of life insurance fraud. A syndicate in Eldorado Park, a suburb of Johannesburg, provided food, shelter and drugs to desperate people, later killing them for insurance pay-outs totalling some R8 million. In 2021 police arrested an insurance broker and seven other people who had made several fraudulent death claims, with syndicate members acting as either beneficiaries or deceased people.
Organised life insurance fraud has many faces. A Western Cape pastor and his wife took out life insurance on their own church members with the intent of having them killed by a hitman. Rosemary Ndlovu, a sergeant in the South African Police Service, is believed to have taken out policies on as many as 28 people. She and an accomplice were convicted last year of the murder of six of those people, which included her partner and five of her own family members, between 2016 and 2018.
These and many other cases are proof that crimes related to the financial sector can be as brutal as any other, and that companies must step outside of their silos to fight them. “Because if we don’t”, says De Klerk, “we are not able to combat the bigger picture.”
To be able to stem the tide of fraud, protecting citizens from the growing threat to their safety and the cost of unsustainable policy increases, key collaborations are forming. The Insurance Crime Bureau is a non-profit company dedicated to fighting organised insurance crimes and fraud, partnering with a fellowship of insurance companies, law enforcement agencies and other stakeholders. The Bureau serves as a facilitator in joint efforts to detect, prevent and mitigate insurance crimes, working with groups from the South African Insurance Association and cross border polices forces, to the South African Revenue Services and tracking companies.
The industry has found strength in numbers, noted De Klerk. “These are friends of ours that we work with on a daily, weekly or monthly basis,” he said. “We are looking to put a stop to organised insurance fraud and related crimes.”
Preventing or identifying cases of fraud also demands an aware citizenry willing to speak up. Likewise, those already in or hoping to enter the insurance industry need to understand the scale of the problem, says Gisela Budler, organiser of the event and lecturer at Milpark’s School of Financial Planning and Insurance.
“We want our students to be up to date and informed of what’s happening,” she notes. “And because of where we are as a country and an industry, this is a topical discussion that I felt we should have.”
Although her own teaching lays out the legal and ethical frameworks of the financial industry, there is no guarantee that students actually will act ethically when they enter their professions. But it is the responsibility of educational institutions to instil ethical values in their students, a duty that Milpark Education takes seriously, says Budler.
“In my own teaching, I try and show students, through case studies, why and how we should all act as moral citizens. How ethical behaviour is good and necessary not just for individuals and companies, but also for the country as a whole.”
Few case studies, Budler notes, could rival that of Zethembiso Dladla. Serving on PRASA’s People’s Responsibility to Protect (PR2P) programme, Dladla and other volunteers earn a modest R3,000 a month to guard rail infrastructure near their communities. When a full R67,000 was mistakenly paid into her account, she immediately reported it to her line manager. After her manager fobbed her off onto another conspirator, Dladla turned to a Durban PRASA security detail. Before too long, investigators had uncovered a multi-million scam – worth some R9 million in the first half of 2021 alone – running from within PRASA’s own insurance division.
“This shows the power and influence that even a single individual can have,” says Budler.
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