Professional syndicates drive insurance fraud higher

If you work as a short-term insurance broker, or sit on the claims desk of one of the country’s larger non-life insurers, then you will not need this writer to tell you that contract crimes such as business and household robberies and car- and truck-jackings are on the rise. Some of the reasons for South Africa’s surging crime statistics were interrogated during the two-day-long Insurance Crime Bureau (ICB) 2023 Annual Conference, which focused on the role of professional crime syndicates in crime, and on fraud trends in the broader financial services industry, alongside countless related issues.

Calling for collaborative crime fighting

The ICB was founded in 2008 as a non-profit organisation to combat organised insurance fraud and related crimes within South Africa. Today, with almost 15-years under its belt, the association is looking to expand its activities into the broader financial services by inviting banks into the fold alongside its life and non-life insurer members. Why? Because per the ICB promo video, “the investigation of financial and insurance fraud requires a collaborative effort”. According to the bureau, the detection, prevention and mitigation of financial and insurance crimes is only possible thanks to the collective resources of its members, law enforcement agencies and other key stakeholders. 

“One of the biggest challenges in our roles as crime fighters is to see through the noise and to focus on what needs to be done,” said Garth de Klerk, CEO of the ICB, during his introductory remarks to the event. He got straight to the point, saying that partnerships were crucial in expanding the front line of the fight against fraud and crime. The ICB already counts 34 life and non-life insurance license holders among its membership with seven affiliate members also doing their part. This membership is expected to grow as the crime-fighting focus expands to non-insurance financial crimes. “Our mission states that we want to be a leading authority on organised insurance crime, and we are expanding that mission to encompass the broader financial services sector, across southern Africa,” De Klerk said. Of course, the challenge remains to convert the identification of financial crime and fraud, and the information gathering that follows, into prosecutions and convictions. 

The physicality of hi-jacking, muggings and robberies

Many of us mistakenly believe that insurance crime and fraud is victimless, and that the only harm done is to a product provider’s bottom line. Nothing could be further from the truth, which explains the ICB 2023 Annual Conference programme being chockfull of the physical impact of crime and crime fighting, from evidence gathering and forensics to hi-jacking, human trafficking, kidnapping, ransom and others. De Klerk explained that to get to grips with domestic crime and fraud required a deep understanding of the impact of professional crime syndicates on South Africa, and extensive knowledge of topics such as unjustified enrichment and / or unexplained wealth, to name a few. “This is a physical conference; the topics we will discuss are physical and not simply theoretical,” he said, before promising a detailed analysis of the drivers of crime. 

It is quick to jump to ‘poverty’ as a major driver of domestic crime… “Yes, poverty is driving crime at the moment as people become more desperate,” De Klerk said. In the insurance fraud world, this translates to more and more policyholders submitting false asset damage claims; in the crime world, the result is a sharp rise in hi-jackings; business and household robberies; muggings and petty thefts, to name a few. You may enjoy this writer’s tongue-in-cheek comparison between climate change and domestic crime trends: on the extreme weather front, non-life insurers are reporting a rising frequency and severity of loss events whereas on the crime front, insurers are anecdotally seeing higher volumes of theft claims at a lower value per claim. Mind you, with the price of cars going through the roof, there is no way an average hi-jacking is costing less this year than last! 

Identity theft and social engineering on the rise

After poverty, professional crime syndicates stand out as major drivers in the domestic crime landscape. Professional syndicates are involved in kidnappings, hi-jacking, human trafficking, murder and theft from businesses and households at an unprecedented level. But it does not end here. De Klerk singled out digital identity theft and social engineering via social media as areas of growing concern. “Identity theft is growing rapidly, and you will not believe the examples of social engineering we are encountering these days; it is incredibly easy for criminals to gather information from the internet,” he said. Professional crime syndicates use a combination of identity theft and bank and insurance products to launder the proceeds of crime, move money across international borders, and then use this money for a range of nefarious activities. 

The ICB offered an old but useful case study to illustrate how a professional crime syndicate targeted vulnerable individuals to ‘fleece’ life insurance providers. To paraphrase, the syndicate sought out a halfway house that was rehabilitating alcoholics and drug addicts. As part of the process, the syndicate would help these individuals to open up bank accounts and get their personal finances back in order. The syndicate would then take over the bank accounts, take out life insurance in the individual’s name, and pay the premiums. “As it happens, alcoholics and drug addicts relapse and die from all manner of causes [following which the syndicate] has control of the bank account and is able to claim against an insurance policy,” De Klerk explained. In this example, a single syndicate had used the process to make fraudulent claims totalling around ZAR8 million. 

The ROI on offer from combatting insurance crime / fraud

The various investigations that the ICB collaborates on are making a real difference to the insurance industry through education, loss reduction and risk mitigation. “We are fortunate that we can put a rand amount to our insurance crime and fraud interventions with an 856% return on investment since the ICB was established, and over 1 700% this year,” concluded De Klerk. This return excludes the immeasurable value of removing a hi-jacker from a community, or preventing a kidnapping or murder: “Where you save a life; where you take a hi-jacker off the street; where you stop a syndicate that is using blue lights to pull unsuspecting motorists off the road late at night … you cannot measure the benefit”. 

The tricks to taking down professional crime syndicates include centralised, shared intelligence; collaboration and partnership between associations, crime enforcement agencies, NGOs and product providers; and a ‘see something, say something’ approach from all industry stakeholders. 

Writer’s thoughts:

South Africans could be excused for being shell-shocked by the level of crime and corruption reported domestically. In fact, we read so much about abuses by government departments, municipalities and State-owned Enterprises that we forget how active the professional crime syndicates are. Do you agree that the ICB should expand its crime and fraud investigations beyond insurance only? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts editor@fanews.co.za.