Category Fraud/Crime

Santam takes the lead in curbing economic crime

20 September 2012 Santam

Santam Audit and Forensics encouraged by 1,5% decrease in Commercial Crime

This morning Police Minister, Nathi Mthethwa, reported a 1,5% decrease in commercial crime for 2011-2012. This is the first decrease since 2004-2005.

Santam, South Africa’s leading short-term insurer welcomes the statistic.

“This is an encouraging shift in the previous trend which has been showing an increase of 58.2% of commercial crime between 2003 and 2011,” says Helen du Toit, Santam’s head of Audit and Forensics.

Economic crime had risen to its highest level in the past eight years. According to the 2011 South African Police Services (SAPS) statistics, the percentage of reported commercial crime cases had risen by 58, 2% between 2003 and 2011.

Santam, South Africa’s leading short-term insurer, has working hard to curb the trend.

“Economic crime in our industry has become complex and we are working hard together with the SAPS to obtain court convictions. We also initiated a public-private partnership by hosting an economic crime forum biannually, whereby participants from the SAPS, the National Prosecuting Authority (NPA) and the South African Insurance Crime Bureau (SAICB) engage on these matters with us,” says Du Toit.

Last year, Santam’s Audit and Forensics team reported a total of 121 cases of commercial crime to SAPS with a total value of R10 million. In the year to date, Santam has reported 79 cases with a total value of R7,2 million.

“Commercial crime is fluid and can take many forms. The staggering figure of reported commercial crime cases is evidence of economic crime which in addition to becoming increasingly complex in nature is also international in scope,” says Du Toit.

“Commercial crime has a direct impact on the costs of an insurer and policyholders. Corruption, fraud and theft will inevitably have an impact on the cost of claims and acquisition fees,” says Du Toit.

Du Toit cites the gross written premiums for the short-term insurance industry in 2010 and explains that commercial crime is evident in nearly 10% of claims.

“In 2010 gross written premiums for the short-term insurance industry was R56.4 billion. Working on an average claims ratio of 65%, the total claims costs for the short term insurance industry is R36.6 billion. If 10% of claims contain an element of fraud, this equates to approximately R3 billion in claims cost,” says Du Toit. According to a 2009 PwC Global Economic Crime Survey, economic crimes have the second largest impact on the insurance industry after the Financial Services industry which includes banks.

Economic Crime in the short-term insurance industry is commonly classified as being either opportunistic or organised. “Opportunistic crime is usually perpetrated by an individual who simply has a chance to inflate a valid claim or get an exaggerated estimate for losses or repairs from his or her insurance company. This person might know an insider but is generally not operating with an insider’s knowledge of the insurer’s fraud detection systems or thresholds,” says Du Toit.

She explains that opportunistic fraud is commonplace, but the rand amount per incident is relatively low. Organised or professional crime is often perpetrated by organised groups with multiple, false identities, targeting multiple organisations or brands.

“These criminals know how fraud detection systems work, and they routinely test thresholds to stay just under the radar. These crime rings often place or groom insiders to help them defraud the company through several channels at once,” says Du Toit. “The incidence of organised fraud is lower than ordinary insurance fraud, but the rand amount per incident is far greater,” she explains.

“At Santam, our Audit and Forensics team has a mandate to implement various governance structures to detect, prevent and investigate suspicions of economic crimes; we are extremely proud of the initiatives we have in place,” says Du Toit.

The short-term insurer says it is imperative that industry stakeholders start working together in order to curb commercial crime.

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