Category Fraud/Crime

Twin temptations: insurance fraud and under insurance

07 May 2008 Rianet Whitehead

Twin temptations:   insurance fraud and under insurance


In tough times as the cost of insurance increases people often become resentful of premium hikes. Some even feel that they are entitled to ‘get something back’ from their insurance companies.


Often people don’t see insurance fraud as a crime. Many see nothing wrong with claiming a better hi-fi or mobile phone than the one they lost. Or in other, even more serious instances, people inflate the value of their claims, or quickly ensure their vehicle only after it has been stolen.


“While no one likes to pay more, and to many people insurance is a grudge payment, people should not treat insurance as a money making mechanism”, says Gari Dombo, Managing Director, Alexander Forbes Insurance.


“In fact, cheating your insurance company increases the cost of insurance for all”, adds   Dombo.


Dombo quotes a case in which a client claimed that while being robbed of his bakkie at his house goods to the value of R400 000 were loaded on to the bakkie and driven off.


“Although we were sure this didn’t happen as the bakkie was too small to carry all the goods claimed, and it was unlikely that it could have made such a quick get away in rush hour traffic, we couldn’t prove anything”, says Dombo.


“Luckily a week or two later his fiancé caught him with another woman and called our investigator. We discovered that nothing had been stolen. All was stored elsewhere”, added Dombo.


In an even more extreme case, “A man murdered his girlfriend, placed her body in his car, drove it to a deserted field and set the car alight. Once the evidence was destroyed he opened an insurance claim for his burnt vehicle”, says Dombo.


While falsely claiming on your insurance no matter how small the falsity may be is fraud, cutting back on the amount you spend on insurance is legal and in many cases advisable.


The trick, says Dombo, “Is to save money on insurance without discovering that you are under-insured in the event of disaster.”


Dombo argues that it makes more sense to insure at the higher value because the first couple of Rand are a lot more expensive to insure than your last couple of rand. In short, insurance gets cheaper the more you buy.


Another myth that motivates both insurance fraud and under insurance is the erroneous belief that insurance companies automatically reduce your claim.


As a result, people often believe that they should inflate their claim to off set this ‘automatic reduction’.


Dombo argues that, “Insurers don’t seek to reduce claims but rather to indemnify the client. That is, put the client in the same position that they were in before their loss - though not a better position.”


Insurance businesses work very hard to keep monthly premiums down as this is how they compete with their competitors.


Dombo believes that the insurance industry needs to look hard at how it can pass benefits from suppliers to clients.


For example, “We can ensure that Alexander Forbes’ service providers, like panel beaters, repair only the part of a clients’ vehicle that is broken - rather than replacing the whole thing with expensive imported parts”, says Dombo.


Moreover, if the whole industry worked together it could promote better consumer knowledge on the one hand while encouraging industry best practice on the other.


“Initiatives like this would go a long way towards removing many of the price pressures that tempt people to under-insure or commit insurance fraud in the first place”, concludes Dombo.

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