The low down on claims validation and fraud detection

Ongoing fraud perpetrated in respect of claims both in the financial services industry and parastatal organisations costs South African companies hundreds of millions of Rands annually.

According to a 2013 KMPG report, the South African short-term insurance industry paid out approximately R4 billion in fraudulent claims, while the long-term insurance sector paid out R700 million. The 2013 Road Accident Fund’s (RAF) Annual Report noted that 1 685 fraudulent claims were detected to the value of R297 200 284.00. With numbers this significant, relentless vigilance is required by claims departments to minimise losses to the industry and their clients.

Legitimising claims

The claims validation process is critical to detecting and combatting the excessive fraud that is perpetrated in South Africa and is fundamental to the successful completion of the insurer’s mandate to provide excellent customer service.

The claims validation process involves gathering information at the claims notification stage, by obtaining statements, assessor’s reports and documentary proof of the amounts being claimed in respect of the losses suffered. The information obtained is assessed and the circumstances surrounding the claim, or the incident giving rise to the claim, are investigated. The aim is to ensure the legitimacy of the claim and if undertaken correctly, a fraudulent claim should be discovered at this stage. If it is a legitimate claim, the recommendation is to settle as soon as possible.

There is extreme pressure placed on claims departments to deliver excellent customer service, keep claims costs down, settle claims faster and to comply with the relevant legislation when dealing with clients. To meet the client’s expectations, claims must be validated as quickly as possible and any irregular or fraudulent claims investigated further, without unnecessarily prejudicing the client.

Treating Customers Fairly (TCF) should be borne in mind when claims validations are underway. Allegations of possible fraud should not be made lightly and any irregularities which arise during the claims validation phase should be notified to the relevant department for further investigation.

Fraud detection

The fraud detection process is an integral part of claim validation. This phase entails the objective review of the information gathered during the claims validation phase. If there are any suspicious irregularities it must be determined if they are fraudulent or not. The claim cannot be validated if there are suspected fraudulent elements discovered during the initial validation process. A classic example of the claims validation process at work is when the RAF was defrauded of over R12 million, which lead to the arrest of seven perpetrators (three police officers, two doctors and a middle man) in 2014.

To determine if a claim is fraudulent, claims staff must be aware of what constitutes fraud and the different types of fraud which may be perpetrated during the claims process. Dealing with fraudulent claims requires evidence and hard facts which can only be obtained during the claims validation phase. The challenge lies in improving fraud detection without the claims process being negatively impacted and ensuring that the client is not prejudiced by a perceived delay in claims settlement.

A collective process

The claims validation process and the fraud detection process cannot be separated. Both processes are integral in claims investigations and one would be hard pressed to distinguish between the two. The basis of both processes is the claims information and investigation. Their purpose is to determine the validity of claims and in so doing protect clients and organisations against unscrupulous people out to defraud and benefit unjustly. Both processes are intended to safeguard the client, the financial services industry, and the parastatals against whom fraud is perpetrated.

Unfortunately with the lack of successful prosecution fraud is seen as victimless crime, and this perception will only change when harsher penalties are enforced against the perpetrators of fraud. Until then, constant vigilance and awareness is required from those involved in the claims process.