Fraud by accident...

In 1694, Hugh the Elder Chamberlain had an idea that insurance needs to pay for medical expenses in the event of an accident. This idea only became a reality in the late 1800s with limited misfortune protection cover products, as it was called then.

These days, a wide variety of sophisticated personal accident insurance products are available. Personal accident insurance covers your expenses resulting from an accident with a lump sum payment, a daily or monthly amount, or a payment for loss of life from an accident. It is often seen as an inexpensive solution for financial security.

Not an income protector

Personal accident insurance is not an income protector, but rather focuses on the lump sum payments for the loss of a limb or the loss of a life in the event of an accidental death.

The purpose of personal accidental insurance cover is to pay a prompt lump sum payment, and not to compensate the life assured for extended periods similar to disability products. For example, it offers a lump sum payment of 25% of the policy face value for the loss of an index finger and thumb on the same hand or 100% lump sum payment of a life in case of an accident.

Explaining the cause

In terms of claims investigation, these injuries can be divided into two categories; namely those where the extent of the injury has been exaggerated and those where the incident has been entirely misrepresented.

More often than not, it is confirmed during the assessment of a claim that the life insured lied about the incident in order to claim for a medical condition not covered for in the personal accident policy. Life insured’s that are self-employed will take out such policies and claim during financial difficulty that they are temporarily disabled.

The personal accident actuarial model is also manifest in group risk cover. Despite popular belief that there exists limited or no fraud risk in group risk cover; companies often abuse the product to deny responsibility towards employees.

Fraud avoidance

Fraudulent claims often start of as a genuine claim, but the life insured claims the temporary benefit for a longer period.

In some instances, the employer will advise the employee to proceed with a claim against the personal accident portion of group risk cover and supports the claim for permanent disability with the necessary documents and motivations.

After the disability process is concluded, the employer will continue his employer/employee relationship with the life insured on a contract basis with a remuneration package that places the life insured in a better financial position and financially alleviate the employer.

Fraudsters become more sophisticated and are more than aware of the fact that no or limited underwriting exists on personal accident insurance products. Personal accident products are fairly inexpensive for the benefit of a generous lump sum payment, even if only 25% of the policy value is paid out.

On the other hand, it is also true that people becomes more aware of their right to claim for compensation after an accident and will therefore make use of the market opportunity to provide for the maximum financial security for the lowest monthly premium.

Thorough exploration

Whether a personal accident policy is taken out with the intention to mislead the product supplier, or if a policy owner becomes more educated during the policy lifetime and during claim stage exaggerates his injuries to claim for a longer temporarily disability period than necessary, the product is vulnerable to abuse.

Assurance companies should be rigorous during claims stage and exercise their rights to validate claims to identify fraudulent behavior and the abuse of products. Assurance companies should not underestimate the sense of security that accompanies group risk cover as this can be the proverbial wolf in sheep’s clothing.