Insurance fraud – a fine line

It is alarming to hear about fraud and corruption on a daily basis, which is why initiatives have been implemented to raise awareness on fraud. For the past three years The Association of Certified Fraud Examiners (ACFE) has organised an International Fraud Awareness Week, and this year a fraud and risk-management seminar will take place from the 16th to the 22nd of November 2014.

According to the South African Insurance Crime Bureau (SAICB) research has shown that while most insured consumers would not commit insurance fraud, consumer knowledge of what constitutes insurance fraud is limited, and few people actually understand that insurance fraud is in fact a crime.

Exposing the problem

Criminologists agree that the most difficult criminal behaviour to address and to treat is of those who are not perceived to be criminal. The Chief Executive Officer (CEO) of the ACFE, Jaco De Jager, recently estimated that insurance fraud in the short-term insurance industry is in excess of R6 billion a year, which includes R140 million due to material non-disclosure.

There are two categories of insurance fraud, namely, hard fraud and soft fraud. Hard fraud is when a person or syndicate’s main objective is to benefit from a scam, staged incident or planning an event so that it looks authentic. This type of fraud is well known to insurers but constitutes only a small percentage of their annual fraudulent claims.

The real danger for insurers and the biggest contributor to fraudulent claims is the so-called soft fraud. This occurs when legitimate claimants attempt to get a higher benefit by exaggerating damages or values for items they claim. In both cases, the goal is to take an amount of money from the insurer that the claimant is not entitled to. Insurance fraud is a crime and there are serious consequences for people when they are caught out.

Ensuring ROI

Censeo regularly finds, during the verification of the claims process, that when a client has inflated their claim, they do not really perceive it as a criminal offence but rather as a return on investment. The general attitude from policyholders who inflate their claims are that there was an incident, they have been paying their premiums and therefore are entitled to what they are claiming.

Due to the operational models currently employed by insurers, it is very easy for insureds to inflate claims or not to disclose material changes in risks without feeling guilty of any wrongdoing as this is in most cases a system run by technology. Only a small percentage of claims are really verified by insurers where the insured is met by an assessor in person, and the details given are verified and confirmed.

Many people inflating their claims and not disclosing material changes in their risk do not understand and realise that they are committing the criminal offence of fraud. It is therefore the responsibility of all insurers to make clients aware of what insurance fraud is and what the consequences might be in terms of criminal charges.

Insurers should take a zero tolerance attitude with any person committing insurance fraud and regularly publish and inform their clients of their action on identified cases.

Combating the problem

According to the ACFE there are some basic steps that insurers can and should take to help combat fraud:

? Establish and communicate a fraud policy
? Take the fraud prevention check-up
? Establish an anti-fraud hotline
? Use anti-fraud resources
? Become an official supporter of Fraud Awareness Week

Insurers should further set clear segmentation rules and processes that will ensure all possible high risk claims are allocated to assessors who can physically verify and validate all details supplied.