Insurance fraud : a victimless crime?
The South African Insurance Association (SAIA) statistics tell us that insurance fraud, like tax fraud, is often thought to be in the same category as a little white lie.
People who would never dream of shoplifting or helping themselves to the office stationery are fairly comfortable with keeping a few secrets from the tax man or inflating an insurance claim.
The true cost of fraud
Last year, according to the South African Insurance Crime Bureau (SAICB), three of the common categories of insurance payouts accounted for:
Just as legitimate claims arising from South Africa’s high crime rate inflate the cost of insurance, so do inflated and fraudulent claims. The SAIA estimates that, in line with international norms, fraudulent claims amount to about one third of all claims submitted annually.
In money terms, the Association of Certified Fraud Examiners says insurance fraud costs the local short-term sector around R4 billion a year.
When you add up South Africa’s high crime rate and insurance fraud, the outcome of higher premiums is clear. It is obviously not true, then, that insurance fraud is a victimless crime.
As an industry, the need to combat fraud becomes critical to ensure affordable insurance products for consumers.
The scheme of things
The SAICB says most cases of insurance fraud fall into the “soft” category of legitimate-but-inflated claims; but cases of systematic “insider” fraud have also been uncovered.
The SAICB website carries a case study, for instance, of an employee of an insurance brokerage in Groblersdal who came up with a canny plan.
She would identify an insurance client, change the debit account number on their policy to her own bank account number, and then submit and support a fraudulent fast-track claim on that policy. After the pay out, she would change the account details back, and enjoy the proceeds, which totalled about R250 000, before she was caught. The brokerage’s clients themselves had no idea this was going on.
In another case, employees of a funeral parlour procrastinated in issuing a death certificate to the deceased family for nearly two years, during which time they took out life policies in the deceased’s name. When they finally issued the death certificate, it put the date of death about 18 months in arrears, and the fraudsters collected R3 million before the family smelled something fishy and reported the “mistake”.
Another scam described by the SAICB involved the wreck of a luxury car bought from an insurance salvage agent. The gang obtained a false roadworthy certificate, re-registered the car, insured it, and then had an accident which resulted in an insurance payout. The wreck, meanwhile, remained a wreck: it was just an elaborate fraud.
Almost anyone reading this story will have their own hearsay anecdotes to add in the form of staged break-ins; businesses being saved from bankruptcy by convenient fires at their premises and dodgy doctors who, on scrutiny, appear to be seeing an impossible number of patients a day from across the spectrum of medical schemes.
Adapting approaches
With every premium paid, there is a price to be paid for this kind of thing. With every claim made, a person is tasked with a great deal of paperwork and subjected to intense scrutiny because the insurance sector has had to adapt to this situation.
Insurers employ the brightest and the best to help beat this. Combatting fraud requires a wide range of methods, including smart systems, vigilant people and strong control mechanisms.
Fraud continually evolves and fraudsters change tactics to avoid detection and the industry therefore needs to continually adapt its approach to keep them at bay.
If you as a broker suspect insurance fraud, make it your duty to contact the SAICB’s whistle-blowing hotline so that we as an industry can move forward with less fraud.
