The battle lines are drawn in the fight against insurance fraud

South African criminal law defines fraud as the unlawful and intentional misrepresentation to another for undue financial gain or influence, which causes prejudice to the party being misrepresented to. Fraud is committed irrespective if there is actual or potential prejudice. In other words, there is no such thing as attempted fraud.

One of the best defences against insurance fraud is to keep extensive transaction records and monitor and analyse this data for any discrepancies. Data "mining” is important for two reasons. Firstly, because syndicates are more aware of how short-term insurance claims are processed than ever before. And secondly, because insiders – be they opportunistic clients, intermediaries, employees or service providers – are often complicit in defrauding an organisation.

Vehicle hijacking is a case in point. Although Censeo’s statistics support a 20% decline in fraud cases relating to hijacking there has been a 40% increase in the quantum of these claims. This suggests that a bigger percentage of fraud occurs on larger claims for vehicles such as double cabs, LDVs, SUVs and marquee brands.

The larger insurers have internal fraud prevention capabilities. They have the resources to investigate, assess and audit claims as well as forensic departments in the event follow up is required. But despite their best efforts the short-term insurance industry is only uncovering the tip of the fraud iceberg.

One of the reasons for this is the lack of specialised skills to investigate fraud matters on behalf of the affected companies. Most insurers have little faith in the skills of the authorities to investigate complex insurance frauds and even less faith in the justice system’s ability to successfully prosecute offenders.

The number of remands has a costly and negative impact on corporates and organisations as their staff spend hours and days at court without the matters even going to trial or reaching finality. Opportunistic fraudsters and syndicates are aware of these challenges and factor this in when committing their crimes.

The syndicates are extremely sophisticated. When a company implements more stringent fraud prevention measures such as predictive analytics and segmentation of claims – or employs or contracts skilled individuals to investigate and prevent fraud – the syndicates simply change strategy to find softer targets within the company.

It is not uncommon for syndicates to switch their criminal activities from one province to another in the event investigators turn up the proverbial "heat”. By the time national insurers cotton on to this tactic it is too late, with millions of rand in fraudulent claims already paid out.

One of my business partners, Servaas du Plessis, uses this analogy in his presentations: "Insurance fraud is even easier than robbing a bank, because the chance of getting shot is less than zero while the reward is often the same”.

Companies in the domestic short-term insurance industry are reluctant to share information with one another. This is understandable given various competitive concerns, but regrettable given that all stakeholders share the goal of eradicating and preventing fraud. While insurers keep their data close to heart the "damages” are mounting.

At a business brunch hosted by Censeo the CEO of the ACFE, Jaco de Jager, offered the following estimates for insurance fraud:

• Short-term insurance industry: In excess of R6 billion per annum including R140 million due to material non-disclosure;

• Life insurance industry: In excess of R3.5 billion per annum;

• Banking industry: In excess of R5.4 billion per annum; and

• Medical industry: In excess of R6.5 billion per annum.

Hugo Van Zyl, COO of the South African Insurance Crime Bureau (SAICB) confirms that short-term insurance fraud is underestimated due to non-reporting and the non-association of some domestic insurers. Censeo’s experience supports his view. Fraud in the domestic short-term insurance industry is far from being under control.