Times are tough… will fraudulent claims rise?

This question in itself is a tough one to deal with. Insurance fraud is not only a serious problem for the industry but is also a highly sensitive subject for many, as the few that commit fraud affect the position of the majority who do not.

Insurers are spending millions of Rands implementing detection systems that are able to identify and flag fraudulent trends; thereby reducing and eliminating fraud as far as possible. Many insurers also have expert forensic teams that are deployed to investigate suspicious claims. However, the reality is that this comes at a cost to other policyholders. Income utilised for fraud prevention could very well have been used to keep premiums stable and consistent.

A zero tolerance attitude

Brokers have a crucial role to play in this as far as fraudulent claims are concerned. Quite often, debates take place around the degree of fraudulent activity and to what extent tolerance should be allowed. This is not really a valid debate as any degree of fraud is unacceptable. Many clients do not see adding a few hundred or thousand Rands to their insurance claims as illegal transactions, which could potentially lead to criminal charges and the cancellation of insurance contracts.

Brokers should adopt the same zero tolerance attitude as insurers do and should refrain from doing business with anyone who tries to commit any form of fraudulent activity. Furthermore, it is the broker’s responsibility to educate clients and inform them that the industry will not tolerate any unscrupulous dealings. Even if clients try to justify certain actions on the basis of saying, “I have paid insurance for ten years without claiming and I am therefore entitled to claim,” this argument should neither be accepted nor justified.

An insurance policy is there to ensure financial protection when an event occurs that is covered and provided for within the contract of insurance. The amount of cover is also limited to the terms of the policy. In most cases, where a broker is involved, he or she will get to hear about a claim first.

The broker should ascertain details of the claim; understand how the event took place by asking pertinent questions and obtaining relevant information and then advising the insured accordingly.

Fraudulent trends

From various industry reports it is estimated that insurance fraud costs insurers between R4 and R5 billion annually, with a rise in these figures correlating with economic downturns. In the last few years, upward trends in the cost of insurance fraud have been noted, negatively impacting the industry as well as consumers.

South Africa is certainly not alone when it comes to insurance fraud. A European survey conducted in 2011 reported that approximately 16% of participants had exaggerated claims before and would do so again. Alarmingly, 18% felt that it was ok to add items to a claim and 44% saw no harm in overstating the real value of a loss.

Is there a solution?

Sanctions against cases of insurance fraud are seldom effective enough to act as a real deterrent to the perpetrators of these crimes. Longer and harsher sentences may assist in reducing the number of fraud cases in the sector. However, the reality is that committing fraud has become the norm for some and is seen as the standard way of doing business in South Africa.

Fraud is perpetrated by all classes of people, including those working in the insurance industry – it is only through collective collaboration and consumer education that practical solutions can be found to this pertinent issue.