A little white lie

Abraham Lincoln once said, “You can fool some of the people all of the time, and all of the people some of the time, but you cannot fool all of the people all of the time.”

Lincoln is spot on when we apply this to the South African insurance industry, where fraud remains a concern.

In the October issue of the Ombudsman’s Briefcase, the Ombudsman for Short-term Insurance (OSTI), an interesting case study arises out of the issue of lying. As the insured learned when he submitted his claim for the theft of his mountain bike, a fraudulent claim has more than one consequence.

Down to the nitty-gritty

The insured approached the Ombud as he felt that he was being treated unfairly by the insurer. During the investigation and validation process made by the insurer, it was established that the insured had fact reported a fraudulent claim. Based upon their findings, the insurer rejected the claim and cancelled the policy due to the insured being a moral and unacceptable risk. 

The insured admitted that he was at fault in fraudulently claiming that his mountain bike had been stolen and cited that he had submitted the fraudulent claim due to him struggling financially and that his wife’s motor vehicle had broken down and had to have repairs done. He thought that he could use the money from the claim to repair his wife’s vehicle. He also advised that he was not in the habit of reporting fraudulent claims but his financial predicament had necessitated his action. 

Getting rid of the stain 

As the insurer had rejected the claim and cancelled the policy, he attempted to obtain insurance elsewhere. However, due to the reason for the cancellation of the policy, other insurers were not prepared to accept the insured on risk. 

The insured then approached the Ombudsman’s office to assist him by requesting that the insurer either reinstates his policy (as he was unable to obtain insurance elsewhere) or alternatively, that if the insurer would not reinstate the policy, that they at least change the cancellation reason on the policy. 

The insurer advised the Ombudsman’s office that the claim was rejected based upon a clause in the insurer’s policy wording which specifically deals with fraud, misrepresentationand inaccurate information and that the clause clearly statedthat all benefits in terms of the policy in respect of any claimwould be lost where there is fraud, misrepresentation orinaccurate information which has been supplied to the insurerand that the policy may be voided or cancelled at the discretionof the insurer.

Based upon the clause and the fact that theinsured had demonstrated a lack of good faith by reporting afraudulent claim, the insurer was not prepared to reinstate thepolicy or accept the insured under a new policy. The insurer was also not prepared to amend its cancellation reason.

According to OSTI, with the fraudulent claim being submitted by the insured, the insurer was well within their right to reject the claim. The Ombudsman advised that he would not request the insurer to either reinstate the policy or issue a new policy. Furthermore the insurer could also not be requested to amend the cancellation reason as the reason for the rejection of the claim.

The cancellation of the policy was justified under the circumstances. The insured was advised that he would need to disclose to future insurers when seeking insurance cover that his previous policy had been cancelled. If he failed to do so, future insurers would be entitled to reject a claim and void or cancel the policy based on a material non-disclosure.

Turn your ear to the sayings of the wise 

While there is no doubt that combatting fraud and corruption within the financial services industry is a major challenge, the majority of the fraud is most probably rooted in the fact that policyholders will try their luck with insurers when it comes to making claims on their policies. 

It is obvious that insurers play an important role in the industry, because they set the example of model behaviour to their policyholders when it comes to acting in an honest and open manner.

The issue determined is that the insured failed to act honestly, with care and diligence. This shows poor behaviour towards the Ombud. It can thus be concluded that the cancellation was in the insurer’s interest. 

Editor’s thoughts:
While there is now increased protection given to policyholders with the implementation of Treating Customers Fairly (TCF), this does not mean that a policyholder may take advantage of a situation, as the ramification of a little white lie is a stain that will remain for long. Consumer education is imperative and brokers play an important role by informing clients that immoral behaviour can come back to bite them. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].

Following the huge amount of response we received as a result of this aricle - FAnews approached Discvovery Insure for comment, which is quoted below:-

Media response: FANews ombudsman judgement regarding fraud 

Discovery Insure believes that fraud is a serious matter; as such, we have a zero tolerance to incidents like this one, so as to protect all our policy holders. During the claims process in this case, the fraudulent claim submitted by the client was identified. We followed the rules in our policy schedule which relate to fraudulent claims and rejected the client’s claim and cancelled the policy. As a result, the Ombudsman for Short Term Insurance upheld its ruling on this matter. Insurers are obliged to inform the South African Insurance Crime Bureau (SAICB) when clients submit fraudulent claims, where a central database of these types of incidents is kept to safeguard the industry.

Discovery Insure CEO
Anton Ossip 

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