Insurance fraud costs everyone and cuts out the poor

While firm figures on insurance fraud are as scarce as hens teeth all insurers are agreed that in tough times insurance fraud does go up. Fraud increases the costs for all, ensuring that insurance products remain beyond the reach of most South Africans.

Gari Dombo (pictured), Managing Director, Alexander Forbes Insurance warns that people should not attempt to cut corners on the essentials or, even worse, attempt to cheat the system.

If they do, they could find themselves without adequate cover in the event of loss - despite having spent a lot of money on insurance. Worse still, they could be charged with fraud.

In Dombo’s experience, “Most insurance fraud revolves around either fraudulent (false or stolen identity documents) or inflated claims, or largely futile attempts to influence the decisions of assessors."

Recently the Life Officer's Association (LOA) reported that life assurers had detected and prevented 21000 fraudulent claims involving R1.3bn over the past 5 years.

"While most cases are very quickly discovered, policing the system increases the cost of doing business for all. Inevitably these costs are reflected in the market as increased premiums", says Dombo.

This kind of obvious fraud is a criminal offense and punishable by law. What a lot of people don't realise, however, is that the fairly widespread practice of inflating the value of goods insured in the hope that if lost, stolen or damaged they will be replaced at current prices is also fraud.

For example, a client reported a burglary which Alexander Forbes didn’t dispute, but did ask for proof of ownership of the electrical goods stolen. The client arranged that a shop backdate receipts for better goods than the client had originally purchased. The Loss Adjuster was able to prove this, resulting in the entire claim being rejected as the client had inflated his loss by fraudulent means. In addition the client was charged with fraud.

Since all insurers are aware of what goods cost at the time of purchase and what they would cost to replace now, this kind of over-invoicing seldom works. It does, however, take time and resources to police, says Dombo, “Which, again, only increases the cost of insurance - putting South African insurance products beyond the reach of most”.

Instead, the best option is to constantly update your insurance to reflect the current replacement value of goods.

While this will cost more in the short term you will save money in the long term as there will be no quibbling when it comes to payout. More importantly you will be paid out at the current replacement rate.

"This kind of responsible management of insurance resulting in properly-priced pay out in the event of loss will also demonstrate the value of insurance to new users. This in turn will contribute to the development of an effective and mature culture of risk management in South Africa", argues Dombo.

Another area in which fraud is often attempted is with insurance assessors.

Dombo points out that, “Most insurance companies, and Alexander Forbes is no exception, do not have their own assessors but use independent professionals”.

Usually motor, construction, engineering, fire or water damage experts, or disaster management and assessment professionals at the top of their game they work for a variety of insurance service providers, professional associations or consultancies.

“Their names, careers and income are based on their professionalism, reliability and long term relationships with insurers which they are unlikely to jeopardise to save Mr. Smith R1000 on his panel beating job”, says Dombo.

These professionals determine the merits as well as the quantum of each incident and accurately advise insurers on how to apportion responsibility and costs.

“They are certainly not on anyone’s side and can very easily spot a fraudster”, warns Dombo.