Don’t do it…

24 August 2004 Angelo Coppola

(25.8.04) According to various sources between 8% and 35% of short-term insurance claims paid out to policyholders annually are fraudulent.

These are usually exaggerated claims or claims for losses that never occurred. Whatever the circumstances, these fraudulent claims are costing the short-term insurance industry approximately R2bn per year.

But the industry is not the only one paying the price. Honest policyholders also suffer the effects of these fraudulent claims on their monthly premiums.

Approximately 5% of annual premium increases can be attributed to fraudulent and dishonest claims.

“The time has come for a zero tolerance approach, no matter how small the claim,” says Peet Viljoen, Head of the Specialist Investigation Unit in Mutual & Federal. 

“The industry realises that insurance fraud is a serious problem and that if something is not done about it, it will become increasingly difficult to stop the cycle,” he says.

“Once a policyholder gets away with a fraudulent claim, the chances are good that he or she will try it again and again."

“The most common cause of insurance fraud is greed with policyholders believing they won’t get caught,” says Viljoen.  

Typically, there are three types of people who commit this type of crime.  The first is the person who finds himself in sudden financial difficulty and claims for a loss, which in reality never occurred. 

The second type is the individual who hears from others how simple it is to defraud an insurer and then tries it out. Often, this person will succeed once, but gets caught out second time round, says Viljoen. 

The third type of person is usually part of a syndicate and fraud is committed on a much bigger scale.

Household goods such as televisions and music systems are also the most common items to ‘be stolen,’ says Viljoen.  Policyholders often want to upgrade and get a bigger and better system and the easiest way to do so is to claim from insurance.

“Succeeding however, is often the dishonest policyholder's downfall,” he says, “because as soon as they start boasting about how easy it was, they get caught out.”

The company was one of the first short-term insurers to establish a special insurance fraud investigative unit in 1995. To date, the unit has been very successful and has saved the insurer millions of Rands. 

Over the past four months alone, 21% of claims referred to the unit for investigation have been fraudulent and dishonest, says Viljoen. 

In May alone, 71 out of 201 claims referred to the investigative unit were found to be fraudulent. In 2002, 2 904 suspicious claims were referred and in 625 of these, repudiation on the grounds of fraud and dishonesty, was recommended.

In 2003, the unit investigated 2 810 claims and recommended that 636 be repudiated.

“We will investigate a fraudulent claim as far as possible before handing it over to the authorities,” says Viljoen.

“We push for a conviction in most cases because we believe that those policyholders found guilty of insurance fraud should pay the price. A conviction also sends out the message that insurance fraud will not be tolerated,” he says.

Viljoen mentions one specific incident where a policyholder submitted a fraudulent claim for R500 000, 00.

The person was caught, convicted and handed down a five-year suspended jail sentence. He also had to serve 36 months’ community service, pay a fine of R50,000 and pay Mutual & Federal back at a monthly rate of R9 000,00.

“Today this policyholder lives with a criminal record,” says Viljoen, “proof that crime definitely does not pay.


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