Combat fraud in order to start treating insurers fairly
Fraud happens in the industry when people lose track on the original purpose of insurance, to protect the insured in the case of a loss. This does not mean that the insurer is compelled to entertain cases where the insured tries to claim for cases of negligence.
While there are no firm statistics to confirm this, common sense would suggest that most cases of fraud in the industry are related to cases of negligence. Fraud is rampant in the industry, and aggressive steps need to be put in place to curb this. Perhaps one needs to just look at the creativity levels of the claims in order to take the first steps in this regard.
A once in a lifetime offer
According to the latest Osti Briefcase, the official communiqué of the Office of the Ombudsman for Short-Term Insurance, Mr B (insured) registered a claim with his insurer, for the theft of his VW Golf motor vehicle.
The insured had initially lied about how the loss had occurred, contending that the vehicle had been stolen from a shopping centre parking lot. However, during the validation of the claim the insured decided to be honest with his insurer and advised that the circumstances of the loss had in fact been completely different.
The insured advised that the loss of the vehicle had occurred on a completely different date (approximately eight months earlier) and that the insured had been involved in a transaction with another party were they sold vehicles to each other. The insured had received his newly purchased Toyota Fortuner from the third party. At the time of receiving his Fortuner, the insured had also handed over his old vehicle, the VW Golf. The third party had made an excuse why the insured could not be paid at the time and he managed to convince the insured to pay him R1 500 for petrol for the vehicle.
Working undercover
The insured had however kept his policy with the insurer despite the vehicle now having been disposed of. He then decided to lodge a claim for the theft of the vehicle allegedly at the shopping centre.
The insurer backdated the cancellation of the policy to the date of the actual loss of the motor vehicle on the basis of the insured’s fraudulent claim. The insured’s premiums were refunded for the period following the backdated cancellation. Three more claims for losses that were suffered subsequent to the backdated cancellation were also declined on the basis that there would not have been any policy in place at the time of losses.
The insured argued that the fraudulent claim was no basis to cancel his policy as he had come clean about the claim before it was processed. He had also willingly withdrawn the claim. However, the Osti ruled that the insurer was well within its rights to cancel the policy.
Claiming against empty halls
In another Osti case, Mr V (insured) had previously been using his premises as a guesthouse but had stopped operating the guesthouse and had placed the premises on the market to sell. He advised his insurer of this fact and that one of his employees would occupy the premises at night. The insurer endorsed the policy accordingly.
A loss occurred and the insurer then discovered that an employee only occupied the insured’s premises on weeknights and not at the weekend. This fact had not been disclosed to the insurer and the insurer declined liability for the loss stating that they would not have accepted the risk had they been aware that the premises would only be occupied on week nights. The insurer declined liability on the grounds that Mr V had not complied with the occupancy endorsement.
In addition, the insurer also relied on the fact that the policy had an alarm warranty and the premises did not have any compliant alarm system in place.
Pleading his case
The insured argued that the insurer had been informed of the changes in risk and that they had been prepared to insure the premises and to accept the premiums until the loss occurred. He further argued that the alarm warranty had been in place when he had previously sought contents cover, which had since been cancelled. According to him, the alarm warranty was not applicable to the building section of the policy.
The Osti could not fault the insurers decision to decline the claim. While the insured did advise on a change of occupancy, he wasn’t completely clear. Had he been, the insurer would likely have declined cover.
With respect to the alarm, the insurer had also not been informed that the alarm had been removed and was no longer in operation. This meant that the alarm warranty remained a term of the policy and that the insurer’s acceptance of the risk would have been on the basis of the alarm still being in place and being operational.
An issue of fairness
While the Financial Services Board is on a mission to give clients increased powers in terms of industry protection, we need to also bear in mind that insurers also need to be treated fairly. If we hand over powers to the public blindly, insurers will lose money hand over fist.
While there is no doubt that the first case was blatantly fraudulent, we need to ask a key question in the second case. Did the insured know that the premises was only occupied during the week and vacant on the weekends? This could have also not been disclosed to him by his employee at the time of the loss. While this is not the insurers problem, you can have some sympathy with the insured if this was indeed the case.
Editor’s Thoughts:
Insurance is built on trust, and that is something that unfortunately cannot be quantified by doing a conventional risk assessment. Insurers take on policies in good faith that clients will be open and honest when it comes to claims, but how often is this the case? Do clients repay this faith in kind? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
