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Fraud costs SA insurers billions

12 June 2018Jonathan Faurie

One of the biggest challenges that the insurance industry perpetually faces is insurance fraud. This is a seemingly never-ending problem where criminals are getting far bolder than they were in the past. These were the views that were presented at the recently held 2018 Insurance Fraud Conference.

A costly exercise

We are all aware of fraud and the ways in which fraudsters can commit crime. What we are unaware of is the value of this fraud and the impact it has on the industry. 

In the past, reporting standards when it came to insurance fraud left the industry knowing how much fraud costs their company, but only guessing how much it costs the industry as a whole. 

However, this has changed. Companies are becoming a lot more open about the impact of fraud on their businesses. 

“Fraud could have cost the long term insurance industry R1,03 billion in 2016. In the same year, fraud could have cost the short term industry between R3 billion and R4 billion,” said John Murphey, Business Development Manager Africa Claim Vantage. 

It seems as if the long term insurance industry is where fraud occurs most often. "According to the Association of Savings and Investments South Africa (ASISA), South African life insurers reported a steep increase in the number of fraudulent and dishonest long-term insurance claims detected in 2014. ASISA adds that had these claims gone undetected, the industry would have lost R755, 2 million to 8 306 cases,” said Murphey. 

Europe is no better

How does this compare with international markets? Murphey points out that Insurance Europe reports that detected and undetected fraud is estimated to represent up to 10% of all claims expenditure in Europe. 

“Despite insurers detecting more fraud, it is estimated that around £1,9 billion of fraud goes undetected each year. The value of detected fraud in 2011 rose by 7% to £983 million from £919 million in 2010. In 2011, insurers uncovered 138 814 fraudulent insurance claims. This equates to 2 670 claims every week,” said Murphey. 

Tough enforcement

When it comes to the amount of fraud that is committed in the industry, we see that Europe is not better off than South Africa. 

However, this is where the similarities stop. David Loxton, CEO Africa Forensics & Cyber, pointed out that global enforcement measures are generally aggressively enforced and that the size of global penalties are astronomical, and in some cases mouth-watering. 

"We are seeing that there is a lot more personal risk when it comes to fraud reporting. Companies can no longer hide behind the corporate veil. The oversight role of the Board of Directors is increasingly coming under the spotlight,” said Loxton. 

It has become a trend that fraudsters develop relationships with people who work at insurers who then become inside sources of information. Certain international jurisdictions have increased individual accountability for corporate wrongdoing. 

“Because of Europe’s interconnectivity, this is being done through Multi-jurisdictional co-operations. There are also full on investigations taking place into how fraud is taking place and how fraudsters are accessing information that should only be known by those who work for insurers. The USA, UK, Germany and Switzerland are no longer alone in the world as corruption watchdogs,” said Loxton. 

Rampant cyber crime

Throughout the conference, the presenters said that it is becoming clear that technology is enabling fraudsters making their business much easier. 

“The problem with cyber criminals is that there is not enough information to establish a profile of what they look like. This makes fraud detection very difficult,” said Peter Olyott, CEO Indwe Risk Services. He added that it is very concerning that only one in ten cyber fraudsters who are brought before the courts are successfully prosecuted. 

Olyott pointed out that cyber risks don’t increase by 1% or 2% a year but typically increase by 20% to 30% a year. 

Editor’s Thoughts:
Is it possible to achieve a fraud-less industry? The financial benefits of achieving this could be passed onto clients, so it is something that should be worked towards. What it the role of the broker and adviser in this? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts

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