Long-term

Life insurance fraud – insurers forced to be more vigilant

By: Vera Nagtegaal, the executive head of Hippo.co.za

Stick to the truth and make sure your family’s life insurance claims are paid

Life insurance fraud is on the rise, and insurance companies are being forced to be even more vigilant.

According to the Association for Savings and Investment in South Africa (ASISA), there has been a massive spike in fraudulent death claims in South Africa, with experts saying fraud costs the combined insurance industry billions of rands a year. The statistics show that in 2017, claims to the value of R1.13 billion were made against life insurers. In total, 2 111 death claims were reported in 2017, compared to only 444 in the previous year.

One example of this kind of fraudulent claim is from an investigation by the Insurance Crime Bureau in 2018, where a child of 13 years apparently died under strange circumstances. An official death certificate was issued, and an undertaker confirmed she had been buried. However, she was later discovered to be alive, and an investigation uncovered that she was part of an insurance fraud scheme to receive multiple pay-outs from different insurance companies where the child was covered under various policies. The SAPS are investigating to try and determine which child was in fact buried.

“Insurance companies have rules and procedures in place to protect themselves from these kinds of fraudulent claims, but as long as their clients have acted honestly and in good faith, they have a responsibility to deliver on their promise,” says Vera Nagtegaal, the executive head of Hippo.co.za.

She says that the rule of thumb when you take out a life insurance policy is to overshare. “If there is any information that relates to your health or lifestyle, disclose it, even if you think it isn’t relevant. This may mean that your premiums are increased, but it will help to ensure that you or your family are better protected against your claim being repudiated as a result of non-disclosure.”

It is possible that you could accidentally omit to reveal relevant information to your insurer. Nagtegaal says that this could affect your terms of cover, or it might mean that your claim may be rejected, but you probably won’t be charged with fraud. “However, in the case of clear intention to defraud an insurance company, as in the example of the girl who had not actually passed away, the insurer can legally lay criminal charges.”

She adds that it is likely that if you have submitted an intentionally fraudulent claim, your policy will be cancelled. “This not only affects your relationship with your current insurer, but your claims record could be shared with other insurers as well, reducing your chances of being able to take out future insurance.”

Fraud in South Africa

According to PwC’s Global Economic Crime and Fraud Survey (2018), South Africa’s rate of reported economic crime is 77% – compared to the global average of 49%.

Fraud committed by consumers is the second most reported economic crime, and 19% of organisations have had to spend between twice and ten times as much on investigations as the original amount lost to economic crime.

But, the report indicated that companies are getting better at dealing with and preventing fraud. “Organisations are beginning to shed their denial complex regarding the many blind spots they have in identifying fraud and are learning how to address them,” says Trevor White, a partner in Forensic Services at PwC South Africa.

Nagtegaal explains that there are a number of joint initiatives that have been set up for the insurance industry and other related stakeholders to address crime and fraud through the sharing of information. “Investigating insurance fraud involves a collaborative effort driven by data sharing, which is fundamental to identify and curb cross carrier or syndicated fraud.”

“If we allow fraud and dishonesty to spiral out of control, honest policyholders will end up footing the bill through higher premiums driven by untenable claims rates. To ensure that this doesn’t happen, it really does become a united effort between policyholders and insurers alike,” concludes Nagtegaal.

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