Glenn Hickling, Head of BrightRock Legal
The recent court case against former cop, Rosemary Ndlovu, has put insurance fraud under the spotlight. Ndlovu is accused of plotting the murder of relatives so that she could claim several insurance policies. As key learnings, BrightRock’s head of the legal, Glenn Hickling, addresses some questions to educate consumers about insurance fraud and how it applies to them.
1. What is insurance fraud and what are some of the most common frauds?
Insurance fraud is a deliberate act of deceit – such as withholding material information or providing false information – to benefit unlawfully from an insurance policy. Insurance fraud can be committed against an insurance company or an agent of the insurance company. The perpetrators of fraud may include people applying for cover, policyholders, third-party claimants and beneficiaries, and service providers, as well as intermediaries or employees. Some of the most common forms of fraud are padding or inflating insurance claims, providing false information on an insurance application, or submitting false claims. Extreme cases of fraud may involve staging an accident, faking an injury or death, or syndicate schemes where professional fraudsters coordinate and execute complicated fraud strategies.
2. How prevalent is insurance fraud in SA?
Unfortunately, fraud is quite prevalent and is on the rise. According to ASISA statistics released in August 2021 by the Association for Savings and Investment South Africa (ASISA), there was a 12% increase in fraudulent life insurance claims from 2019 to 2020. Last year 3 186 such claims, totalling R587.3 million, were recorded, compared with 2 837 claims (R537.1 million) in 2019. The highest incidence of long-term insurance fraud last year (2 282 claims) was in funeral policies.
The Insurance Crime Bureau estimates that in 2019 up to 20% of the R35 billion paid out on short-term insurance claims could have been fraudulent. This means that in 2019 alone the South African short-term insurance industry lost almost R7 billion to fraud. South African life insurance companies are seeing a surge in fraudulent claims.
Fraudulent and dishonest claims across the provinces (source: ASISA)
3. What makes people vulnerable to insurance fraud?
Most insurance clients would never consider submitting a fraudulent insurance claim. However, industry statistics suggest that people are more likely to commit insurance fraud in times of economic hardship. As seen from the ASISA statistics above, over the past year, insurers have experienced a dramatic rise in fraudulent behaviour, indicating that the tough economic conditions have led more people to commit some form of insurance fraud. A recent example we’ve come across is the submission of fraudulent funeral policy claims where the death certificates have been falsified. We’ve also seen an increase in cases of non-disclosure, where we find that clients have misrepresented or held back information about their health or financial risks when applying for cover. In the case of funeral insurance, it is somewhat easier for fraudsters to try their luck, as these policies don’t require any medical reports or blood tests to pay out and pay out far more quickly than a life insurance policy.
4. What measure can consumers take to prevent a fraudster from taking out insurance policies in their name(s)?
Identity theft is a common problem in South Africa, and internationally, cybercrime is on the rise, exacerbating the problem. It’s therefore vital for people to protect their personal and financial information. This includes not sharing your ID number and other personal information with an unauthorised person, not clicking on suspicious links, and keeping your financial documents and information secure. If you suspect that you may have been the victim of identity theft, notify the authorities immediately. Should you discover that any insurance or other financial product has been taken out in your name without your consent, immediately notify the company in question. It’s also a good idea to regularly check your bank statements and payslips. If you spot any debit orders or deductions, you’re unfamiliar with, notify your bank or your company’s HR department immediately and the financial service provider in question.
5. What measures have insurance companies put in place to prevent insurance fraud?
Insurance companies have a wide range of fraud prevention and detection strategies in place and many of the large insurers have advanced forensics teams in-house to identify and investigate fraud. In recent years, digital technology has enabled insurers to become even more sophisticated in their fraud prevention strategies, using artificial intelligence and Big Data to pick up any inconsistencies, incomplete or inaccurate information or suspicious behaviour. Digital technologies can also be used to verify information, and insurers can cross-check details against industry databases, and social media. Many fraudsters believe that insurance fraud is a victimless crime, but the truth is that fraud is detrimental to all parties, including other policyholders, who may face increased premiums due to the impact of such financial crimes. Insurers will therefore act swiftly to decline a fraudulent claim, claim back any money paid out because of fraud or dishonesty and, institute criminal charges where this is justified, resulting in substantial fines and even a prison sentence.
6. Can a person commit insurance fraud without knowing they are doing it?
Yes, a person can commit insurance fraud unwittingly. Many people believe that it’s harmless to exaggerate their income to receive a higher insurance pay-out, leave out information about previous claims or their health status when applying for cover, or to add extra items on their long-term insurance theft claim. In the life insurance space, we often find that people leave out important information about their medical history or lie about their smoker status. While this may seem like a harmless white lie, it has a very real impact on the person’s risk profile, the cover they can get and the premium they pay. The truth, therefore, is that this kind of dishonesty is fraud.
7. If a person commits insurance fraud, what are the consequences…will they be blacklisted or possibly face jail time?
If an insurer learns that a policyholder has committed fraud, their claims will be repudiated, they will become uninsurable, and they may even be criminally prosecuted.
8. What actions can consumers take to avoid committing insurance fraud?
As with so many things in life, honesty is the best policy. This means being open and honest in your dealings with your insurance provider, answering their questions accurately and comprehensively when signing up for cover. If anything changes, make sure that you keep your insurance provider up to speed. An insurance contract is founded on mutual trust and disclosure. The insurance provider trusts that you will share all the information they need to be accurately able to assess and insure your risk, while you trust the provider to pay your valid claims if you have held up your end of the bargain. If you’re not sure about the information you need to provide, it’s best to ask your insurance provider or to speak to a trustworthy professional financial adviser.
9. Where can consumers report insurance fraud?
If you become aware of fraud related to your insurance cover, there are several ways to report it. Many insurers have a forensic unit dedicated to investigating fraud, and you can report anything suspicious to them confidentially. If you prefer to report fraud anonymously, many insurers have independently operated whistle-blower hotlines, where you can safely report your suspicions. You can also report insurance fraud to the police, or to the Insurance Crime Bureau, a non-profit, voluntary organisation dedicated to fighting organised criminal activity and fraud in the insurance industry.