South African life insurers saw a significant increase in the value of prevented fraudulent death, disability and funeral cover claims in 2011. The claims fraud statistics released by the Association for Savings and Investment South Africa (ASISA) this week show that the value of these fraudulent claims involving false documentation and syndicate activity has jumped from R26.2-million in 2010 to a whopping R131.7-million in 2011. The number of claims increased from 452 in 2010 to 545 in 2011.
Peter Dempsey, deputy CEO of ASISA admitted a small portion of these claims were paid before fraud was detected but relayed that most of the fraudulent claims in 2011 were uncovered by life insurers before money was lost. “Life companies are often seen as soft targets by criminals hoping to access benefits through fraudulent means. Life companies have, however, put sophisticated fraud detection mechanisms in place to allow for early detection.”
Decrease in dishonest claims
Dempsey added that claims involving dishonesty rather than criminal intent have shown an impressive R142-million decrease from R605.6-million in 2010 to R463.6-million in 2011. He said this was due to a substantial drop in misrepresentation and material non-disclosure across all types of cover. Misrepresentation and material non-disclosure do not involve the criminal intent that comes with fraud and are therefore classified as dishonest claims.
Policyholders resort to misrepresentation and material non-disclosure when hoping to secure lower premiums or to obtain cover without exclusions said ASISA. But Dempsey added that consumers are increasingly becoming aware of the consequences: “Consumers increasingly realise that life insurers are entitled to declare a policy void if at claims stage it is discovered that critical information was not disclosed,” he said.
Misrepresentation and material non-disclosure cases continued to make up the bulk of claims declined for dishonesty and fraud.
Honesty is the best policy
Last year a total of R599.7-million dishonest and fraudulent claims were detected, compared to R638.3-million in 2010 – a R38.6-million decrease. Dempsey added that the number of claims declined due to dishonesty and fraud was almost insignificant when compared to the total honest claims paid in 2011.
“Last year the life industry paid out more than R216.7-billion in benefits to policyholders, beneficiaries, and pension fund members as a result of death and disability claims, maturity pay-outs and pension, annuity and other payments.”
Abuse of hospital cash plans.
He warns that insurers are increasingly taking a zero tolerance approach to claims involving any kind of fraud, which may result in a criminal investigation and even prison. However, he added that there was no central blacklisting register among insurers.
He said the abuse of hospital cash plans remained a concern. In 2011, the life industry detected 549 cases worth almost R4-million.
Hospital cash plans pay policyholders a daily cash benefit for each day spent in hospital. This amount is paid irrespective of medical aid payments or sick leave available to the person hospitalised. Dempsey pointed out that this often tempts policyholders into dishonesty.
Last year the highest number of fraudulent and dishonest claims was submitted in Kwa-Zulu Natal and the Western Cape (both 22%). Gauteng was in close second position with 19%, followed by the Eastern Cape with 16%. Dempsey noted that in 2010 the Western Cape featured in the top three for the first time and last year it moved into joint first position with Kwa-Zulu Natal.