Insurance fraud statistics indicate that there’s little that people won’t do for money. From staging accidents to buying dead bodies, the insurance industry has seen it all.
Fraud and short term insurance
We look at short term insurance fraud, how it is uncovered, and what happens when a case of fraud is confirmed.
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The extent of the problem
Garth de Klerk, chief executive officer at the South African Insurance Crime Bureau (SAICB), notes that insurance fraud is very common, at both individual and organised crime syndicate level.
“Billions of rand are lost per annum through relatively simplistic but brazen fraud in the insurance industry. Most insurance companies will agree that fraud constitutes around 5% to 10% of claims paid per year.
“This cost is born by both the insurance industry and the public, as the cost of providing insurance is increased,” says De Klerk.
In the current Covid pandemic, the Association for Savings and Investments South Africa has reported a 12% increase in fraudulent and dishonest funeral cover claims.
Insurance provider IntegriSure notes that no insurance provider is immune. Francois Theron, chief operating officer for Discovery Insure, agrees, and notes that fraudulent claims affect most short-term insurers.
To protect clients against the negative effects of fraud, Theron notes that Discovery Insure has developed a “sophisticated” fraud detection model, which proactively identifies potentially fraudulent claims.
The most common fraudulent claims
IntegriSure says that all-risk item claims are commonly targeted by fraudsters, largely because this type of claim is usually fast-tracked. Jewellery claims in particular tend to be over-inflated.
“In terms of fraudsters, they can generally be categorised as either persons taking out a policy with the intention to commit fraud, or a person who inflates their claims during claim stage,” adds IntegriSure.
Theron highlights that the most common types of fraudulent actions include non-disclosure at sales stage, inflating claims during a valid incident, false claims to upgrade items to newer models, and misrepresentation of events.
According to De Klerk, among the most common fraudulent claims are simple false claims for events that either did not occur, or were staged as accidents; exaggerating the quantum of claims, or padding them out.
“On the motor side, fraud can be slightly more sophisticated, and larger, as a big portion of the short-term industry is motor insurance. Incident staging, false financing and cloning of vehicles to hide the identity of a stolen vehicle is very common in this environment.”
Identifying a fraudulent claim
De Klerk notes that it’s not easy to determine when a claim is fraudulent. It is critical to have correct, trained resources in place, with systems that enable evaluations and balances.
“Systems need to be continuously developed, as syndicates and individuals know where to look for weaknesses. One of the areas that criminals exploit is the fast-track process where there is a drive by the industry to pay claims as fast as possible,” says De Klerk.
“Syndicates make use of this and are well aware of the minimum information needed to process a claim. They are thus are able to submit cross-carrier claims from the same incidents.
“The South African Insurance Crime Bureau plays a big role here through the creation of a fusion centre platform allowing a consolidated view of claims histories and thus fraud patterns,” he explains.
To help identify fraudulent claims, Discovery Insure has a model that enables them to “flag” and proactively identify claims that could potentially be fraudulent.
IntegriSure says that experienced claims personnel are able to pick up trends or discrepancies in claims when it comes to identifying fraud.
Theron explains that when fraudulent claims are identified, they are handled by a dedicated team of highly-qualified professionals, who review the entire process and details.
“It is complex to identify claims that could be fraudulent, however, it is definitely possible with the right technology and the support of skilled individuals,” says Theron.
What happens to fraudulent claims?
Where fraud is obvious, Theron explains, the claim is automatically declined.
“In this instance, a criminal case is opened against the guilty party. SAICB gets involved, and where more than one of our members has been defrauded by the guilty party, we project-manage the investigation on behalf of the industry to ensure that the outcome includes conviction,” says Theron.
“If a claim is without doubt confirmed as fraudulent, Discovery Insure first notifies the client of the details. In each case, we also advise them that they have access to information about the investigation, and that they can contact the Ombudsman for Short-Term Insurance, if necessary,” says Theron.
What if a fraudulent claim has already been settled?
If a claim has already been paid out, and there is concern that it is fraudulent, De Klerk notes that the incident will still be investigated. In addition, the insurer will open a criminal case against the claimant.
“SAICB will then act on behalf of its members to put them in a position where they can recover monies from the guilty parties,” he says.
De Klerk adds, “The need for an assertive and centralised approach is clear, as it is necessary to act as an industry to truly combat crime and fraud. Singular approaches and systems will not be effective as they do not work where syndicates are hitting the industry as a whole.
“Co-operation and intelligence sharing is key to combatting crime and improving the environment for the public as well as the industry.”