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Fraud in the short term insurance sector

By Jessica Anne Wood

Can or should you profit from your crimes? Morally the answer is no, but what if your crime isn’t found out? Justmoney looks at short term insurance fraud, and what happens when it is discovered.

Garth de Klerk, chief executive officer at the South African Insurance Crime Bureau (SAICB), notes that insurance fraud both on a singular basis as well as organised crime syndicates is very common. “Billions of Rand are lost per annum through relatively simplistic but brazen fraud in the insurance industry. Most insurance companies will agree that fraud will be around 5% to 10% of claims paid per year. This cost of fraud is thus born by both the insurance industry, and the public, as the costs of providing insurance is increased.”

Insurance provider IntegriSure says that insurance claim fraud is not encountered often but added that no insurance provider is immune to fraudulent claims. “It is estimated that 30% of all claims received in the industry has an element of fraud to it with claims being inflated as the biggest culprit,” says IntegriSure.

Francois Theron, chief operating officer for Discovery Insure points out that fraudulent claims affect most short-term insurers. To protect clients against the negative effects of fraud, Theron reveals that Discovery Insure has developed a ‘sophisticated’ fraud model, which proactively identifies potentially fraudulent claims.

The most common fraudulent claims

In the insurance industry, IntegriSure says that the most common types of fraudulent claims appear to be all-risk item claims. This is because they are usually fast-track claims. Another common insurance claim fraud is jewellery claims, which are 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.

For Discovery Insure, 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 such as accident staging, exaggerating the quantum of claims or claims padding. “On the motor side the frauds 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 highlights that it is not easy to determine when a claim is fraudulent. He notes that an organisation has to have the correct, trained resources in place, with the systems necessary to do 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. Syndicates make use of this and are well aware of the minimum information needed to process a claim and 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,” explained de Klerk.

To help identify fraudulent claims, Discovery Insure has a fraud model that enables them to ‘flag’ and proactively identify claims that could potentially be fraudulent. IntegriSure says that experienced claims personnel will be able to pick up trends or discrepancies in claims when it comes to identifying fraudulent claims.

Theron explains that when fraudulent claims are identified, they are handled by a dedicated team of highly-qualified people to 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,” adds Theron.

What happens to fraudulent claims?

If a claim is obviously fraudulent it is automatically declined. “Where fraud is obvious, the claim is automatically declined, and criminal case is opened against the guilty party. In these cases the SAICB gets involved, and where more than one of our members has been defrauded by the guilty party and we project manage the investigation on behalf of the industry to ensure that the outcome includes conviction.”

Theron notes that in addition to the above model that Discovery Insure uses to identify potentially fraudulent claims, they also follow a rigorous process to ensure it investigates each case and pays claims that are due.

“If there is a claim that has been, 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, yet 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. “The SAICB will then act on behalf of its members to put the insurers in a position where it can recover monies from the guilty parties.”

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 it does 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.”


 Handy tip: You can apply for a range of insurance products on Justmoney.

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