According to the 2019 consolidated statistics of fraudulent and dishonest claims, published by the Association for Savings and Investment South Africa (ASISA), there was a marked reduction in both the number of irregular claims detected as well as in the value of these claims. This result follows the same trend as the 2018 report.
In 2019, South African life insurers detected 2 837 fraudulent and dishonest claims to the value of R537.1 million last year. The year before saw 3 708 irregular claims made, across all types of long-term insurance products, but to an almost equivalent value of R1.06 billion. Megan Govender, convenor of the ASISA Forensics Standing Committee, describes the drop in fraudulent and dishonest claims as good news for both consumers as well as for the life industry. Once again, the highest incidence of fraud and dishonesty for 2019 took place in the funeral insurance space.
KwaZulu Natal again took the dubious “honour”, of being responsible for 33% (2018:35%) of all fraudulent and dishonest claims. This was followed by the Eastern Cape (18%), Gauteng (13%) and the Western Cape (8%). The rest of the provinces were responsible for 6% or less.
Fraud in the funeral insurance space made up nearly 63% of the total number of cases.
Claims fraud global issue
Although there was a decrease in the number of fraudulent and dishonest claims in the life insurance industry, customer fraud remains a global problem, especially prominent in the financial services and consumer markets segments, according to the 2020 PwC’Global Economic Crime and Fraud Survey. Customer fraud was introduced as a category for the first time in the 2018 survey and refers to fraud committed by the end-user and comprises economic crimes such as mortgage fraud, credit card fraud, claims fraud, cheque fraud, ID fraud and similar fraud types.
This year’s survey marks a new era in which customer fraud has come to the fore as the most prominent economic crime (South Africa: 47%; Global: 35%), followed by bribery and corruption (South Africa: 42%; Global: 30%) and accounting/financial statement fraud (South Africa: 34%; Global: 28%).
Sadly, examples of people being killed for the proceeds of fraudulent policies is on the increase. This points to a decline in ethics and morality in a country which so desperately needs to move to higher moral ground.
Increase in misrepresentation and material disclosure
Asisa’s Govender points out that while there was a significant reduction in fraudulent death claims, there was an increase from 195 to 276 in misrepresentation and material non-disclosure cases “Only when all the facts are disclosed honestly by the applicant is the insurer able to set premiums that are appropriate for a certain level of risk, thereby ensuring that every person pays a fair premium without subsidising someone less healthy.”
“Insurers are expected to put a fair price on this risk protection in the form a premium. If we do nothing to counter fraudulent and dishonest claims, honest policyholders will ultimately end up footing the bill through higher premiums driven by untenable claims rates,” he warns.
Govender points out that while life insurers are frequently accused of trying to avoid paying claims, the numbers tell a different story. In 2019, life insurers paid 99% of claims made against fully underwritten individual life policies alone, to a value of R16.7 billion. He adds that in the first half of this year, life insurers also paid claims and benefit payments of R230 billion to policyholders and their beneficiaries.
Nowhere is the industry’s ability to police fraud effectively better illustrated than in respect of hospital cash plans. In 2010, fraudulent claims were threatening to spiral out of control, with some 649 cases totalling R12.6 million detected. In 2019, this reduced to 192 and R1.3 million.
Feather in the cap for advisers
A further positive finding of the ASISA statistics is that Adviser/Broker insolvent in claims fraud almost equals zero. The only detected case is in the funeral claim space.
Click here to download the ASISA media release that provides more in-depth detail of funeral, death, disability and retrenchment benefit claims as well as hospital cash plans.