ASISA statistics on fraudulent claims – Spike in dishonest death claims
Although there was a decline in the number of irregular claims the value of the fraudulent and dishonest claims was almost the same as in 2016. South African life insurers foiled a total of 5 026 irregular claims to the value of R1.13 billion in 2017. In 2016, 13 488 claims (mostly funeral claims) worth R1.03 billion, proved to be irregular. These statistics were released by the Association for Savings and Investment South Africa (ASISA) in December 2018.
According to Donovan Herman, convenor of the ASISA Claims Standing Committee, life insurers are under constant pressure to adapt their detection methods as fraud attempts become more sophisticated due to fast evolving technology. This in the midst of frequently being accused of trying to find ways of getting out of paying claims. The “Momentum debacle”, as it became known in the media, is an example of the initial reluctance to pay a claim, where the deceased was killed in a hijacking, on the grounds of non-disclosure of a medical condition unrelated to the cause of death. Click here to read our recent article.
The figures actually show that during 2017 South African life insurers made benefit payments of R469 billion to policyholders and beneficiaries. Of this amount, more than R60 billion was paid to individuals who had experienced either death or disability in their family circle. This is an increase of almost R5 billion from 2016.
“If we left fraud and dishonesty to spiral out of control, honest policyholders would end up footing the bill through higher premiums driven by untenable claims rates”, Herman stated.
A total of 2 111 death claims worth R564.2 million was declined in 2017 due to fraud and dishonesty compared to 444 death claims worth R275.2 million in 2016.
In the majority of death claims (1 784) rejected in 2017, insurers detected that fraudulent documentation had been submitted. A further 316 claims were declined due to misrepresentation and/or material non-disclosure.
Misrepresentation occurs when a policyholder deliberately provides misleading information to a life insurer, while material non-disclosure refers to the failure of policyholders to disclose important information about a medical condition or lifestyle.
Since the person applying for insurance knows more about the risk to be insured than the insurer, the law compels applicants to honestly disclose all information likely to influence the judgment of the insurer when determining appropriate policy terms and premiums. Information generally regarded as material includes medical history, state of health, family history, and life style.
A total of 1 025 funeral claims worth R34.9 million was rejected in 2017, mainly due to misrepresentation and material non-disclosure, as well as fraud. In 2016, there were 11 302 irregular funeral claims worth R168.3 million.
Life insurers have reported a number of cases where funeral cover was taken out on the lives of people under the pretence that they were family members of the policyholder, when in fact they were colleagues, fellow church members or even fictional people.
There is of course also an “informal” funeral cover sector whose statistics are not included in the Asisa statistics and, judging by remarks from the regulatory authorities, is a major challenge – editor.
Claims worth R516.5 million were declined in 2017. Of the 775 claims not paid, 757 were rejected due to misrepresentation or material non-disclosure. In 2016, some 621 claims worth R578.8 million were rejected.
“Since disability claims tend to increase when the economy is under strain, we are not surprised that dishonest claims also increased significantly”, Herman said.
He further mentioned that policyholders are often tempted to not disclose existing health conditions with the aim of securing lower premiums.
Hospital cash plans
Strict measures introduced by life insurers a couple of years ago to curb the abuse of hospital cash plans continued to pay off as fraudulent and dishonest claims against hospital cash plans showed a further decline in 2017. A total of 989 claims worth R6.1 million was declined compared to 2016 when 1 047 claims worth R8.5 million were rejected.
According to Herman, the simplicity of these products leaves them wide open to abuse. As a result life insurers had to implement tough measures to ensure the financial viability of these products.
Retrenchment benefit claims
Dishonest and fraudulent retrenchment claims increased from 74 in 2016 to 126 in 2017. Life insurers declined 113 claims due to misrepresentation and non-disclosure and 13 due to fraud.
The total value of these claims amounted to R3.6 million in 2017, compared to R2 million in 2016.
Click here to download the ASISA media release