Life insurers detected 4 287 fraudulent and dishonest claims worth R787.6 million across all lines of risk business in 2021. This is a 34.5% increase in the number of such claims from 2020, when 3 186 cases of fraudulent and dishonest claims to a value of R587.3m (34.1% increase) were uncovered.
The fraudulent and dishonest claims statistics for 2021, released this week by the Association for Savings and Investment South Africa (Asisa), show that funeral insurance once again attracted the highest incidence of fraud and dishonesty, followed by death cover, disability cover, hospital cash plans and retrenchment benefit cover.
Megan Govender, the convenor of Asisa’s Forensics Standing Committee, attributed the surge in exposed fraudulent and dishonest claims to the deployment of sophisticated detection mechanisms by the long-term insurance industry.
He said the R787.6m in fraudulent and dishonest claims detected in 2021 might seem negligible compared to the R608 billion in claims and benefit payments made to honest policyholders and their beneficiaries in 2021 – the highest paid in a single year.
However, if left unchecked, fraud and dishonesty would ultimately result in honest policyholders having to pay higher premiums to make up for untenable claims rates.
The long-term insurance industry is constantly innovating preventative measures to combat insurance fraud, including the use of artificial intelligence, data sharing for the early detection of trends, and an increased focus on field investigations, Govender said.
“In 2020, the lengthy Covid-19 lockdown prevented our forensic investigators from physically going out into the field, which plays an important part in uncovering syndicate operations and taking a closer look at other criminal activities, such as suspicious unnatural deaths. However, by 2021 our field investigations were largely back to normal, and the success rate is reflected in these statistics,” he said.
Examples of fraudulent disability claims
Claiming for HIV with someone else’s blood
A nurse submitted a disability claim under her severe illness benefit, alleging she had suffered a needle stick injury at work that resulted in her being infected with HIV. She supported the claim with a test result that confirmed her status as HIV positive even though antiretrovirals had been administered immediately after the alleged exposure.
The life insurance company’s forensic department investigated the claim and found several inconsistencies and no records of the client being treated for HIV. The nurse was requested to undergo further testing with an independent laboratory. This resulted in her admitting that she was not HIV positive and that she had used the blood of an infected person to submit her claim.
The investigation resulted in the prevention of a R1m fraudulent claim pay-out.
The life insurer reported the fraudulent claim to the police. The nurse received a five-year jail sentence, suspended for five years, and a R10 000 fine or six months’ imprisonment.
Taking cover on an already disabled person
An Asisa member received a claim for severe dementia against a disability and severe illness policy only one month after the policy had been taken out. The claim was submitted by the policyholder’s brother, who had a power of attorney.
A forensic investigation found that the policyholder had suffered a severe stroke before the policy was taken out and was unable to communicate. All signatures on the policy had been forged. The claim was declined, preventing fraud worth R8.7m.
Fraudulent and dishonest claims in numbers
Life insurers detected dishonesty or criminal intent in 3 268 funeral claims worth R128.2m last year.
Unlike in 2020, when fraud was the biggest concern in the funeral insurance space, in 2021 misrepresentation and material non-disclosure cases comprised most dishonest claims, Govender said.
He said that because funeral policies do not require blood tests and medical examinations and are designed to pay out quickly when an insured family member dies, misrepresentation in this space most commonly concerns the relationship that the policyholder has with the person whose life is being insured.
There was a decline in misrepresentation and material non-disclosure in the death claims space last year, but there was a significant increase in fraudulent death claims.
Govender said the Covid-19 pandemic highlighted the importance of being able to protect one’s family financially with a death benefit, which has probably resulted in greater policyholder honesty when taking out life cover.
Misrepresentation and material non-disclosure with the aim of misleading insurers was once again the number-one reason for disability claims being declined in 2021. Of the 352 irregular claims detected, 333 were rejected because of misrepresentation or material non-disclosure.
Hospital cash plans
The number of dishonest claims against hospital cash plans increased in 2021 compared to the previous year, but there was a significant decrease last year in the value of these claims.
Retrenchment benefit claims
Dishonest and fraudulent retrenchment claims will continue to decline because few life insurers still offer this cover, Govender said.
Fraudulent and dishonest claims by province
Most of fraudulent and dishonest claims were uncovered in KwaZulu-Natal and the Eastern Cape, followed by Gauteng and the Northern Cape, Govender said.