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Crime stats and insurance fraud

“Crime likely to affect forthcoming tourist season”

“SA is at war with itself”

“Crime stats show that situation is ‘quite bad’”

These are just some of the media headlines after the release of the annual crime statistics which revealed that over 21,000 murders were recorded for the 2018/2019 year, an increase of 686 over the previous year.

The South African Police Service, with Stats SA, published the country’s crime statistics for 2018/19 last week. Besides the increase in murders, the report shows which types of criminal activity have increased and, in rare instances decreased, in the past year.

The statistics makes for shocking reading, but what is the impact on the insurance industry?

In 2009, Moneyweb reported as follows on this: “Crime has a significant impact on the price that consumers pay for cover. In fact, crime is one of the three main factors influencing the cost of short-term insurance. Unfortunately, short-term insurance premiums will continue to increase as long as crime, violence and fraud continue to escalate.”

Last year Vera Nagtegaal, the executive head of Hippo.co.za, advised South Africans to regularly review their insurance policies to ensure that they are protected for any eventuality.

Amidst these impacts on consumers, insurance crime itself has also increased. The latest crime statistics shows that nationally commercial crime has seen the biggest increase of 14.4 per cent compared to last year. The North West province has a shocking increase of 37, 7% in commercial or “white collar” crime as it is sometimes referred to.

Insurance fraud takes place when claimants attempt to gain benefits to which they are not entitled. This includes falsifying documents at application and claims stage, and exaggerating impairments to receive disability benefits.

In a recent media article Brad Toerien, the chief executive of life insurer FMI, mentioned that insurance fraud has a major impact on all stakeholders and it’s ultimately the premium-paying customers who suffer the most, as they carry the cost of ever-rising premiums. “This is why insurers need to have a zero-tolerance stance on fraud,” Toerien said.

In response to the latest crime statistics, Nagtegaal told the media that it has been estimated that up to 32 per cent of all insurance claims submitted in any year could be fraudulent. She defines the different kinds of car insurance fraud as follows:

Fabricated car insurance claims are considered to be hard fraud. This is usually planned by a claimant who wishes to receive a full policy pay out. Some people go to great lengths to deliberately damage their vehicles or report them stolen after they have for instance sold them in a neighbouring country.

Exaggerated car insurance claims are classified as soft fraud. This occurs when the claim is legitimate, but the loss is padded. As an example, the car was perhaps stolen, but the claimant indicated that valuable items were in the boot as well.

Fronting is when a parent indicates that they are the main driver when taking out insurance for their child to get a lower premium. Staged accident scams and lying on your insurance application forms also constitute fraud.

The fact that many people regard insurance as a grudge purchase perhaps contribute to some of them trying to “get their own back” when a claim arises, or manufacture a claim when under financial pressure.

Unfortunately, the industry is often portrayed as the party trying to dodge its responsibility by refusing to pay claims.

Creating awareness of insurance fraud is a double-edged sword. On the one hand it creates awareness of the reality faced by the industry in actually trying to protect honest clients, while on the other hand it could act as a stimulus for those looking for an opportunity to earn a dishonest buck.

The one positive aspect of all of this is that the role of the adviser as intermediary between the client and the insurer will always be of cardinal importance in ensuring the best outcome for both parties.

Click here to download the latest crime stats.

Click here to read the media article titled “Life insurers get tough on fraud”.

Click here to read Vera Nagtegaal’s media response.

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