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Nearly R1 billion in fraudulent claims thwarted

Claims fraud statistics for 2015 released in September by the Association for Savings and Investment South Africa (ASISA) reveal that while the number of cases of fraud and dishonesty uncovered almost halved (from 8 306 cases in 2014 to 4 381 in 201), the average value of these claims has risen substantially.

Peter Dempsey, deputy CEO of ASISA, says:

“With an economy under pressure, many policyholders are in dire financial straits and are being tempted into colluding with syndicates, committing fraud or making dishonest claims. However, with the number of detection measures in place, fraudsters and dishonest policyholders are likely to be caught out, losing out on the value of their policy and risking criminal charges.”

Death and funeral claims

The majority of irregular claims in 2015 involved death and funeral policies where 2 751 cases were foiled, a sharp decrease from the 7 360 cases reported the previous year. However, the value of the claims was much higher, totalling R448.4 million as compared to R402.8 million in 2014.

Fraud continued to play a role in the majority of cases, with 1 311 cases detected to a total value of R62.6 million.

Dishonesty through misrepresentation and non-disclosure also contributed strongly to the total value of irregular death and funeral claims, with 1 126 dishonest claims totalling a whopping R370.7 million.

Disability claims

Life insurers thwarted a total of 449 cases of fraudulent and dishonest disability claims in 2015 with a value of R412 million. Of these claims, 444 were declined owing to misrepresentation or material non-disclosure, and only five involved criminal intent or fraud.

In one instance, a life insurer reported that a client had laid a claim to the value of R3.2 million for a heart attack, but the insurer discovered that the information submitted by the client’s doctor was false and the client could not produce any further documentation to support their claim.

Hospital cash plans

Concerns expressed by the Minister of Health about these plans, which pay policyholders a daily cash benefit for each day spent in hospital, are confirmed by the statistics.

A total of 1 138 fraudulent and dishonest claims against hospital cash plans worth R8.9 million were declined in 2015. This is substantially higher than the 391 claims worth R4.6 million rejected in 2014. Dempsey attributes the significant increase due to reporting from a life company that had not submitted statistics before. He adds, however, that improved detection methods will also have played a role in pushing up the statistics for hospital cash plans since they continue to be targeted by syndicates. The majority of these claims were rejected due to dishonesty rather than criminal intent.

Dempsey notes that in one case, a life insurer became suspicious when a teacher in Kwa-Zulu Natal made two claims on her hospital policy within the space of a year. She claimed to have suffered a severe neck injury following a motor accident, swerving into a lamppost at speed in order to avoid a collision with a taxi. However, a witness at her school confessed that rather than suffering a major accident, she had merely bumped into his bonnet in the school parking lot. After she refused to allow the investigator to further examine her vehicle, she lost her insurance policy and criminal charges were launched against her.

Retrenchment benefit claims

Only 43 retrenchment claims laid in 2015 were declined, a slight increase from the 31 claims denied in 2014, largely owing to misrepresentation or material non-disclosure. The value of these claims was substantially less than the previous year however, totalling only R1.3 million – nearly half that of the R2.4 million in 2014.

Most dishonest provinces

Dempsey reports that the highest number of fraudulent and dishonest claims was once again submitted in KZN with 39%, a significant increase from the previous year (32%). This was followed by Gauteng and the Eastern Cape each with 17%, the Western Cape with 7% and the Free State at 6%. Other provinces were each responsible for 5% or less.

Adviser involvement

“Disturbingly, we have also seen a particularly sharp increase in fraudulent death and funeral claims involving advisers and brokers, with 288 cases in 2015 compared to only nine instances in 2014,” he adds.

Comment

This is certainly a concern which the lawmakers need to address urgently. Whilst it is possibly the most difficult sector of the industry to regulate, it also involves the most vulnerable section of the market.

Regulation of advisers by exemption and postponement means that these clients are also the most exposed to potential harm. No doubt, this has led to the disturbing increase in adviser involvement, which may also account for the increase in monetary value of the fraudulent claims.

While the RDR proposals contain details of how it intends to address issues in the lower income segment of the market, the problem of rogue product suppliers who operate outside the law. The first time one hears of these schemes is when a warning is published on the Regulator’s website.

Unfortunately, this is mostly after the damage was done, and is unlikely to reach the eyes and ears of those most likely to be affected.

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