South African life insurers reported a 12% increase in fraudulent and dishonest claims across all lines of risk business in 2020, with a monetary increase of over R50 million. Some of the examples quoted below will make your hair stand on end.
Megan Govender, convenor of the ASISA Forensics Standing Committee, says the increase in fraudulent and dishonest claims is not surprising since tough economic conditions make it more tempting for dishonest policyholders and syndicates to try their luck in the hope of scoring sizeable insurance pay-outs.
While funeral insurance has always been seen as a soft target for fraudsters, the Covid-19 pandemic has made it worse. He says desperation due to job losses is driving more people to resort to crime while the pandemic has also resulted in a significant increase in deaths, which makes it easier to source dead bodies from flooded mortuaries for fraudulent claims.
The highest incidence of fraud and dishonesty last year occurred in the funeral insurance space, where a total of 2 282 claims were found to be fraudulent or dishonest. In monetary terms it grew from R54.2 million in 2019 to R80.8 million in 2020.
“Since funeral insurance policies do not require blood tests and medical examinations and are designed to pay out quickly and without hassle when an insured family member dies, criminals and dishonest individuals most commonly try their luck in this space.”
Examples of fraud involving funeral policies
Govender says there have been several shocking incidents in recent months that illustrate just how far some people will go to access a funeral policy pay-out illegally.
- The “hit and run” crime
Funeral policies impose a waiting period of between 6 and 12 months on deaths due to natural causes to prevent people from only taking out a policy once they are sick and know that they are probably going to die.
Govender says he has come across cases where families were so desperate for pay-outs from funeral policies that they orchestrated unnatural deaths after their family members had died from natural causes within the waiting period. One family collected the body from the mortuary before the death was registered. The body was then purposefully placed in the road where it could be hit by a car. The family reported a hit and run accident and submitted a claim.
- Buying dead bodies
Govender says fraud in the funeral insurance space often involves mortuary employees who sell dead bodies to syndicates who then use these bodies to claim against policies that were fraudulently taken out some months earlier.
“If funeral cover is taken out on someone who does not exist by submitting fraudulent documentation, the criminal will have to commit a further crime by either buying a dead body or murdering someone to enable them to claim. Buying an unclaimed dead body is usually the easier option.”
- Exploiting addicts from poor communities
The life industry has picked up on a syndicate that targets drug addicts and alcoholics from impoverished communities and under the pretext of a job offer obtains their personal details, including banking details. These details are then used to submit fraudulent funeral policy applications.
In one case the syndicate then tried to murder the victim. The victim managed to escape, and the syndicate then moved to plan B of buying a dead body and submitting a claim. The claim was marked suspicious by the life company’s claims department and submitted to the forensic department for further investigation. Investigators found that the person whose life was insured was in fact still alive. Govender says the same syndicate has also been responsible for other fraud cases and suspicious deaths.
Protecting honest policyholders
Govender says while fraudulent and dishonest claims seem like a drop in the ocean when compared to honest claims paid, life insurers must vigorously counter fraudulent and dishonest claims to prevent them from leading to untenable claims rates that would ultimately result in higher premiums for honest policyholders. He points out that while life insurers are frequently accused of trying to avoid paying claims, the numbers tell a different story.
Policyholders and beneficiaries received claims and benefit payments worth R522.7 billion from South African life insurers in 2020. The life industry recorded 434 216 legitimate death claims in 2020, of which more than half were for funeral policies (266 321).
Govender warns those contemplating a dishonest or fraudulent claim that life insurers have put in place extremely sophisticated fraud detection mechanisms using artificial intelligence and data. “The chances of being caught are extremely high and the consequence is likely to be a lengthy prison sentence,” says Govender.
There is another very ugly side to this story as well. Horrific fraud is being perpetrated by sellers of funeral cover across the country. In some cases, syndicates operate by moving from brokerage to brokerage or in-house agency to in-house agency. There they write fictitious business, sometimes using authentic employee details obtained from corrupt HR staff. Being government stop orders, the product providers make payment without collecting first premiums and soon thereafter the policy is lapsed or cancelled without a premium ever being paid. The commission clawback happens after the fraudulent agent has long gone.
At Encore SA, we have seen product providers taken for hundreds of thousands of Rands over the past few years (not the millions you’re talking about, but still a serious problem).
Everyone suffers at the end of the day, except the scammers who seem to get away scot free, and the industry gets the bad name. We should also look at the pressure that product providers are applying to funeral cover sellers.
All round, a nasty situation.
It amazes me how people can become so inventive and creative in order to defraud insurance companies.
The sad result of this is that the insurance companies raise the premium levels to counteract the cost of fraudulent claims and the vast majority of innocent policy holder take the financial hit.
The moral of the story is always ensure that you know who you are dealing with and don’t be swayed by silver tongued individuals trying to make a fast buck at your expense.