Don’t get caught up in life insurance fraud

Fraudulent life insurance claims are on the rise in South Africa. According to the Association for Savings and Investment South Africa (ASISA), in 2021, some R787.6m worth of fraudulent and dishonest claims were made.  

We explore why fraudulent claims are on the increase, which types of fraud are most common, and how you can ensure you don’t fall prey to fraudsters.

Tip: If debt is putting pressure on your household finances, consider debt consolidation, which can help you realign your repayment plan.

Why are fraudulent insurance claims increasing?

South Africans are struggling to make ends meet in the face of rising inflation and interest rates. Some 74% of  South African consumers who contributed to NielsenIQ’s 2023 Consumer Outlook report, said cost of living increases were responsible for their financial difficulties.

Consumers may be tempted to turn to insurance fraud to survive, says Craig Baker, CEO of MiWayLife. However, they may not realise that this could lead to jail time.

“You can be prosecuted even if you commit fraud unintentionally,” he says. “It’s vital to be aware of the do’s and don’ts, for this reason.”

The main types of life insurance fraud

The following are the three most common types of life insurance fraud. Understanding these can help you to avoid committing them unwittingly.

1. Application fraud

If you knowingly provide false information, misrepresent yourself or your health history, or conceal material facts in your insurance application, this constitutes fraud, says Lindokuhle Shandu, who holds an honours degree in criminology and forensic studies.

“Whether or not your goal is to qualify for more coverage or lower premiums, lying on your application is illegal and may be reported to the appropriate jurisdiction,” he notes.

Insurers will pay particular attention to claims made within the first few years of the policy’s inception. If information is lacking, this suggests that the policyholder knew they had, for example, a critical illness before taking out cover, but did not disclose it.

“Rather furnish too much information than too little, to avoid leaving out something that may be important,” says Baker.

Sales advisers can also commit fraud to generate upfront commission, especially if they are under pressure to make sales, says Peter Kerford, head of Group Forensic Investigations at Momentum Metropolitan.

“Quality sales, where premiums are paid every month, are more difficult to achieve during tough economic times,” Kerford says.

He notes that, although technology may make for a smoother onboarding process, it can also be abused.

“Prospective clients can be tricked into accepting policies they don’t want by responding to a one-time PIN, for example. You may be pressured into confirming the PIN before having read the message,” he warns.

2. Forgery of ownership

Fraudsters frequently commit identity theft, pretending to represent reputable insurers in order to gain access to funds.

“Fraudsters may try to change critical contact information before attempting a withdrawal request, to prevent detection for as long as possible,” Kerford notes.

They may also try to change the ownership or beneficiaries of a policy. However, only a policyholder is empowered to do this, says Shandu.

“Your insurer should actively engage with you before any changes are made to your policy. This can also help expose fraudulent attempts by syndicates who hope to benefit unlawfully from the policy,” he explains.

3. Disability or death fraud

Disability cover is critical to paying your bills if you’re temporarily or permanently disabled. However, if you’re faking an illness or disability to get a policy payout, you risk a fine and a lengthy prison sentence.

Similarly, submitting false or fraudulent death claims will be prosecuted to the full extent of the law, says Kerford. He cites a case in which a policyholder, funeral parlour owner, and doctor conspired to have the policyholder declared deceased to claim a payout of millions of rands.

“Insurers will work with the South African Police Services to ensure these cases are thoroughly investigated,” he says.

How to protect yourself

Kerford offers a number of tips to avoid falling prey to insurance fraud committed by a third party.

• Don’t click without thinking. “If you’re required to click on a link or confirm a PIN, refrain from doing so until you understand what you’re agreeing to,” Kerford recommends.
• Don’t ignore communications from your insurer. “This includes checking an SMS sent by your insurer, to help identify fraudulent activity on your policy,” says Kerford.
• Keep your contact information up to date. This helps prevent fraud; however, you should never provide personal information via social media, or telemarketers, unless they are trusted sources.
• Remain alert. Awareness helps you to stay safe. For example, it’s worth checking your payslip every month for any anomalies. “Check for unauthorised debits or stop order deductions,” Kerford recommends. “Very few people do so, which means they may be losing money without being aware of it.”

Being a victim of fraud not only jeopardises your financial security, but it can affect your credit history. Check your credit score today.