Insurance fraud - syndicates, opportunists, and murderers

We take out insurance to protect ourselves and our loved ones from unforeseen circumstances. But there are opportunistic parties who try to take advantage of the insurance system.

We have a look at what insurance fraud is, and what the stats have to say about this. We also look at the three most common types of claims fraud in the country.

Tip: Other people’s wrongdoing aside, you can only gain from an insurance policy. Click here for more.

What is insurance fraud, and what do the stats say?

According to Thasnim Dawood, senior assistant ombudsman and deputy information officer at OSTI, insurance fraud is when someone intends to gain an undue benefit under an insurance policy.

She adds that this may involve misrepresentation, dishonesty, or non-disclosure on their part.

“Imagine you claim for the theft of your household contents and deliberately add items that were not stolen. You will then receive benefits you’re not entitled to,” says Dawood.

She believes that educating consumers may be the best way to curb insurance fraud.

Jacques Erasmus, senior executive manager for Individual Life Administration at Assupol Life, says that a 12% increase occurred in fraudulent and dishonest claims between 2019 and 2020.

This is according to the Association for Savings and Investment South Africa (ASISA), which aims to represent the local savings, investment, and insurance industries.

“Their stats show that 3,186 cases of fraudulent and dishonest claims, to a value of R587.3 million, were recorded in 2020, compared to 2,837 claims in 2019, which were valued at R537.1 million,” says Erasmus.

Funeral insurance featured most prominently, he notes, where a total of 2,282 claims were found to be fraudulent or dishonest.

Three kinds of insurance claim fraud

One of the biggest culprits of insurance fraud is known as claims fraud. There are three broad categories within this, Erasmus says.

1. Syndicates create fictitious policies and claims

The first category involves organised syndicates. They recruit various persons to join them, including employees in the health sector, employees of the Department of Home Affairs, owners or employees of funeral undertakers, and even employees of insurance companies.

Their goal is to create fictitious policies and claims, mainly by forgery. Some typical ploys by syndicates include:

• Delaying the recording of deaths of individuals in the records of the Department of Home Affairs, taking out policies for such deceased persons and then recording the deaths at a later stage with the intention of claiming for benefits on the policies.
• Buying or renting of unclaimed bodies. Here the syndicate takes out a policy by using information obtained by way of identity theft. By using the unclaimed body, the syndicate reports the unclaimed body as being the person that was covered under the aforementioned fraudulent policy. The syndicate obtains a valid death certificate and then claims.

Syndicated claims fraud is by far the majority of fraudulent claims received.

2. Opportunistic individuals falsify facts

The second category is opportunistic fraud by individual policyholders. Again, forgery of documents or manipulation of actual facts are the main ingredients in these fraudulent claims.

Examples include delaying the reporting of actual deaths of persons to allow for policy waiting periods to expire, or manipulating the cause of death, resulting in the payment of a claim that may otherwise have been declined.

It’s a lot more difficult for a person to succeed in this kind of fraud, as they are acting alone and the systems employed by insurers to assess claims tend to detect these attempts quite easily.

3. Murdering for an insurance pay-out

The last category is extremely rare. This is where life insurance is obtained by an individual on the life of another person with the intent of committing murder.

Fraud cases that involve murder are very difficult to prevent without limiting accessibility to funeral insurance for the vast majority of honest clients.

Your insurance policy remains unaffected by fraud. Click here for car and home insurance.