Life insurers see spike in dishonest claims

Nicolette Dirk, finance writer, justmoney.co.za

Life insurance companies uncovered 5 466 fraudulent and dishonest insurance claims last year to the value of R669.9 million. Recently the Association for Savings and Investment South Africa (ASISA) stats showed that the majority of irregular claims detected involved dishonesty through misrepresentation and material non-disclosure rather than criminal intent of fraud.


The short term insurance industry is also feeling the financial brunt caused by dishonest claimants. Santam, South Africa’s largest short-term insurer, reported 79 cases of commercial crime worth R7.3million in the year to date. This included insurance fraud, forgery or falsification of documents and theft.


“It is a real concern in the South African short-term insurance industry that every year we see statistics showing a continued upward trend in the number of commercial crimes reported,” says Helen du Toit, Santam head of audit and forensics.


The cost to the industry
Insurance fraud costs the short-term insurance industry an estimated R4 billion a year. According to Santam, fraud is fast becoming a critical challenge and they are now working with the South African Police Services (SAPS), to promote awareness of fraud.


“We know that the majority of policyholders are open and honest in their claims, but practices such as ‘padding’ – when a handful of clients inflate their claim amounts, do occur. While some people think adding a few rands to their claim is harmless, it does in fact, constitute fraud,” said Attie Blaauw, head of personal lines at Santam.


Peter Dempsey, deputy CEO of ASISA, said the number of death, funeral, disability, health and hospital as well as retrenchment life insurance claims deemed dishonest increased to 4 939 in 2012 from 4 675 in 2011. The value of these claims went up from R463.5 million in 2011 to R620.1 million in 2012.


Common fraudulent claims
In short term insurance the most prevalent types of fraud include when policyholders submit a claim for an event that did not occur and inflate the claims.


“The consequences of a fraudulent claim can be dire. Those that are found guilty can face the repudiation of their entire claim, the possibility of criminal charges, and the possible cancellation of their policy. We can repudiate a claim in the event of a staged or fabricated incident, where the date or circumstances of the event has been changed or when the policyholder intentionally caused the event or loss,” said Blaauw.


According to Dempsey a number of life insurers reported cases where policyholders added children that were not their own to a funeral policy to take advantage of the free benefit for children.


“This is considered misrepresentation. Since this is a growing trend life insurers are increasingly asking policyholders to submit proof that they are either the biological parents or legal guardians of children listed on their funeral policies,” said Dempsey.


Insurance tips for consumers:

•    Understand your policy and know exactly what you are covered for.


•    Review and update your policy. Policyholders often forget to inform insurers about changed circumstances and their accumulation of new possessions. It is important to update your policy annually, to ensure that any new items are accounted for and covered. It is also important to let your insurer know what improvements or additions you have made to your home or vehicle to avoid being underinsured.


•    Check your comprehensive cover. Not all comprehensive cover is comprehensive. Common exclusions include alternate vehicle drivers and hail damage cover to your vehicle and home.


•    Get an expert on your side. Intermediaries are a good source of information and advice and can assist you with a many things from helping you update your list of insurable items to providing your insurer with your updated information and most importantly, helping you with the entire process of lodging a claim with your insurer.