According to the 2017 consolidated statistics of fraudulent and dishonest claims, published by the Association for Savings and Investment South Africa (Asisa), fraudulent and dishonest insurance claims remain a serious problem.
In 2017, South African life insurers thwarted a total of 5 026 irregular claims to the tune of R1.13 billion. The year before saw 13 488 irregular claims made, across all types of long-term insurance products, but to an almost equivalent value of R1.03 billion.
KwaZulu Natal was revealed to be the most dishonest province, responsible for 31% of all fraudulent and dishonest claims. This was followed by the Eastern Cape (22.3%), Gauteng (20.5%), Western Cape (6.7%) and the Free State (5.1%). The rest of the provinces were responsible for 5% or less.
Convener of the Asisa Claims Standing Committee, Donovan Herman, says that while life insurers are frequently accused of devising ways to get out of paying claims, the numbers tell a completely different story. In 2017, life insurers made benefit payments of R469 billion to their policyholders and beneficiaries, compared to the R1.13 billion to be found irregular and rejected.
“The reality is that as the custodians of a significant portion of South Africa’s savings pool, life insurers are obliged to protect the integrity of this savings pool and the interests of honest policyholders by preventing fraud and dishonesty,” said Herman.
“If we left fraud and dishonesty to spiral out of control, honest policyholders would end up footing the bill through higher premiums driven by untenable claims rates.”
As attempts at fraud grow more sophisticated, largely thanks to evolving technology, life insurers are forced to adapt and hone their detection methods.
Let’s take a look at some of the findings.
Of the R469 billion paid out in 2017, a total of R60 billion went to persons who had experienced death or disability in their family – while 2 111 death claims, to the value of R554.2 million, were rejected due to fraud and dishonesty.
With only 444 fraudulent death claims reported in 2016, this makes deceitful death claims the biggest increase by far.
So, aside from the obvious aspects, what makes a claim fraudulent or dishonest?
In 1 784 cases of a death claim being rejected in 2017, insurers detected that fraudulent documentation had been submitted. 316 cases were rejected due to misrepresentation and/or material non-disclosure.
What’s the difference between misrepresentation and material non-disclosure?
You may remember the latter popping up in the news not too long ago, when a widow was denied a life insurance payout on the basis that her husband, who had unfortunately been killed by a gunshot wound, was found to have omitted the fact that he had diabetes during the policy underwriting process. Our regular readers may remember that we wrote about this specific case at the time.
We can therefore say that material non-disclosure is when the policyholder fails to disclose important information, such as a medical condition, state of health, family history or a dangerous lifestyle. It’s not always deliberate, and sometimes it just slips the client’s mind, but it will almost always result in the rejection of future claims.
Misrepresentation, on the other hand, occurs when a policyholder intentionally provides misleading information to the insurance company.
In order for the insurer to set premiums that are in proportion to the level of risk, applicants have to be completely honest, no matter how damaging the information. It’s far better to pay a slightly higher premium than to find your claim outright rejected later on down the line.
Other causes for rejection were syndicate involvement, beneficiary involved in death and advisor / broker involvement.
2017 also saw 1 025 funeral claims rejected, worth R34.9 million, and 757 disability claims rejected, worth a staggering R516.5 million. In both cases, these rejections were mainly due to misrepresentation and material non-disclosure.
Funeral policies, due to their nature, are designed to pay out fast and without any humming and hawing. There’s no need for medical examinations or blood tests, such as with life policies.
Shockingly, life insurance companies see this kind of scam all too often. A person takes out funeral cover on somebody else, under the pretence that they are family, and it later comes to light that the insured is just a friend or a colleague or even completely made up.
On the subject of disability claims, Herman says that policyholders are often tempted to omit information about existing health conditions, with the hopes of securing lower premiums. Life insurers always find out when somebody has lied, though, and it just isn’t worth it in the long run.
In 2016 there were 11 302 irregular funeral claims discovered and rejected. This number has lowered quite drastically. Disability claims, however, have marginally increased, with 621 claims reported in 2016.
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