Many people believe that insurance companies sign us up at the slightest opportunity, take our premiums without compunction, and then look for any excuse to avoid paying out when we claim. And they do this by secretively delving into our past or scouring the scene of our loss for tell-tale signs that we are being dishonest.
We’ve all heard horror stories, and although some may be true, this negative perception of the industry is largely the stuff of urban legend. On the whole, insurance companies pay claims without much fuss.
Maria Philippides, a director at law firm Norton Rose Fulbright who specialises in insurance law, says insurers (both short-term ones that insure property and long-term ones that insure people’s lives) are in the business of paying claims, and will not go out of their way to avoid paying them.
“Insurers don’t generally cross the line and infringe your privacy rights, or do things in a ‘sneaky’ way – they have their reputations to uphold,” she says.
Insurance is based on trust. Policyholders who intentionally make fraudulent or inflated claims abuse that trust, which makes claiming just a little more difficult for honest policyholders.
Philippides says it is in your interests as a policyholder that fraudulent claims are not paid out, because that would push up your premiums.
So, like it or not, insurers need to gather information about you and verify that information, both when you apply for cover and when you claim. They have the following avenues open to them for doing that:
• Information you provide. The primary source of information is what you tell your insurer, both on your application form (or during the telephone discussion in the case of a call-centre application) when you take out cover and on the claim-form questionnaire when you submit a claim.
Philippides says the questions on the claim form may encompass issues that go beyond the claim itself. Your answers to these questions are compared with what is on record from when you took out the policy. The facts should match.
• Information in the public domain. Philippides says you would probably be surprised by how much information about you is in the public domain. Deeds Office records of property ownership, details of directors of companies and police records are some sources. But there’s also what’s out there on the internet, which insurers may use to corroborate the information you have provided. As an extreme example, if, soon after a policyholder submits a disability claim, the insurer comes across a Facebook picture of the policyholder skiing in the Alps, it is certain to investigate further.
Philippides says that although your insurer may not have direct access to your social media accounts, and although you may restrict your posts to a private circle of friends, you have little control over your posts. Your friends may forward a post to their friends, and, before you know it, it is available for all to see.
• Private information accessed with your consent. Your medical and banking records are confidential and may be accessed only with your consent, Philippides says. The terms and conditions of your policy may include a clause stating that the insurer has the right to ask you for access to these records. In the case of medical and bank records, you do not sign away your right of consent when you take out the policy, she says, but you may be asked to provide consent at claims stage. If you don’t, it may raise suspicions, and if the insurer has a strong enough case, it could obtain a court order to access your records.
Your credit history, which is also private information, is usually required upfront, when you take out a policy. Insurers will typically require you to disclose any adverse entries on your credit record before agreeing to cover you. The insurer will use your credit information and your claims history (see below), among other factors, to assess your risk, which will determine your premium.
• Industry-related information that insurers share among themselves. Long-term insurers share statistics, which alert them to trends. Short-term insurers, through a database established by the South African Insurance Association and administered by data agency TransUnion, have access to your claims over the past seven years (see “The Insurance Data System”, below).
• Assessment of physical evidence related to the loss. Philippides says insurers will typically appoint a loss adjuster (there are firms specialising in this – see “Loss adjuster’s roll”, below) to assess the claim.
In the event of a burglary at your home, for example, the loss adjuster will assess the house and the crime scene, check on your security arrangements (such as burglar bars and alarm), and come up with an idea of the value of the loss. In certain cases, an expert might be brought in – for example, if there has been a fire, an expert might be used to investigate how the fire started. The loss adjuster will also look at police reports or fire department reports.
Most claims routinely involve some sort of investigation, Philippides says. The higher the value of the claim and the more complex it is, the more thorough that investigation is likely to be.
A big red flag for your insurer is if there are inconsistencies between, for example, the answers you provided on the claim questionnaire and the facts established by the loss adjuster. Another red flag might be if there is a strong financial motive behind the claim.
Information protection law
With the recent appointment of Advocate Pansy Tlakula as chairman of the office of the Information Regulator, the full implementation of the Protection of Private Information Act is likely to be rolled out shortly, and all entities that use or process your personal information will have to comply fully with the Act within a year of implementation.
Insurers will be required to have sound reasons for requesting your private information – such as your medical records or your claims history with past insurers. These reasons are known in the Act as “bases for justification”. Philippides says they include:
• Consent (in this case by you, the policyholder);
• Contractual conditions; and
• Legitimate interests, which for insurers would, for example, be the prevention of fraud.
Philippides advises that you read your insurance policy document carefully to find out the consent you may be required to provide for your insurer to access your personal information. Too often, people just take out insurance without realising they are agreeing to provide such information to their insurers, she says.
LOSS ADJUSTER’S ROLE
Loss adjusters are used by short-term insurers to investigate both commercial and personal lines claims. An insurance company may have its own internal team or it will use the services of a specialist firm.
Jan Schubart, the president of the Institute of Loss Adjusters, says the role of a loss adjuster in assessing a claim includes verifying the circumstances of the loss, confirming that an insured peril (what the policy covers) has, in fact occurred, and ensuring that there has been no breach of policy conditions and/or exclusions.
He says the information a loss adjuster needs depends largely on the type of claim, but generally it is to establish the ownership and value of the lost or damaged property. To do this, a loss adjuster will ask you for invoices or other proof of payment or ownership.
Although the adjuster is appointed and paid by the insurer, Schubart says, he (or she) should remain “independent in thinking and the work he performs”. The adjuster is there to check that the loss is covered by the policy and is dealt with accordingly, he says.
“The adjuster receives no benefit in cutting or inflating a claim. If he is caught doing this he may be placed on an insurer’s ‘do not use’ list, not to mention being seen as unfit. This could lose him his membership of the institute and any professional status he may hold.
“Red flags alerting an adjuster to a possible fraudulent or inflated claim include invoices, or other purchase documentation, not tallying with the supplier’s or issuer’s records, patent overstatement of values, theft via a window that is too small to allow the passage of the goods allegedly stolen, clothing stolen that exceeds the storage space available, and photographs taken inside a dwelling prior to a theft showing items that differ from what is being claimed,” Schubart says.
THE INSURANCE DATA SYSTEM
For over two decades, short-term insurers belonging to the South African Insurance Association (SAIA) have been able to contribute to and access a claims database known as the Insurance Data System (IDS). In 2012 an updated version of the system was launched, which included a streamlined process for submitting data.
Charles Hitchcock, SAIA’s chief operations officer, says the IDS was developed by SAIA with international data agency TransUnion being the technical service provider. The IDS was created to combat fraud in the short-term insurance industry, and it consists of a transactional policy database and a transactional claims database. Hitchcock says participating insurers contribute on a give-to-get basis – in other words, you have to contribute data to be able to retrieve data. Although there are larger SAIA members using the system, not all SAIA members are participants, he says.
The IDS contains your claims data across insurers for the past seven years. For example, if, within that period, you had car insurance with one insurer, switched to another, and now have your car cover with a third, there will be a record of all your claims at the three insurers, much in the same way that TransUnion’s credit-record database contains your credit history.