Financial fraud: By you and against you
As a consumer, you need to understand the risks of financial crime and how to avoid becoming a victim, the risks of committing insurance fraud, and how to avoid inadvertently perpetrating fraud by, for example, omitting information in an insurance application.
Herman Lombard, the founder and executive director of financial services provider African Unity, says that an intentionally fraudulent insurance claim could result in the cancellation of the policy, as well as a negative reputation with the insurer and the industry in general.
“Consumer fraud is the second-highest ranking category of reported economic crime in the country, and life insurance fraud, in particular, has seen a recent spike, which means insurance companies are being increasingly thorough and vigilant.”
Multiple retrenchment applications from the same employer, a natural death suspiciously soon after the commencement of a life policy, and opportunistic life policies taken against the imminent death of church or work acquaintances are some of the most common insurance scams perpetrated by consumers.
Companies, however, are rising to the challenge of intensified fraudulent activity, becoming more aware and able to identify and correct their vulnerabilities.
Lombard says the best way to avoid the pitfall of unintentionally committing fraud is to “overshare” and disclose absolutely everything in your insurance applications, even if you’re uncertain of its relevance.
“The rule of thumb is to share too much rather than too little and risk future payouts,” he says.
As many South Africans know only too well, there are insurance sales fraudsters who are able to deceive even the savviest consumer.
One of the most common areas of fraud is linked to funeral cover, where victims are led to believe they have bought funeral cover and pay over their monthly premiums in good faith. These “policies” are often sold face-to-face, and the premiums collected in cash. It’s often only when a loved one passes away and the funds are needed to cover funeral costs that “policyholders” discover that they don’t have the cover they thought they had.
Lombard advises that when buying insurance, you must make sure you know which company will be responsible for paying out the claims and ensure that it is a reputable organisation. You should insist on seeing the policy document before handing over any money.
The internet and social media have provided a whole new world of potential scams to fraudsters. Digital banking fraud has increased dramatically and in 2018 amounted to a staggering R262 million in gross losses in South Africa.
Lombard says the most common digital banking frauds are unauthorised SIM swaps while you’re on your banking app, or voice phishing, or “vishing”, where a fraudster persuades you over the phone to divulge confidential information related to your bank account.
People who live alone should be especially wary, as research shows this group is particularly susceptible to scammers and fraudsters, having no one around to warn them or intervene. There appears to be a strong correlation between social isolation and becoming a victim of fraud. Financial illiteracy and financial desperation play a significant role.
Experts warn that social media-based scams are more effective in duping victims than phone- and email-based scams. “Don’t let your guard down, and try to ensure the authenticity of every communication you receive,” says Lombard.
COMMON ONLINE SCAMS
Some of the most common types of online scams to watch out for are:
* Fake Facebook giveaway. Scammers lure victims with promises of outrageously generous prizes, only to “phish” the personal and financial details of those naive enough to engage. These scams usually attempt to mimic a popular brand or celebrity page. As such, your first line of defence is to ensure you are dealing with a Facebook-verified company page.
* Card-not-present fraud. This very common fraud involves illegitimate online purchases without the use of a physical card or the cardholder’s permission. The card details are usually acquired via data breaches, malware or phishing. Be cautious with your credit cards and shop only at reputable online stores. Watch your bank statements, and never give out credit card details in your emails.
* Advance-fee scam. This involves being offered a vast sum of money for a seemingly legitimate reason, on condition that a small “administration fee” is deposited and/or bank details are furnished. The ruse is often successful because scammers pose as financial services providers offering personal loans. Always check whether a financial services provider has a genuine official website. Spelling and grammatical errors are a major red flag. And remember that a legitimate, registered credit provider will never ask for money upfront in order to confirm a loan.
* WhatsApp scams. Similar to the Facebook scams, these work by virally spreading links that appear to be from either an above-board business or WhatsApp itself. Clicking on the links allows fraudsters to infiltrate your device with malware. Be very wary of any WhatsApp messages that offer prizes or discounts and that require you to spread them among your contacts.