What makes people susceptible to insurance fraud and what are the repercussions?

In tough times, fraudulent behaviour becomes even more tempting.

In tough times, fraudulent behaviour becomes even more tempting.

Published Apr 16, 2024


By Glenn Hickling

Economic hardships often push individuals toward desperate measures. In tough times, fraudulent behaviour becomes even more tempting. Falsifying death certificates for funeral policy claims or withholding crucial health information during application processes are just some examples of this deceit. Extreme cases of fraud may involve staging an accident, faking an injury or death, or syndicated schemes where fraudsters coordinate and execute complicated fraud strategies. Even seemingly harmless actions like exaggerating income or omitting medical history can have serious repercussions. Insurance providers will not hesitate to repudiate claims, rendering individuals uninsurable and, in some cases, subjecting them to criminal prosecution.

Insurance fraud is on the rise and it’s worrying

The surge in fraudulent and dishonest life insurance claims has emerged as a troubling reality in South Africa and beyond, casting a pervasive shadow of distrust over the insurance sector. Recent headlines underline the alarming trend of individuals exploiting diverse forms of insurance cover for financial gain, underscoring the widespread prevalence and consequential impact of insurance fraud within our society.

According to the Insurance Crime Bureau's 2023 report, funeral insurance topped the list of fraudulent claims, with 1 922 cases reported. This was followed by death cover, disability cover, hospital cash plans, retrenchment, and loss of income cover. The staggering rand value of these fraudulent claims amounted to R770.5 million in losses prevented, underlining the substantial financial implications of insurance fraud. KwaZulu-Natal emerged as the hotspot for fraudulent claims, with Gauteng, the Eastern Cape, and the Western Cape closely trailing behind. Despite efforts to combat fraud, the industry still suffered a significant loss of R77 million due to fraudulent activities.

Recent developments in insurance fraud

According to ASISA (The Association for Savings and Investment South Africa), sales representatives within the industry have also been implicated in illegal activities, encouraging members of the public to join criminal schemes for monetary gain, both with and without their knowledge. In the 2022/2023 period, sales fraud accounted for 57% of all fraud cases recorded and remains a persistent threat. It’s commonly achieved by manipulating clients or falsifying policies without their knowledge, solely to earn commission. This unethical practice further impacts trust in the insurance industry.

The surge in insurance fraud is also bolstered by sophisticated techniques like generative Artificial Intelligence (AI), which poses a significant threat to South Africa's non-life insurance sector. The proliferation of AI tools, such as ChatGPT, has enabled fraudsters to employ deep fake video, voice spoofing, document forgery, advanced social engineering, email phishing, and synthetic identity fraud, amplifying the complexity of fraudulent activities. Additionally, chat platforms with instant shareability features further escalate the risk of fraud. Given this landscape, detecting fraudulent claims is becoming increasingly challenging.

What consumers and the insurance sector can do to protect themselves

Vigilance is key. Safeguarding personal and financial information, refraining from clicking on suspicious links, and promptly reporting any signs of identity theft are crucial steps. Moreover, maintaining honesty in dealings with insurance providers is paramount. An insurance contract relies on mutual trust and disclosure – any deviation from this undermines the very foundation of the agreement.

Insurance companies, too, have a role to play in combating fraud. With advanced forensics teams, AI, and cutting-edge technology, they need to further step up their efforts in fraud prevention and detection. Collaboration within the insurance industry is imperative to curb the escalating trend of fraudulent activity.

Protecting both the industry and policyholders is vital, as unchecked fraud could result in heightened premiums or reduced coverage, worsening the protection gap for policyholders already grappling with economic hardships. In the face of rising living costs, maintaining affordable insurance and prioritising customer retention are vital considerations.

* Hickling is the head of Legal at BrightRock.