Slow economic growth and unemployment have resulted in an increase in fraudulent insurance claims, estimated to cost the industry billions of rands, says Garth de Klerk, the chief executive of the Insurance Crime Bureau.

De Klerk says although the bureau did not have exact figures, his opinion is that the cost of fraud and fraud management is astronomical.

“We are talking billions in the combined industry. These have increased even more in recent times. Tough economic conditions in South Africa are definitely making people desperate. There are just not enough jobs to go around. We have also recently seen a number of big-name companies being negatively affected by governance and compliance issues, which, again, will result in job losses and increases the need for people to be dishonest merely to survive,” says De Klerk.

He says there has been a climate of corruption that makes it seem like the norm to “steal a little”. It starts small, and once people realise how easy it is, they steal more.

“This is normally when we detect them, as they get greedy. These frauds aren’t only costing insurers and policyholders, they are also costing civilians their lives. What we are seeing is that there is a physical impact in the life side where people are dying for policy benefits, and we need to work on this issue to protect our citizens against these murders,” he says.

According to the South African Insurance Association, local insurance fraud is in line with international trends and statistics.

The association estimates that up to 32% of all claims submitted in any year could be fraudulent, and almost a third of claims are laced with some element of dishonesty.

Craig Baker, the chief executive of MiWayLife insurance, says the insurer has seen an increase in the number of claims that have an element of adverse selection, mostly because of people withholding information when taking out the policy, with the intention of claiming against a benefit shortly after the policy has been in place.

Baker says that misdemeanours range from the mundane to the nightmarish, and hospital cash-back policies are a significant area of fraud.

“These insurance schemes often pay from several hundred to several thousand rand to a person for each day they spend in hospital to cover loss of earnings or supplement unanticipated costs. We see unscrupulous doctors admit ‘patients’ that are not sick to hospital. The ‘patients’ claim from medical schemes, which pay for an unnecessary hospital stay. We see much of this happening in psychology, as it is more difficult to disprove than a physical impairment or injury,” he says.

Baker says the concern is that many people genuinely suffer from a variety of psychological disorders, and that there is high likelihood of many people going untreated in favour of fraudsters who have access to these networks.

“We know that, given the nature of these disorders, this can cost lives too,” says Baker.

De Klerk says two different types of person perpetrate insurance fraud: those who take out policies with the intention of stealing, and those with existing policies who either pretend something was stolen when it was not or who over-inflate the values in genuine claims.

He says many fraudulent claims result in legal action against the claimant, who can be prosecuted even after a claim has been paid out.

“With the Insurance Crime Bureau working hard on centralising crime detection and prevention in insurance, this likely means your chances of getting another insurance policy in South Africa could be over for the rest of your life.”

De Klerk said it is a common misconception that a rise in insurance fraud costs just the industry. “In fact, it is often the honest who must pay, ironically, and not always in ways immediately visible. This cost of fraud is thus borne by both the insurance industry and the public, as the costs of providing insurance is increased. Simply put, fraud detection is expensive and insurers’ fees must increase as the cost of doing business increases, just like in any other field. So monthly payments are likely to get higher the higher the level of fraud is,” says De Klerk.


You must provide accurate information when taking out an insurance policy or submitting a claim.

The Office of the Ombudsman for Short-term Insurance receives many complaints where policyholders intentionally provided incorrect information when they bought the policy in the hope they would pay a cheaper premium.

The office says it is your responsibility to provide the insurer with all the information it requires to underwrite your risk correctly.

The office says the information provided at sales stage by the applicant enables the insurer accurately to determine whether or not to cover the applicant, what premium to charge, and whether the policy should be endorsed with special conditions.

The Policyholder Protection Rules require the insurer to design its sales questionnaire so that it can draw out the answers required to underwrite the risk.

The insurer is also required to explain the purpose of the questions, and that a claim can be rejected if the applicant provided incorrect information.

“If incorrect information is provided unintentionally, your insurer may still pay out a claim (but is not obliged to). The office of the Ombudsman for Short-term Insurance sees far too many complaints where policyholders intentionally provided incorrect details at sales stage in the hope of paying a cheaper premium. We receive numerous complaints from consumers where their insurer has subsequently rejected a claim on the basis of a material misrepresentation or non-disclosure at sales stage,” says the ombudsman’s office.

The office says important information that policyholders sometimes neglect to disclose is having suffered a previous loss or being declined cover.

“If you misrepresent, or fail to disclose, material facts to the insurer, your policy may be cancelled with effect from the start date. In this event, you will be entitled to receive a refund of all premiums paid since the start date, but this is cold comfort when you are faced with a big claim, such as when your vehicle is a write-off or your home is burgled. 

“Your duty to disclose does not end once the cover starts. You are required to inform your insurer of any material change to your circumstances prompting a claim submitted to the insurer for payment. The insurer needs to establish the facts surrounding the loss so as to determine its liability in terms of the policy.”

Claims investigated

The ombudsman’s office says most policies include a clause that entitles the insurer to reject the entire claim even if only one aspect of it is found to be dishonest, and insurers thoroughly investigate a claim, and at that stage any misrepresentation will invariably come to light.

“For instance, on a vehicle accident claim, it may perform an assessment interview with witnesses, including the third party, tow operators and the police. The insurer may also request medical reports, bank statements, vehicle-tracking reports, and cellphone beacons and billing to ascertain whether the policyholder complied with the terms and conditions of the insurance contract. Where a policyholder has had a policy cancelled for dishonesty, it will prove difficult for that person to find alternative cover in future.”

The office says fraudulent claims are a major challenge to the short-term insurance industry, and insurers appoint investigators to validate high-value or suspicious claims, to reduce the number of fraudulent claims.

“Although the burden of proving fraud is high and lies with the insurer, the implications are serious. A fraudulent claim may not only result in a claim being rejected, or the cancellation of a policy, but the matter may be reported to the police. Therefore, to have valid and ongoing cover, you need to pay close attention in your dealings with the insurer, so always provide true and complete information and make sure it remains up-to-date.” 

[email protected]