South African life assurers reported a steep increase in the number of fraudulent and dishonest claims detected in 2014. Last year, 8 306 cases were uncovered, compared with 4 690 in 2013.
Releasing the 2014 life assurance claims-fraud statistics, Peter Dempsey, the deputy chief executive of the Association for Savings and Investment South Africa (Asisa), said that, if these claims had not been detected, the industry would have lost R755.2 million to dishonest policyholders and criminals last year.
Although the number of dishonest and fraudulent claims for 2014 was significantly higher than in previous years, the total amount involved was marginally lower than in 2013, when the value of the claims uncovered was R794.5 million. “This means that dishonest policyholders and criminals submitted more claims in 2014, but of lower values,” Dempsey says.
“Unfortunately, dishonesty and fraud tend to increase when economic conditions are tough. People are more inclined to co-operate with syndicates in return for a share of the policy proceeds. And some policyholders will either try to keep their premiums to a minimum by not disclosing all risks or submit dishonest claims, with the intention of getting their hands on a policy payout that they are not entitled to.”
Dempsey warns, however, that dishonest and fraudulent claims are usually detected and that the consequences of getting caught are often severe.
Although the value of these dishonest claims runs into millions of rands, the amount is small compared with what is paid out for legitimate claims: in 2014, this was more than R29.4 billion.
The Asisa claims-fraud statistics show that, in 2014, death and funeral policies attracted most of the dishonest and fraudulent activity. The number of irregular death and funeral claims detected was more than three times higher than in 2013 – last year, 7 360 claims were thwarted, compared with 2 093 in 2013. However, the value of the claims in 2014 was slightly lower, at R402.8 million, compared with R524.6 million in 2013.
According to Dempsey, fraud played the biggest role (3 619 cases) followed by dishonesty through misrepresentation or material non-disclosure (3 551 cases).
Misrepresentation is when you, as a policyholder, deliberately provide misleading information to an assurer. Material non-disclosure is when you fail to disclose important information about a medical condition or lifestyle.
Dempsey says assurers have reported an increase in fraudulent death and birth certificates, as well as fraudulent reports from tribal leaders. In many cases, policies were taken out on the lives of terminally ill people by fraudsters who were not related to them.
Among funeral policies, a high number of claims were rejected because the insured person died within the six-month waiting period that funeral policies have as a requirement. Dempsey says this shows that many people are taking out cover only when the need is imminent – a practice known as “anti-selection”.
However, there has been a complete turnaround in fraud related to hospital cash plans. Dempsey says that, although hospital cash plans were hit particularly hard by syndicates in 2013, not a single claim involving syndicates was recorded in 2014.
“This shows that the industry’s zero-tolerance approach to hospital cash plan claims involving any kind of fraud is paying off. The abuse of hospital cash plans has been a major concern for insurers, and, through sharing information and working more closely with medical schemes, insurers have been able to identify syndicates consisting of doctors and hospital staff,” Dempsey says.
In 2014, only 391 claims against hospital cash plans were rejected, mainly because of misrepresentation or material non-disclosure.