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Insurers getting better at identifying dishonest claims

Published May 17, 2022



It has always fascinated me what it is that makes some people less honest than others. I don’t refer to people who live in desperate poverty and resort to stealing to survive. I refer to those who are comfortably off but who are propelled by greed to breach moral and legal boundaries.

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None of us is perfect and it is said that each man has his price – with the exception, of course, of former deputy finance minister Mcebisi Jonas, who famously turned down a R600 million bribe from the Guptas. However, for a democratic society to function smoothly and for the financial institutions within such a society to operate effectively, a relatively high level of honesty is required, which translates into trust. You need to trust your bank that it won’t steal your money and that your insurance company will pay out if you suffer a loss. The bank, on the other hand, needs to trust you that you won’t run off with the money it lends you and the insurance company needs to trust you not to claim for something you didn’t lose or didn’t possess in the first place.

Yes, there are laws and regulations to keep citizens in check, and insurers have their small print, but, as we witness ad nauseum, the untrustworthy among us will knowingly skirt the rules and Ts and Cs if there’s something in it for them and they believe they can get away with it.

But getting away with it is harder than you think. The life insurance industry has just released figures on those who didn’t get away with trying to defraud their insurers in 2021.

The industry body, the Association for Savings and Investment South Africa (Asisa), reports that South African life insurers detected 4 287 fraudulent and dishonest claims worth R787.6 million across all lines of risk business in 2021. This is a significant increase from 2020, when 3 186 cases of dishonest claims to a value of R587.3 million were uncovered, which in turn was higher than 2019, with 2 837 fraudulent and dishonest claims valued at R537.1 million. In the year before that (2018), 3 708 dishonest claims were uncovered, valued at R1.13 billion, showing that this trend does not move in a straight line, nor does it appear to be related to the Covid-19 pandemic.

Funeral insurance attracted the highest incidence of dishonesty and fraud, followed by death cover, disability cover, hospital cash plans and retrenchment benefit cover.

Megan Govender, convenor of the Asisa Forensics Standing Committee, says R787.6 million may seem like a relatively small amount compared with the R608 billion in claims and benefit payments made to policyholders and their beneficiaries in 2021 – the highest ever paid in a single year. However, if fraud was left unchecked, he says, honest policyholders would ultimately have to pay for it through higher premiums.

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Govender says insurers are therefore constantly innovating and improving ways to combat insurance fraud, including using artificial intelligence, data sharing for early detection of trends and increasingly focusing on field investigations.

Govender warns anyone contemplating a crime to access an insurance payout that the chances of being caught are extremely high, with the possible consequence of a prison sentence or hefty fine. Last year’s Rosemary Ndlovu case, for example, resulted in a sentence of six life imprisonment terms for the former police officer who had several family members murdered so that she could benefit from the funeral insurance pay-out. Similarly, a pastor and his wife in the Western Cape received lengthy prison sentences last year for taking out life insurance policies on church members with the intention of having them murdered by a hitman for the death benefits.

Funeral policies

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For the past several years, funeral policies have topped the list when it comes to dishonest or fraudulent claims. In 2021, life insurers detected dishonesty or criminal intent in 3 268 funeral claims worth R128.2 million. This is up substantially from 2020, when 2 282 claims worth R80.8 million were found to be dishonest or fraudulent.

Govender says most dishonest funeral claims involve misrepresentation, non-disclosure and/or fraudulent documentation. “Since funeral policies do not require blood tests and medical examinations and are designed to pay out quickly and without hassle when an insured family member dies, misrepresentation in this space most commonly concerns the relationship that the policyholder has with the person whose life is being insured. Funeral cover is designed to enable people to cover themselves as well as their extended families. However, when a policyholder includes his best friend and the friend’s family under the policy claiming that he is a brother, this is considered misrepresentation,” he says.


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Long-term insurance