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Life Assurance
Sunday, August 1, 2010
False hoods

South African life insurers last year detected a record number of 4 826 attempts by policyholders and beneficiaries to access policy benefits through fraudulent and dishonest means.

Peter Dempsey, deputy CEO of ASISA, says the foiled claims would have cost the industry R824,2 million in 2009, had they gone undetected.
Statistics relating to fraudulent and dishonest policy claims are gathered by ASISA on an annual basis. Dempsey says life companies share fraud statistics and information with the aim of detecting trends and syndicate activity as early as possible.
The highest number of fraudulent and dishonest claims were submitted in Kwa-Zulu Natal (40%), followed by Gauteng (22%) and then the Eastern Cape (15%). He says a combination of reasons led to the 2009 statistics being significantly higher than in any other year since the industry started gathering fraudulent and dishonest claims statistics in 2003. “We know that during times of economic hardship more people try to access policy benefits through dishonest means. While we certainly believe that this was a contributing factor last year, the industry has also significantly improved its fraud detection measures and reporting mechanisms over the years. As a result ASISA received the most comprehensive set of reports yet from member companies last year.”
Dempsey adds that for the first time life companies also submitted data for health business and hospital claims, as well as retrenchment claims. For these reasons, he says, there is little value in comparing last year’s fraudulent and dishonest claims statistics to previous years.
He explains that if life companies do not try to prevent claims fraud, the experience of life companies would increase substantially and ultimately force them to recover these losses from customers through increased premiums. However, by far the majority of claims submitted to life companies are honest and legitimate and are therefore paid out. The life industry paid out benefits of more than R175,6 billion in 2009 to consumers as a result of death and disability claims, maturity pay-outs and pension, annuity and other payments.
Death and funeral policy claims

Dempsey says the death and funeral insurance category experienced the highest number of fraudulent and dishonest claims last year. Life companies reported 3 579 cases to the value of R443,8 million. The majority of cases were due to misrepresentation and material non-disclosure, as well as the submission of fraudulent documentation. Syndicate involvement, beneficiary involvement in the death of the policyholder, and adviser and broker involvement also contributed to the statistics, but to a much lesser extent.

Misrepresentation and material non-disclosure

Misrepresentation and material non-disclosure in this category resulted in 1 648 claims to the value of R352 million being rejected as dishonest in 2009. Misrepresentation and material non-disclosure do not involve the criminal intent that comes with fraud, and are therefore classified as dishonest claims.
Misrepresentation occurs when policyholders deliberately provide misleading information to a life insurer, because they know that if the insurer were made aware of the full risk, he would in all likelihood be required to pay a higher premium.
A pilot, for example, would be guilty of misrepresentation if he declares that he flies only 100 hours a year when he really spends more than four times that in the air. A pilot who flies less hours represents a lower risk to the life company and therefore qualifies for a lower rate. You are also misrepresenting information to your life insurer if you add someone else’s child to a funeral policy, pretending that it is your own.
Material non-disclosure refers to the deliberate failure of policyholders to disclose information about a medical or lifestyle condition, which is material to the assessment of the risk to be insured. An example of this is when an applicant for life cover omits to mention that she recently enrolled as a student helicopter pilot.

Fraudulent documentation

Dempsey says that companies also reported a high incidence of fraudulent documentation being submitted in an attempt to gain access to death or funeral policy benefits. Last year life companies reported 1 238 cases to the value of R74,2 million.
“A number of these cases involved falsified death certificates. We have also come across cases where the date of death was changed to fall outside of the waiting period of the policy. In one case the beneficiary used an unclaimed body at the mortuary and presented the deceased as someone covered by the policy.”

Disability Policy Claims

According to Dempsey, 813 cases of misrepresentation and material non-disclosure were detected in the disability claims category to a value of R360,8 million. Fraudulent documentation was submitted in 22 cases involving cover of R9,9 million.
Dempsey says that during tough economic times some consumers resort to fraud to access their disability covers. “We have come across policyholders who misrepresent material information such as their income with the aim of claiming more money in disability than they had actually been earning while able to work. There have also been cases where policyholders took out disability or income protection cover while already suffering from the condition for which they would later claim.”

Health Business and Hospital Claims

Dempsey warned consumers that life companies have caught on to policyholders who have themselves admitted to hospital without a valid medical condition for the sake of claiming from their hospital cash plans. Life companies rejected 404 claims worth R9,6 million last year in the health business and hospital claims category.
Dempsey says in one case a policyholder was found to have six hospital cash plans with different life companies, claiming from all of them after submitting fraudulent documentation claiming to have spent time in hospital.

Retrenchment Claims

Dempsey says, given the wave of retrenchments that hit South Africa last year, it is surprising that only eight fraudulent and dishonest retrenchment policy claims to a value of R172 684 were submitted. 

Copyright © Insurance Times and Investments® Vol:23.8 1st August, 2010
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