Insurers report 12% spike in dishonest, fraudulent claims
SOUTH African life insurers reported a 12 percent increase in fraudulent and dishonest claims across all lines of risk business last year compared to 2019, with most of them in the funeral insurance space.
The 2020 fraudulent and dishonest claims statistics, released this week by the Association for Savings and Investment South Africa (Asisa), showed that 3 186 cases of fraudulent and dishonest claims to a value of R587.3 million were recorded last year, compared to 2 837 fraudulent and dishonest claims valued at R537.1m in 2019.
The highest incidence of fraud and dishonesty last year took place in the funeral insurance space, where a total of 2 282 claims were found to be fraudulent or dishonest.
Asisa’s forensics standing committee convenor Megan Govender said the increase in fraudulent and dishonest claims was not surprising, because the tough economic conditions made it more tempting for dishonest policyholders and syndicates to try their luck in the hope of scoring sizeable insurance pay-outs.
He said that 31 percent of all fraudulent and dishonest claims were detected in KwaZulu-Natal, followed by the Eastern Cape with 16 percent, and Gauteng with 15 percent.
Govender said although funeral insurance has always been seen as a soft target for fraudsters, the Covid-19 pandemic had made it worse.
He said desperation because of job losses was driving more people to resort to crime, while the pandemic had also resulted in a significant increase in deaths, which made it easier to source dead bodies from flooded mortuaries for fraudulent claims.
“Since funeral insurance 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, criminals and dishonest individuals most commonly try their luck in this space.”
Govender said there had been several “shocking incidents” in recent months that illustrated how far some people would go to access a funeral policy pay-out illegally.
Funeral policies impose a waiting period of between six and 12 months on deaths from natural causes to prevent people from taking out a policy only once they are sick and know they are probably going to die.
Govender said he had come across cases where families were so desperate for pay-outs from funeral policies that they orchestrated unnatural deaths after their family members had died from natural causes within the waiting period.
Govender said funeral insurance fraud often involved mortuary employees who sold dead bodies to syndicates, which used the bodies to claim against policies that had been fraudulently taken out some months earlier.
“If funeral cover is taken out on someone who does not exist, by submitting fraudulent documentation, the criminal will have to commit a further crime by either buying a dead body or murdering someone to enable them to claim. Buying an unclaimed dead body is usually the easier option.”
Govender said the life industry had picked up on a syndicate that targeted drug addicts and alcoholics from impoverished communities, and under the pretext of a job offer obtained their personal details, including banking details. These details were used to submit fraudulent funeral policy applications.
Policyholders and beneficiaries received claims and benefit payments worth R522.7 billion from life insurers last year. The life industry recorded 434 216 legitimate death claims last year, of which more than half were for funeral policies (266 321). Last year, 2 282 funeral policy claims were found to be fraudulent or dishonest.
Life insurers detected fraud, dishonesty or criminal intent in 2 282 funeral claims worth R80.8m last year. Govender pointed out that there was a significant increase in fraud last year, with the value of fraudulent claims up by R16.6m.
Govender said considering the 27 percent increase in death claims last year because of the Covid-19 pandemic, it was not surprising there had been an increase in misrepresentation and material non-disclosure cases from 276 to 340.