Detected fraudulent life insurance claims up by more than a third in 2021

South Africa’s life insurers have seen a 34% rise in exposure to fraudulent and dishonest insurance claims in 2021 in comparison to 2020, with detected life insurance fraud cases rising to 4 287 from 3 186 in 2020.

According to the Association for Savings and Investment South Africa (Asisa) the country’s life insurers detected 1 101 more fraudulent and dishonest claims in 2021, amounting to R787.6 million, up from the R587.3 million reported in 2020.

Despite the significant increase in detected fraudulent claims, convenor of the Asisa Forensics Standing Committee Megan Govender tells Moneyweb that most of these fraudulent claims were rejected and did not result in financial loss to insurers.

“In assessing these claims, most of them were actually repudiated but in that figure, you would find that there were claims that were paid,” he says.

The provinces of KwaZulu-Natal, the Eastern Cape and Gauteng accounted for the bulk of the detected fraudulent life insurance claims reported in the country in 2021, accounting for 998, 972 and 682 claims respectively.

Risk premium rises

Although the value of the fraudulent cases detected in 2021 may seem immaterial, especially in the context of the insurance industry paying out R608 billion in claims and benefit payments – the highest amount ever paid in a single year – Asisa warns that should this upward trend continue, honest policy holders may bear the brunt of this criminal behaviour.

Govender says honest policy holders may end up paying higher premiums because of the increased risk placed on insurers.

“The cost of insurance is based on specific rates, and it’s based on risk, so the more fraudulent claims we entertain it means that the greater the risk is to the business,” he says.

“So, what happens is that you have to reprice your product to account for fraudulent claims so the more fraudulent claims that you pay, the more risk you are placing on your business.”

Govender says the rise in fraudulent claims also impacts the speed at which insurers can make payments to beneficiaries as insurers are forced to dedicate more time to verifying claims. This has a greater impact on funeral cover claimants as they often need to access funds soon after lodging a claim.

“If we are receiving lots of claims and more claims that have to go through a validation process then there is a downstream effect in that customer service is impacted … and it causes a lot of stress.”

Read: Fraudulent insurance claims aren’t worth the risk

Funeral claims highest

Funeral insurance claims accounted for the bulk of the fraudulent claims reported in 2021, with 3 268 cases worth R128.2 million detected.

Most of these claims were classified as misrepresentation or material non-disclosure cases. This is where policyholders fail to disclose or misrepresent important information to an insurer that could have a material impact on the terms of the policy.

Despite funeral claims accounting for the most detected claims, fraudulent death claims accounted for the highest in value in 2021.

According to Asisa the 452 fraudulent death claims reported in the period were worth R460.4 million, higher than the R264.3 million reported in 2020.

Although the value of fraudulent disability claims reported for 2021 (R195.9 million) was significantly less than that reported in 2020 (R233.6 million) the category saw an uptick in detected cases to 352, from 325 in 2020.

Impact of Covid-19 restrictions

With the advent of the Covid-19 pandemic in the last two years and the unprecedent death rate because of the pandemic, South African life insurers have been particularly hard-hit by high death claim rates. The recent flooding in KwaZulu-Natal, which is estimated to have taken over 400 lives, is also expected to have an impact.

Read: Higher life insurance premiums for the unvaccinated on the cards

Govender says in a statement that some Covid-19 restrictions implemented in 2020 made it hard for certain safeguards and traditional verification methods to be implemented, giving rise to an upshoot in fraudulent claims.

“In 2020, the lengthy COVID-19 lockdown prevented our forensic investigators from physically going out into the field, which plays an important part in uncovering syndicate operations and taking a closer look at other criminal activities such as suspicious unnatural deaths,” he says.

“However, by 2021 our field investigations were largely back to normal, and the success rate is reflected in these statistics.”

Conviction rates remain low

Despite the increase in detected fraudulent claims cases in the insurance industry, in terms of criminal convictions the numbers are quite low, says Govender.

“We do make sure that where we’ve got prima facie evidence to prove the fraud we register the case with the South African Police Service [SAPS],” he says, adding that the wheels of justice can however take a long time to turn.

“But the member companies are working hard with [the SAPS]  to ensure that some of our bigger cases get prioritised and that the investigating officers do what they need to do to bring the perpetrators to book.”