South Africa’s challenging economic climate has seen added pressure on cash-strapped consumers and businesses, which in some instances is resulting in a rise in criminal acts such as fraudulent insurance claims. The Insurance Crime Bureau’s (ICB) own data reflects that approximately 5% to 12% of all insurance claims submitted are fraudulent, while some reports suggest that as much as 30% of all insurance claims have a fraudulent element. Overall, insurance fraud is costing the industry billions annually and consumers are paying the price.
Given the growing statistics of fraud, prudent action is critical to maintaining the stability of insurance businesses and the industry at large. Insight is power and such action therefore involves collaboration within the insurance community to share information related to fraud trends that can help identify perpetrators. Beyond this, individual insurance businesses must ensure that intelligent and effective fraud prevention tools and measures are implemented; this could include fraud detection technologies, training for employees and firming up processes from risk assessment and quotation through to claims.
DIFFERENTIATING BETWEEN OPPORTUNISTIC AND SYNDICATED FRAUD
Fraud incidents can be divided into two categories: opportunistic and syndicated fraud.
Opportunistic fraud (perceived by many as socially acceptable) can be described as fraud committed by individuals as part of a personal claim. An example of this can be seen when a customer includes items in a burst geyser claim that were not actually damaged during the incident.
Syndicated fraud is more sophisticated and complex. It often involves collusion to perpetuate fraud between multiple parties such as hackers, banking employees and even insurers. These require resources and time to uncover. This trend is gaining traction with cross-sectoral data from the ICB indicating that collusion to perpetuate fraud has increased between 14% and 30%.
Such crimes are having a tremendous impact on insurers and the unfortunate consequence of this is that policyholders ultimately pay the price. To adequately detect and curb fraud, the industry must prioritise collating sufficient fraud trends data, as well as human, technological and forensic resources. While an insurer may have statistics on the prevalence of fraud incidents within their business, the most valuable data is that which offers an industry-wide view on a national level. This can only be accessible through the pooling of information across insurance businesses.
WHY PARTNERSHIPS ARE CRITICAL TO SUSTAINABILITY
Collin Molepe, Chief Operations Officer at Bryte, says; “Insurance businesses are losing millions annually due to fraudulent claims. This results in insurers absorbing significant unnecessary losses, as well as penalising customers as these have to be mitigated with market-wide premium increases. Combatting fraud remains the responsibility of every player within the insurance value chain, including the customer – whose premium potentially could be increasing due to fraud committed by a neighbour. As responsible insurance businesses, we are legally required to establish, maintain and operate an adequate and effective claims management framework – one that must provide a compliance programme for combatting fraud. This also involves the sharing of critical insurance crime-related data on an industry-wide level.”
Many insurers have been reluctant to share what they perceive as commercially sensitive data; this view, in effect, is what is hampering the success of the insurer, industry and the economy. The fact is that such data can be safely shared with organisations specialising in consolidating insurance fraud data across the industry. These organisations are then able to extract valuable insights that help identify trends in fraudulent activities, understand the modus operandi of sophisticated fraud networks and better determine what is making insurers vulnerable.
Qualified insights also inform the proactive revision of policies and facilitate better anti-fraud collaborations with law enforcement institutions such as the National Intelligence Agency, South African Police Services, Financial Intelligence Centre, etc. This enables the industry to more effectively address issues of fraud and avoid losses. Ultimately, meaningful collaboration aimed at addressing crime will help safeguard the interests of policyholders, ensure the resilience of the insurance industry and drive much-needed economic growth.
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