South African life insurers foiled a total of 5,026 irregular claims to a value of R1.13 billion in 2017.

This is according to the latest statistics published by the Association for Savings and Investment South Africa (Asisa), which showed that while the total number of thwarted fraudulent and dishonest claims across different types of long-term insurance products was much lower in 2017 than in 2016 (13,488 claims), the value was almost the same.

In 2016 fraudulent and dishonest claims worth R1.03 billion were detected.

Donovan Herman, convenor of the Asisa Claims Standing Committee, said that life insurers are under constant pressure to adapt their detection methods as fraud attempts become more sophisticated due to fast-evolving technology.

He added that while life insurers are frequently accused of trying to find ways of getting out of paying claims, the numbers tell a different story.

While claims worth R1.13 billion were found to be irregular and therefore not paid in 2017, South African life insurers made benefit payments of R469 billion to policyholders and beneficiaries in the same year.

Of this amount, more than R60 billion was paid to individuals who had experienced either death or disability in their family circle – an increase of almost R5 billion from 2016.

“The reality is that as the custodians of a significant portion of South Africa’s savings pool, life insurers are obliged to protect the integrity of this savings pool and the interests of honest policyholders by preventing fraud and dishonesty,” he said.

“If we left fraud and dishonesty to spiral out of control, honest policyholders would end up footing the bill through higher premiums driven by untenable claims rates.”

Death claims

A total of 2,111 death claims worth R564.2 million were reported in 2017 due to fraud and dishonesty.

This is compared to 444 death claims worth R275.2 million in 2016.

In the majority of death claims (1,784) rejected in 2017, insurers detected that fraudulent documentation had been submitted. A further 316 claims were declined due to misrepresentation and/or material non-disclosure.

Asisa explained that misrepresentation occurs when a policyholder deliberately provides misleading information to a life insurer, while material non-disclosure refers to the failure of policyholders to disclose important information about a medical condition or lifestyle.

“Since the person applying for insurance knows more about the risk to be insured than the insurer, the law compels applicants to honestly disclose all information likely to influence the judgment of the insurer when determining appropriate policy terms and premiums,” it said.

“Information generally regarded as material include medical history, state of health, family history, and lifestyle.

“Only when all the facts are disclosed honestly by the applicant is the insurer able to set premiums that are appropriate for a certain level of risk, thereby ensuring that every person pays a fair premium without subsidising someone less healthy”.

Misrepresentation and material non-disclosure was thrust into the spotlight earlier this year, when a widow was denied a payout on the basis that her husband, who had died in a violent crime incident, was found to have not disclosed that he had diabetes at the time of the policy being approved.

South Africans were outraged by the refusal to pay out, pushing a narrative that life insurers go out of their way to find any reason not to pay out. In this case, denying the payout when the cause of death (violent crime) had no relation to the issue raised (diabetes).

The decision was challenged and taken to the ombudsman for long-term insurance, which ultimately upheld the decision not to pay out. Despite being right, legally, the insurer ultimately caved to public outcry, and subsequently changed its policies.

However, insurers have stressed the importance of full and honest disclosure when applying for insurance policies, saying that the only time your health status matters, is when you apply for cover. This is when you need to share all your medical health information.

“If your health deteriorates after commencement of the policy, there is no need for you to inform (the insurer) – your claim will be completely valid if the information provided at the start of the policy was accurate.”