South African life insurers have reported a 12% increase in fraudulent claims across all risk lines of business in 2020, according to dishonest and fraudulent claims statistics released this week by the South African Savings and Investment Association. (Asisa).
Insurers reported 3,186 cases of fraudulent and dishonest claims worth R587.3 million for the year, compared to 2837 such claims amounting to R537.1 million in 2019.
It was also revealed that 31% of all fraudulent and dishonest claims were detected in KwaZulu-Natal, followed by Eastern Cape and Gauteng with 16% and 15% respectively.
The funeral cover is an ‘easy target’
Asisa reveals that the highest incidence of fraud and dishonesty took place within the funeral insurance space, where more than 2000 claims worth R80.8 million were found to be dishonest.
“Since funeral insurance policies do not require blood tests or medical examinations and are designed to pay quickly and without problems when an insured family member dies, criminals and dishonest people often try their luck in this space,” Megan says Govender, coordinator of the Permanent Committee of Forensic Medicine of Asisa.
He believes that while scammers have always viewed funeral insurance as an easy target, the rise in fraudulent and dishonest claims comes as no surprise given the country’s difficult economic climate even before the Covid-19 pandemic.
Says the pandemic, that [has induced] significant losses in the labor market – has made the situation worse and has made it “more tempting for policyholders and dishonest unions to try their luck in the hope of obtaining large insurance payments.”
The challenge of providing proof of death
Some of the shocking incidents of fraud involving funeral policies include “corpse buying,” which involves morgue employees selling corpses to unions, who then use these bodies to claim policies that were fraudulently taken months earlier.
Govender notes that not only has desperation led more people to turn to crime, but since the pandemic has led to an increase in deaths, it has become easier for scammers to obtain bodies for their dubious deposit claims. overwhelmed corpses.
“If coverage is removed from the funeral of someone who does not exist by submitting fraudulent documentation, the offender will have to commit an additional crime by buying a body or murdering someone in order to claim.
“Buying an unclaimed body is often the easiest option,” he says.
Govender has come across cases where families are so desperate for funeral policy payments that an unnatural death is orchestrated after a family member dies of natural causes within the waiting period.
‘Unsustainable’ … and risky
He says that while fraudulent and dishonest claims seem like a drop in the ocean compared to honest claims paid, he urges life insurers to vigorously counter fraudulent and dishonest claims to prevent them from generating unsustainable claim rates that ultimately instance, they would result in higher premiums for policyholders.
Read: FSCA Criticizes High Premium Hikes on Funeral Policies
Govender points out that while life insurers are often accused of trying to avoid paying claims, the numbers actually tell a different story.
But to protect honest policyholders, Asisa cautions those considering a fraudulent or dishonest claim that life insurers have implemented “extremely sophisticated fraud detection mechanisms” using artificial intelligence and data.
“The chances of getting caught are extremely high and the consequence is likely to be a long prison term,” says Govender.
Palesa Mofokeng is a Moneyweb intern.