Advertise Here
Icon

Directory

IconAlternative Investments
IconAsset Managers
IconAssociations and Institutes
IconBBBEE Consulting and Verification Agencies
IconConsumer Protection
IconCorporate Governance
IconCredit Bureaus
IconFinancial Planners
IconInvestment Consulting
IconLinked Investment Service Providers
IconListed Equities
IconOmbud
IconOnline Share Trading
IconParticipation Bond Managers
IconProperty Unit Trusts
IconPublications
IconRegulatory Authorities
IconStock Exchange
IconUnit Trust Fund Managers
IconWellness Programs
Advertise Here
  Subscribe To »

Life insurers report significant increases in funeral insurance fraud for 2020

Published

2021

Mon

23

Aug

South African life insurers reported a 12% increase in fraudulent and dishonest claims across all lines of risk business in 2020 when compared to 2019. The 2020 fraudulent and dishonest claims statistics, released this week by the Association for Savings and Investment South Africa (ASISA), show that last year 3 186 cases of fraudulent and dishonest claims to a value of R587.3 million were recorded, compared to 2 837 fraudulent and dishonest claims in 2019 valued at R537.1 million.

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.

Commenting on the statistics, Megan Govender, convenor of the ASISA Forensics Standing Committee, says the increase in fraudulent and dishonest claims is not surprising since tough economic conditions make it more tempting for dishonest policyholders and syndicates to try their luck in the hope of scoring sizeable insurance pay-outs.

Govender says while funeral insurance has always been seen as a soft target for fraudsters, the Covid-19 pandemic has made it worse. He says desperation due to job losses is driving more people to resort to crime while the pandemic has also resulted in a significant increase in deaths, which makes 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.”

Examples of fraud involving funeral policies

Govender says there have been several shocking incidents in recent months that illustrate just how far some people will go to access a funeral policy pay-out illegally.

  • The “hit and run” crime

Funeral policies impose a waiting period of between 6 and 12 months on deaths due to natural causes to prevent people from only taking out a policy once they are sick and know that they are probably going to die.

Govender says he has 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. One family collected the body from the mortuary before the death was registered. The body was then purposefully placed in the road where it could be hit by a car. The family reported a hit and run accident and submitted a claim.

  • Buying dead bodies

Govender says fraud in the funeral insurance space often involves mortuary employees who sell dead bodies to syndicates who then use these bodies to claim against policies that were 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.”

  • Exploiting addicts from poor communities

Govender says the life industry has picked up on a syndicate that targets drug addicts and alcoholics from impoverished communities and under the pretext of a job offer obtains their personal details, including banking details. These details are then used to submit fraudulent funeral policy applications.

Govender says in one case the syndicate then tried to murder the victim. The victim managed to escape, and the syndicate then moved to plan B of buying a dead body and submitting a claim. The claim was marked suspicious by the life company’s claims department and submitted to the forensic department for further investigation. Investigators found that the person whose life was insured was in fact still alive. Govender says the same syndicate has also been responsible for other fraud cases and suspicious deaths.

Protecting honest policyholders

Govender says while fraudulent and dishonest claims seem like a drop in the ocean when compared to honest claims paid, life insurers must vigorously counter fraudulent and dishonest claims to prevent them from leading to untenable claims rates that would ultimately result in higher premiums for honest policyholders. He points out that while life insurers are frequently accused of trying to avoid paying claims, the numbers tell a different story.

Policyholders and beneficiaries received claims and benefit payments worth R522.7 billion from South African life insurers in 2020. The life industry recorded 434 216 legitimate death claims in 2020, of which more than half were for funeral policies (266 321). Last year 2 282 claims against funeral policies were found to be fraudulent or dishonest.

Govender warns those contemplating a dishonest or fraudulent claim that life insurers have put in place extremely sophisticated fraud detection mechanisms using artificial intelligence and data. “The chances of being caught are extremely high and the consequence is likely to be a lengthy prison sentence,” says Govender.


Funeral claims


Life insurers detected fraud, dishonesty, or criminal intent in 2 282 funeral claims worth R80.8 million last year. Govender points out that there was a significant increase in fraud last year, with the value of fraudulent claims up by R16.6 million.

                                                          

 

2020

2019

 

Cases

Value

Cases

Value

Funeral Claims

2 282

R80.8 million

1 783

R54.2 million

Misrepresentation/Material Non-Disclosure

863

R34.1 million

666

R25.6 million

Fraudulent Documentation

1 383

R44.4 million

1 095

R27.8 million

Syndicate Involvement

28

R2 million

20

R0.8 million

Beneficiary Involvement in death

8

R0.4 million

1

R0.02 million

Adviser/Broker Involvement

0

0

1

R0.02 million

 

Death claims

Govender says considering the 27% increase in death claims last year because of the Covid-19 pandemic it is not surprising that there was an increase in misrepresentation and material non-disclosure cases from 276 to 340. Misrepresentation and non-disclosure refer to policyholders not disclosing or misrepresenting material information to a life insurer about a medical or lifestyle condition to secure lower premiums or to obtain cover without exclusions.

Govender says misrepresenting material information or not disclosing important information such as any lifestyle or health related detail that could materially affect the terms of the policy, is incredibly short-sighted. “When claims are declined as a result, this is likely to have devastating financial consequences for those financially dependent on a policyholder.”

Govender points out that policy applicants are compelled by law to honestly disclose all information likely to influence the judgment of the insurer when determining appropriate policy terms and premiums. “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.”
 

 

2020

2019

 

Cases

Value

Cases

Value

Death Claims

388

R264.3 million

346

R271.4 million

Misrepresentation/Material Non-Disclosure

340

R166.9 million

276

R175.5 million

Fraudulent Documentation

41

R95.1 million

62

R93.3 million

Syndicate Involvement

7

R2.2 million

7

R0.1 million

Beneficiary Involvement in death

0

0

1

R2.5 million

Adviser/Broker Involvement

0

0

0

0

 

Disability claims

Misrepresentation and material non-disclosure with the aim of misleading insurers was once again the number one reason for disability claims being declined in 2020. Out of the 325 irregular claims detected, 306 were rejected due to misrepresentation or material non-disclosure.

Govender notes that there has been a significant drop in cases involving misrepresentation and non-disclosure, which is good news. He comments that over the past four years misrepresentation and non-disclosure for disability claims had more than halved from 757 in 2017 to 306 in 2020.

 

 

2020

2019

 

Cases

Value

Cases

Value

Disability Claims

325

R233.6 million

447

R208.7 million

Misrepresentation/Material Non-Disclosure

306

R220.4 million

437

R219.6 million

Fraudulent Documentation

19

R13.2 million

10

R10.2 million

Syndicate Involvement

0

0

0

0

Adviser/Broker Involvement

0

0

0

0

 

Hospital cash plans

 

Dishonest claims against hospital cash plans continued their downward trend in 2020, but there was a significant increase last year in the value of these claims.

Govender says hospital cash plans are easy to understand products designed to help consumers cope with unexpected expenses as a result of being admitted to hospital.

He adds that unfortunately, as is the case with funeral insurance products, the simplicity of these products often leaves them wide open to abuse. This forced life insurers to apply heightened vigilance when processing claims to ensure the financial viability of these products.

 

 

2020

2019

 

Cases

Value

Cases

Value

Hospital Cash Plan Claims

141

R6.7 million

192

R1.3 million

Misrepresentation/Material Non-Disclosure

127

R6 million

191

R1.3 million

Fraudulent Documentation

9

R0.6 million

0

0

Syndicate Involvement

5

R87 931

1

R0.02 million

Adviser/Broker Involvement

0

0

0

0

 

Retrenchment benefit claims

Govender says considering the high number of retrenchments last year, the drop in dishonest and fraudulent retrenchment claims was surprising. Life insurers declined only 31 claims due to misrepresentation and non-disclosure and 19 due to fraudulent documentation. 

 

 

2020

2019

 

Cases

Value

Cases

Value

Retrenchment Claims

50

R1.9 million

69

R1.5 million

Misrepresentation/Material Non-Disclosure

31

R0.8 million

61

R1.2 million

Fraudulent Documentation

19

R1.1 million

8

R0.3 million

Syndicate Involvement

0

0

0

0

Adviser/Broker Involvement

0

0

0

0

 

Fraudulent and dishonest claims across the provinces

Govender reports that 31% of all fraudulent and dishonest claims were detected in KwaZulu-Natal, followed by the Eastern Cape with 16% and Gauteng with 15%.

 

PROVINCE

SUB-TOTAL

PERCENTAGE

KZN

975

31%

Eastern Cape

522

16%

Gauteng

482

15%

Northern Cape

316

10%

Western Cape

211

7%

North West

200

6%

Free State

159

5%

Limpopo

89

3%

Mpumalanga

73

2%

Unallocated

159

5%

TOTAL

3 186

100%

 
Source: Association for Savings and Investment South Africa (ASISA)
 
« Back to previous page Print this page » |
 

Breaking News »

To have and to hold a signed Will

National Wills Week will be held from 13 to 17 September 2021. This is an ideal opportunity to draft a Will or to review an existing Will. In recent times, we have come to realise that death can happen to ...
Read More »

  

Covid-19 Vaccine Distribution Risks and Insurance: Q&A with Allianz Specialists

As COVID-19 vaccine distribution rolls out across Africa and the world, insurers of the pharmaceutical industry are in a position to share their experience as to what constitutes a successful and safe distribution ...
Read More »

  

The Female Economy – what women want from a financial adviser

As women earn and control an increasing portion of wealth, advisers must reconsider how they engage with this group or risk losing the opportunity to serve them. This will take more than just falling back on reductive ...
Read More »

  

The representation of women in the South African economy

More than 26 years later, women are still underrepresented in the South African economy Every Women’s Day commemoration brings us an opportunity to track progress on the declaration made in 1994 by the ...
Read More »

 

More News »

Image

Healthcare »

Image

Life »

Image

Retirement »

Image

Short-term »

Advertise Here
Advertise Here

From The Glossary »

Icon

Capped Portfolios:

See "Closed Fund".
More Definitions »

 

Advertise

 

eZine

 

Contact IG

 

Media Pack

 

RSS Feeds

By using this website you agree to the Terms of Use.
Copyright © Insurance Gateway (Pty) Ltd 2004 - 2021. All Rights Reserved.