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Life Industry
Friday, June 1, 2007
Stroke of bad luck

Life insurance companies uncovered close on 20 000 fraudulent claims worth more than R1 billion over the past four years. In comparison, however, the life industry settled valid death and disability claims worth more than R19 billion last year.

Gerhard Joubert, CEO of the Life Offices’ Association (LOA), says the association started collating statistics in 2003 with the aim of helping member life companies reduce fraudulent claims through the sharing of information about fraud trends and patterns.
He says the good news is that last year life companies recorded only 2 844 fraudulent claims, the lowest number since 2003. If life companies had not detected these claims as fraudulent, more than R242 million would have been lost last year.
The 2006 claims fraud figure represented a massive decrease of 30% in claims compared to 2005. In that year a record number of 8 660 fraud cases to the value of R347-million were prevented.
He points out that if life companies did not apply strict underwriting and claims assessment procedures, honest policyholders would end up subsidising those that wee dishonest in their disclosure and claims.
“Given half a chance, crime and dishonesty would substantially increase the claims experience of life companies. If allowed, such a trend would force companies to increase their premiums.”

Criminal intent

Mr Joubert says that life companies appeared to have been most successful in clamping down on cases involving criminal intent and fraudulent documentation. This category showed a drastic decrease in fraud from 1 710 cases worth R79 million in 2003 to 459 claims worth R21 million last year.
“Heightened awareness and ever increasing vigilance on the part of claims assessors and forensic divisions are the likely reasons for the successful reduction in fraud,” he adds.
Sometimes the lengths to which some policyholders will go in an attempt to defraud life companies often leaves the industry astounded. He cites the case of a policyholder who is serving a jail sentence for having submitted three fraudulent disability claims. While he was successful with the first two he was caught out on the third one. He says the man had studied his mother-in-law, who had suffered a stroke and was wheelchair bound, so well that he managed successfully to pretend that he had also suffered a stroke and was left paralysed on his left side.
“He did this so well that he even fooled a top neurologist into believing that he had indeed suffered a stroke. But the life company involved in his third claim became suspicious because of his young age and because a brain scan showed no signs of bleeding. Surveillance subsequently conducted by a private investigator confirmed that there was absolutely nothing wrong with this policyholder.”
Mr Joubert says in a separate case a policyholder submitted a functional impairment claim after his right hand had been mutilated, allegedly in a lawn mower accident.
“The disability claim would have been successful had a family member not tipped off the life company that the policyholder had stuck his hand in the lawn mower blade deliberately. He had hoped for a lump sum payout, which he needed as start-up capital for a new business venture.”

Non-disclosure and misrepresentation

Material non-disclosure and misrepresentation continue to be responsible for the highest number of fraud cases.
Material non-disclosure refers to the failure of policyholders to disclose important information about a medical or lifestyle condition. Mr Joubert explains that policyholders are legally obliged to disclose all information likely to influence the judgment of the insurer when determining appropriate policy terms and premiums. Information generally regarded as material by a life insurer includes medical history, state of health, family medical history, life style, and financial status.
Life companies came across 1 369 cases of material non-disclosure last year to a value of R143 million.
Misrepresentation occurs when policyholders do not fully disclose the seriousness of a medical or lifestyle condition on application, because they know that if the underwriter was made aware of the full risk they would in all likelihood be required to pay a higher premium. There were 805 cases of misrepresentation to a value of R69 million last year.
Mr Joubert says that since life companies usually detect material non-disclosure and misrepresentation, it is far better for policyholders to pay the appropriate premium and have certainty that their death or disability benefits will be paid out when they die or become disabled.

Beneficiary and syndicate involvement

The only fraud category to have shown an increase in the number of cases last year was the one for beneficiaries and syndicates. However, while fraud numbers went up to 65 cases last year from 57 in 2005, the value of fraudulent claims decreased significantly from R17 million in 2005 to R4 million last year.
Comparison of statistics since 2003


 

Copyright © Insurance Times and Investments® Vol:20.5 1st June, 2007
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