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Life cover fraud on the rise

by | Apr 11, 2024

Life cover fraud on the rise in South AfricaLife cover fraud has been in the spotlight following the harrowing case of former policewoman Rosemary Ndlovu, who was sentenced to life in prison for orchestrating the murders of six family members between 2012 and 2018 to reap insurance payouts.

While not all instances of life cover fraud are as extreme, it has had a profound impact on South Africa’s long-term insurance industry.

Dennis Munusamy, Investigations Manager at Hollard Life Solutions explains: “Fraudulent activities in life insurance include a range of deceptive practices, including false death claims, beneficiary fraud, and fabricated policies. With technology advancing rapidly, fraudsters are setting up increasingly sophisticated schemes, necessitating insurers to constantly update their fraud-detection methods.”

According to the Forensic Standing Committee of the Association for Savings and Investment South Africa (ASISA), life insurers and investment companies identified 8 931 cases of fraud and dishonesty in in 2022, resulting in losses of approximately R77 million. Fortunately, these companies were able to prevent losses amounting to R1.1 billion.

Munusamy says that Hollard Life Solutions prevents losses of around R20 million annually from fraudulent claims, particularly on direct funeral and life policies. Such fraudulent activities are often driven by financial desperation, with individuals resorting to deceit to maintain their standard of living.

He says recent trends in life insurance fraud show newer ways of fraudulent activities, including individuals impersonating others when acquiring a policy, brokers altering beneficiaries’ details, and the manipulation of death circumstances and police reports during the claims process.

Criminals are also targeting vulnerable individuals, taking out life and funeral assurance policies, with the proceeds channelled back into illicit activities in cases of unnatural deaths, such as gang-related violence, and this is costing the burial and life insurance industries billions of rands.

One common tactic used in fraudulent claims involves funeral policies, which may impose waiting periods of up to six months for deaths due to natural causes. This measure is designed to deter individuals from taking out a policy once they are already sick and aware of their impending death. However, there are typically no waiting periods for claims related to unnatural causes.

Munusamy shares, “We have seen several horrendous trends emerging in fraudulent insurance claims related to unnatural deaths, including what is called hit-and-run schemes, where some families stage unnatural deaths after their loved ones pass away naturally during the waiting period. The body is removed from the mortuary and placed in a road where it could be struck by a vehicle. The family then files a claim after reporting a false ‘culpable homicide.’”

Other schemes include the sale of unidentified bodies, where mortuary employees have been implicated in selling unidentified bodies to syndicates in the funeral insurance industry. These bodies are then used to file claims against policies obtained fraudulently, sometimes days or months earlier.

Paper children syndicates are also a growing insurance fraud trend. This scheme involves claims for children who have reached the maximum age for SASSA benefits. The child is covered by the policy, and a claim is submitted for the child’s death outside the waiting period. There is often no proof of the existence of such a child, and it is usually the uncle or aunt who lodges the claim, not the biological parents.

Late registration of death for the assured life is another one of these schemes. However, in this instance, syndicates often operate in rural areas, identifying deceased individuals who have not yet been officially recorded as deceased with the Department of Home Affairs. These syndicates then take out funeral policies on these individuals, wait for some time, register them as deceased, and submit claims just as the waiting period ends.

Munusamy says, “We have seen murder for money, which is a type of insurance fraud that’s currently on the rise, particularly in the Eastern Cape, with policies being taken out between one day to three months ahead of the murder. Once the individual has been murdered, they claim against them.”

Measures to combat life cover fraud

Insurance companies are proactively implementing measures to deter fraudulent activities, including working in close collaboration with law enforcement and regulatory agencies.

The Insurance Crime Bureau (ICB), which was established to address the surge in insurance fraud, regularly puts out news which can help insurance companies to take action against fraudsters.

“In cases of actual loss, insurers work closely with the ICB, the Financial Intelligence Centre, and the South African Police Service to recover costs. Through these concerted efforts, the insurance industry aims to stem the tide of life cover fraud and protect the integrity of insurance schemes for all stakeholders,” explains Munusamy.

He adds that insurance companies are increasingly turning to artificial intelligence to combat fraud, utilising predictive modelling and data analytics to identify and prevent fraudulent activities.

What you can do to help

Munusamy notes that both insurance companies and consumers play crucial roles in curbing fraudulent activities in the insurance industry.

On the one hand, insurance companies are responsible for implementing robust fraud-detection measures and collaborating with law enforcement agencies and regulatory bodies to effectively combat fraud.

On the other hand, consumers have a responsibility to act ethically and honestly when interacting with insurance products. This includes providing accurate information when applying for insurance, reporting any changes in circumstances that may affect their policy, and submitting legitimate claims only.

By working together, insurance companies and consumers can help reduce the prevalence of insurance fraud,” says Munusamy.

Consumers need to be vigilant and should report any suspicious activities or attempts at fraud.

You can also help to prevent fraud by protecting your personal information to minimise the risk of identity theft, which allows criminals to take out fraudulent policies in your name.

Regularly check your profile with major credit bureaus, and you can also run checks against your name to see if any new policies have been taken out in your name without your consent. To do this, you can ask an insurance broker to run checks against all insurers to see if new policies have been taken out in your name.

If you suspect any fraudulent activities, report these to your insurer. You can also report fraudulent activities to the insurance fraud hotline (Tel: 0800 25 26 27; email: insurance@fraudline.co.za), the Insurance Crime Bureau, or the South African Police Service.

This post was based on a press release issued on behalf of Hollard Life Solutions.

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