Murder for insurance is not that common, but insurance fraud comes in many different forms.

Anyone who doubts that insurance companies pay out on death claims, should read Killer Cop, the Rosemary Ndlovu story.

Over a period of six years, she had family members murdered, and collected over R1 million in both funeral and life cover.

While her story is one of a psychopathic serial killer, it also about the fraud she perpetrated on the insurance industry.

More recently, a story broke about members of the South African Defense Force deployed to the DRC who discovered that life cover had been fraudulently taken out in their names. The insurance premiums are being deducted from the soldiers’ salaries.

Exactly how these fraudsters were able to sign the soldiers up for life cover is still being investigated.

Sanlam, one of the affected insurance companies, says it has already identified some cases of suspected fraud impacting certain SANDF members and that “in these cases, all fraudulent deductions have already been repaid to the impacted policyholders, and the unauthorised deductions have been stopped. Appropriate disciplinary action has been taken against those advisers who have been found guilty of misconduct in relation to these unauthorised deductions.”

Old Mutual confirmed that their investigation found that risk cover policies have been issued in certain customer names.

“We met with SANDF representatives who are aware of the issue and are working with us to resolve it. Urgent action will be taken if we detect any irregularities on behalf of any Old Mutual representatives. Old Mutual has zero tolerance for such activities and anyone found guilty of such misconduct will be punished severely,” says Clarence Nethengwe, Managing Director: Mass and Foundation Cluster.

Garth de Klerk, CEO of the Insurance Crime Bureau says that fraud is likely to be a case of internal abuse, involving someone within the SANDF.

The motive behind creating these fraudulent policies is probably a combination of sales fraud (where an agent benefits from the commission earned on the policies) and impersonation. Impersonation is where the fraudster pretends to be the policyholder and nominates themselves as beneficiary.

In the case of Rosemary Ndlovu, she impersonated her sister Audrey in order to take out life cover worth R720 000 with herself as sole beneficiary. However, in some cases she took out funeral policies for the family members with their knowledge, claiming she would use the proceeds to look after their families and pay for the burials.

Ways to profit from funeral cover

According to the Association for Savings and Investment South Africa (ASISA), murder for insurance is not common.

“While each life lost is one too many, our statistics show that murders are not that common. Far more common, for example, is fraud involving criminals working with mortuaries to get hold of unclaimed dead bodies and using these dead bodies to claim death benefits.”

De Klerk says he has come across cases where employees sign insurance policies without understanding exactly what the policy entails or who the beneficiaries are.

His bureau has investigated cases within the security industry where the employer takes out funeral policies for the security guards. The security guards sign for the policy, but the company is the named beneficiary.

“Should the security guard then die in the line of duty, the company pays a portion towards the funeral but does not tell the family how much the policy was worth,” says de Klerk, who adds that there is no law that requires the named beneficiary to pay the funds received from the policy to the family or to pay for the burial. These are legitimate claims from the insurer’s perspective, but the company is acting in bad faith.

Theoretically, if a life policy or a single life funeral benefit is taken out, the insurer would require details of the life insured. This would include signatures and copies of identity documents. However, these can be forged.

De Klerk says considering that insurance companies pay out over R500 billion in insurance claims each year, it is very difficult for them to pick up fake claims for small amounts. Small claims are not likely to trigger an investigation, unless a pattern emerges.

No central system for insurance policies

The question has been asked whether there should be a central database of all insurance policies where a person could check if insurance has been taken out on their life.

De Klerk says having a centralised database that contains all insurance policies is not feasible. There are too many companies in the insurance industry and moreover, they would not want to share client information with each other.

This information could also be used by people to find out if they are beneficiaries of a policy, something the policyholder may not wish to share.

He adds that not all beneficiaries are specifically named in a policy. For example, a funeral policy included in employee group benefits may simply specify that the policy will pay out on the death of the employee, the spouse and any children.

“If the spouse had to call us and ask if there was a policy on her life, we would not know as the policy does not have her specific details.”

Insurance companies are also victims of insurance fraud and are working to find ways to combat this.

According to Jean van Niekerk, convenor of the ASISA Forensic Standing Committee, collaboration by the forensics departments of life insurers and investment companies with other crime prevention initiatives is delivering promising results.

Other successful preventative measures deployed by life insurers and investment companies include the use of big data, machine learning, artificial intelligence, improved data sharing, and enhanced authentication mechanisms such as biometric customer identification.

De Klerk says the problem is that insurance policies are being abused by criminals. “There are bad people who do bad things,” says de Klerk. He points out that violent acts of crime are driven by poverty –people are murdered for cellphones or cash.

“For some people, a funeral policy of R50 000 is equal to a year’s income. People are prepared to kill for that.”

If you are aware of insurance fraud, or concerned you may be a victim of insurance fraud, you can call the Insurance Crime Bureau fraudline at 0860 002526.

Insurance fraud statistics

According to the 2022 fraud statistics released by ASISA, the industry lost R77 million to fraud, while just under R1.1bn of attempted fraud was prevented.

By comparison, honest policyholders and beneficiaries received claims and benefits payments worth R578 billion from South African life insurers in 2022. The payments included claims against life, disability, critical illness and income protection policies, and retirement annuity and endowment policy benefits.

The highest incidence of fraud relates to sales fraud, with 5 095 cases detected. This is where call-centre agents, tied agents and financial advisers create fake sales in order to earn commission.

In terms of fraudulent and dishonest insurance claims, 2 618 cases were detected in 2022. This could include fake death certificates or fake disability claims. This type of fraud has the highest financial impact, accounting for nearly R790 million of which R770 million had been prevented.

Fraudulent applications, where someone is impersonating a policyholder or using identify theft, accounted for 314 detected incidents.

This article first appeared in City Press.