By Kotie Geldenhuys
Let us be honest, many people have a love-hate relationship with insurance companies, often because they believe that they were not paid what was due to them after having submitted a claim. And then some of them are even quick to brag about how they have claimed more money from their short-term insurer than what was legally due to them as a result of the losses they had suffered following a burglary. Even if these people are then informed that they have committed insurance fraud in the process, they would not consider themselves as white-collar criminals. Those are the same types of criminals who are committing commercial crime along with those who commit corruption, extortion, money laundering, embezzlement, Internet fraud, forgery and tax evasion.
The Insurance Information Institute, based in New York, informs us that insurance fraud takes place when claimants attempt to gain benefits to which they are not entitled (III, 2020). The website FindLaw.com further explains that fraud in the context of insurance refers to any duplicitous act performed with the intent to obtain an improper payment from an insurer (https://criminal.findlaw.com/criminal charges/insurance fraud.html). Fraud may be committed at different points in the transaction by applicants, policyholders, third-party claimants or professionals who provide services to claimants. The Insurance Information Institute adds that insurance fraud is not always perpetrated against the insurance company, it can also be perpetrated by an insurance company against the insured through policy churning or misleading insurance selling or by an independent agent or broker (III, 2020).
Types of insurance fraud
Insurance fraud comes in all shapes and sizes and there are countless ways in which to commit insurance fraud. According to Garth de Klerk, the CEO of the Insurance Crime Bureau (ICB), insurance fraud is committed in two ways: those who take out policies disingenuously with the intention of stealing; and those with existing policies who pretend either something was stolen when it was not or who over-inflate the values in their claims when something has legitimately been stolen (De Klerk, 2018). Insurance fraud occurs in all areas and includes:
- life insurance through death and funeral claims, disability claims and retrenchment claims;
- short-term insurance through vehicle claims, house content, building claims and travel claims; and
- healthcare insurance.
During a conference hosted by the Insurance Crime Bureau in March 2020, Sedick Isaacs from the Bryte Insurance Company, mentioned soft fraud and hard fraud. Soft fraud is common and usually occurs when a policyholder exaggerates a legitimate claim to “get their money’s worth”. We can argue that soft fraud occurs when ordinary “honest” people tell “little white lies” to their insurance company for the purposes of filing or maximising a claim. For example, when a person’s house was burgled and they claim for more items than those that were actually stolen. Many people think this is a harmless act, but soft fraud is a crime and this seemingly minor offence collectively increases everyone else’s insurance premiums. Hard fraud happens when someone deliberately fakes an accident, injury, theft, arson or other loss to collect money illegally from insurance companies (https://criminal.findlaw.com/ criminal charges/insurance fraud.html). Organised crime rings increasingly stage large schemes to steal millions of rand from insurance companies.
The impact of insurance fraud
We have become accustomed to a general increase in the majority of crime categories during the annual release of the crime statistics by the SAPS. These statistics usually make for shocking reading, but what is the impact on the insurance industry?
Although insurance fraud is often taken lightly, the consequences are incredibly serious. Insurance fraud has a major impact on all stakeholders and it is ultimately the premium-paying customers who suffer most, as they carry the cost of ever-increasing premiums. An article published on Moneyweb dated 7 July 2009 stated that crime has a significant impact on the price that consumers pay for cover. “In fact, crime is one of the three main factors influencing the cost of short-term insurance. Unfortunately, short-term insurance premiums will continue to increase as long as crime, violence and fraud continue to escalate,” the article reads (Moneyweb, 2009).