A need for vigilance against life insurance fraud

Fraud cases dominate the news cycle, but there has been a decrease in fraudulent life insurance claims. Picture: Pixabay.

Fraud cases dominate the news cycle, but there has been a decrease in fraudulent life insurance claims. Picture: Pixabay.

Published Jan 4, 2024


The fact that insurance fraud isn’t a victimless crime has been highlighted by the startling case of a 49-year-old woman in Mmabatho who was arrested a few weeks ago for the murder of family members, including her husband and three children, to cash out insurance policies.

South Africa is still reeling from revelations relating to Thabo Bester and his alleged lover, Dr Nandipha Magudumana, who were arrested in April. Magudumana is said to have collected life insurance for an amount of more than R3 million on three unclaimed bodies at Free State mortuaries, alleging they were family members.

More recently, the true-crime documentary Rosemary’s Hitlist has highlighted Nomia Rosemary Ndlovu’s murder of her live-in partner and five relatives to live off their life and funeral insurance policies. She received six life terms for the murders.

A reduction in cases of life insurance fraud

Fraud cases dominate the news cycle, but there has been a decrease in fraudulent and dishonest life insurance claims over the past year, according to the Association for Savings and Investment South Africa (ASISA).

The organisation says 2 618 such claims were made in 2022, as against the 4 287 recorded in 2021. They nevertheless accounted for 29% of the total 8 931 cases of fraud and dishonesty recorded in 2022.

Funeral insurance topped the claims (1 922), followed by death cover (399), disability cover (164), hospital cash plans (98), and retrenchment/loss of income benefit cover (35). Collectively, the rand value of these claims exceeded that of other categories, amounting to R770.5 million in losses prevented, with actual losses totalling R17 million.

The majority of fraudulent and dishonest claims came from KwaZulu-Natal, followed by Gauteng, the Eastern Cape, and the Western Cape.

Overall, the industry reported a R77 million loss due to fraud and dishonesty, although losses amounting to R1.1 billion were prevented overall.

Beware committing fraud inadvertently

Around a third of insurance claims in the country have some element of dishonesty to them, although cases that make the front pages are extreme examples, says Craig Baker, CEO of MiWayLife.

“Most people are not wilfully dishonest – however, their claims may have been repudiated if they’ve failed to disclose material information when claiming against a new policy, for example,” he said.

MiWayLife and its forensic team uncovered that 8% of claims contained cases of wilful misrepresentations and fraudulent claims since 2020, all of which have been repudiated. “Notably, the Covid-19 pandemic contributed to a rise in anti-selective behaviour,” says Baker.

Yazeed Adams, head of risk and compliance at MiWayLife, said that it’s not only policyholders who commit fraud.

“Sales representatives across the industry can sometimes be lured into partaking in illegal activity. It goes to the extent of tricking members of the public to be involved in criminal schemes for financial gain, with and without their knowledge,” he warns.

“Be careful not to get caught in the web of illicit activity, even where the offer is lucrative and purported to be foolproof. Do not give your identity document and telephone numbers to people who approach you with the promise of sharing in the spoils. Also be careful when receiving digital communication, including WhatsApp, where the person spins a story where they need assistance with one-time PINs sent to your phone. Often attempts to get people involved present offers that are too good to be true, if it feels that way to you then it is probably a scam of some sort,” he said.

Stepping up the fight against criminality

Where policyholders are intentionally dishonest, the fight against fraud has been stepped up with the help of artificial intelligence, to ensure that perpetrators are brought to book.

“We will catch fraudsters, even if they think they can get away with it,” says Garth de Klerk, CEO of the Insurance Crime Bureau (ICB).

“We estimate that fraud cases are increasing as people look at how to gain monetary benefit from financial products. However, such an increase is difficult to quantify, because we only know what we can see. Some insurers claim fraud accounts for less than 3% of claims, but medical and life fraud can reach double digits.”

The ICB said its return on investment has increased from 350% in 2017 to around 860% this year, indicating a high success rate in the collective fight against fraud. “Our membership has doubled in the past three years, with the industry seeing the benefit of collaboration,” he notes.

“The fact that we’re becoming more efficient at tackling crime is due to the fact that we’re not only using sophisticated AI tools – we’re also training people to develop at the same pace as the systems we are using.”

While the industry is careful not to be anti-competitive, it is legally permitted to share information relevant to uncovering or prosecuting fraud, which speaks to an understanding of what it takes to smash those syndicates behind much criminality in the country.

Despite the encouraging fact that the industry is getting better at tackling fraud, the increase in criminal activity and the associated sophistication thereof should make the public vigilant.

“Crime in South Africa is a contact sport, even when it comes to fraud,” de Klerk said. “We urge people to be alert, treat strangers with the necessary caution, and question anything that sounds too good to be true. Fraudsters are often well dressed, charismatic individuals who win trust easily.”

The Financial Sector Conduct Authority has warned of a number of scams, including those requesting advance fees or bank transfer payments to release of funds relating to anything from unclaimed inheritances and business deals to insurance costs, courier services, clearance certificates or registration fees.

Be alert for phishing and spam text messages or emails, and never divulge your personal information, including identity numbers or bank account details. In a worst-case scenario, fraudsters could try to impersonate you to gain insurance monies.