Me, commit insurance fraud? Never!

Insurance fraud has a surprising side: Everyday people who tell little lies. The words insurance fraud probably make you think about criminal syndicates staging vehicle crashes or people faking their deaths to get multimillion-rand pay-outs.

While these incidents dominate newspaper headlines, they form only a portion of the estimated R6 billion to R8 billion the South African insurance industry loses to fraud each year, Ernest North, co-founder at digital insurance platform Naked, says.

Insurance fraud: Just ‘a little lie to a big corporation’?

“A lot of fraud, if not most, takes the form of smaller claims from people who do not think of themselves as criminals. It could be someone you know, like a friend who adds a Kindle they never owned to their claim after their home is robbed.

“Many fraudulent insurance claims are made by people who think they are telling a little lie to a big corporation.”

North explains that many consumers’ logic is that it is a victimless lie because the insurance company can afford to pay and has banked profits from the customer’s premiums over the years.

Consequences

“Yet the personal consequences can be serious if you are caught committing insurance fraud. And even if you are not, insurance fraud harms insurance customers and not just insurance companies.”

Insurance fraud has consequences for everyone.

“If you are caught telling one of these lies, your insurer will cancel your cover, reject your claim and seek to recover any money it has already paid out. You could be added to the insurance fraud database, which will make buying cover in future difficult.”

North says in some cases, your insurer will also pursue a criminal case against you.

“This is not a risk anyone should run to save a couple of hundred rand a month on their premium or get a new big-screen TV at their insurer’s expense.”

Less affordable insurance

Even if you can get away with a small lie to the insurer, your fraudulent behaviour still affects everyone else buying insurance.

“It increases the overall cost of premiums due to claim costs and the money insurers spend preventing and detecting fraud. This can make insurance less affordable for many people who are financially vulnerable and need protection.”

High levels of fraud also mean that it takes longer for insurers to validate and pay claims which is frustrating for honest customers who must wait longer for their new car or phone.

ALSO READ: Life insurance fraud: More than R787 million in fraudulent claims uncovered

Yes, this is insurance fraud

What is insurance fraud? North says the definition of fraud is broader than many customers might think. A few examples of fraudulent behaviour include:

• Lying about your insurance history such as, for example, not disclosing your claims or mentioning that your previous insurer cancelled your cover.
• Providing false information about what you cover, such as claiming your home has burglar bars and security gates on all the windows and doors when it does not.
• Failing to do everything you can to prevent loss or damage, such as leaving your laptop lying in plain view in your unlocked car while you pop into the shop.
• Being untruthful about the claim’s circumstances, such as pretending that you were driving the car at the time of an accident rather than your husband.
• Claiming for an item that was broken, lost or stolen before you got insurance, such as insuring your phone that already has screen damage with the plan of claiming in a couple of months.
• Exaggerating the size of your loss, such as pretending that your stolen clothing was all high-end brands or adding a few extra items to the claims list after a break-in.
• Falsifying invoices to prove ownership. Your insurer will ask for proof of ownership of the item you insure, usually in the form of invoices. It might be tempting to fake one if you are worried your claim will be rejected. Rather tell your insurer so that they can allow you to prove ownership in alternative ways.

AI roped in

Artificial intelligence (AI) is now also used to protect customers and reduce premiums.

North says insurance companies are ramping up investments in automation and artificial intelligence to detect fraud with more speed and accuracy.

“This is transforming the insurance experience, allowing insurance companies to settle a growing portion of claims in real time or near-real time. That means you will get your claim settled faster if it is valid.”

AI also enables insurers to flag anomalies for investigation. These claims are not automatically rejected but reviewed by a human assessor. As the technology improves, it will be harder for criminals to get away with fraud and hopefully lead to a better experience and lower premiums for everyone else.