Life insurance fraud: Here’s how innocent consumers are ‘tricked’ into becoming complicit

Consumers must beware of inadvertently becoming complicit in life insurance fraud. We’ve seen big life insurance fraud sagas playing out in court cases over recent years. But what about those life insurance fraud schemes which unfold behind the scenes?

Insurance fraud is not a victimless crime as was highlighted again recently 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.

Life insurance fraud: Thabo Bester’s Dr Nandipha and that R3m…

And South Africa is still speechless after 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, after she alleged that they were family members. 

Fraud cases dominated the news cycle although there was a decrease in fraudulent and dishonest life insurance claims over the past year, according to the Association for Savings and Investment South Africa (Asisa).

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Less fraudulent claims in 2022 compared to 2021

Asisa says 2 618 of these fraudulent claims were made in 2022, much less than the 4 287 recorded in 2021. Nevertheless, these accounted for 29% of the total 8 931 cases of fraud and dishonesty recorded in 2022.

Funeral insurance topped the claims with 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.

KZN tops the list

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

Craig Baker, CEO of MiWayLife, says 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.

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

MiWayLife and its forensic team uncovered that 8% of claims contained cases of wilful misrepresentations and fraudulent claims since 2020 and all of them were repudiated.

Baker says the COVID-19 pandemic notably contributed to an increase in anti-selective behaviour,

ALSO READ: Me, commit insurance fraud? Never!

Unscrupulous sales representative can also pull you into fraud

Yazeed Adams, head of risk and compliance at MiWayLife, notes that it is 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.”

Expert advice to avoid getting involved in life insurance fraud

He warns that consumers must 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.”

Consumers must also be careful when receiving digital communication, including WhatsApp messages, where someone spins a story that they need assistance with one-time PINs sent to your phone. Attempts to get people involved are often accompanied by 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 says.

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,” Garth de Klerk, CEO of the Insurance Crime Bureau (ICB), says.

 “We estimate that fraud cases are increasing as people try 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 says 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,” De Klerk says.

ALSO READ: Almost half of SA consumers won’t hesitate to lie for loans, insurance claims

AI and well-trained people work to prevent life insurance fraud

 “The fact that we are becoming more efficient at tackling crime is due to the fact that we not only use sophisticated AI tools – we also train 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 shows how important it is to understand what it takes to smash 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 should make the public more vigilant.

“Crime in South Africa is a contact sport, even when it comes to fraud. 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.”

More scams to look out for…

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

Therefore, consumers must be alert to spot phishing and spam text messages or emails and never divulge personal information, including identity numbers or bank account details. In a worst-case scenario, fraudsters could even try to impersonate you to gain insurance monies.