Financial desperation driving fraudulent claims high

Life insurers and investment companies identified 8 931 cases of fraud and dishonesty, resulting in losses of approximately R77 million. Picture: Independent Newspapers.

Life insurers and investment companies identified 8 931 cases of fraud and dishonesty, resulting in losses of approximately R77 million. Picture: Independent Newspapers.

Published Apr 6, 2024


Fraudulent claims, particularly on direct funeral and life policies were often driven by financial desperation, with individuals resorting to deceit to maintain their standard of living, according to Hollard Life Solutions.

The Forensic Standing Committee of the Association for Savings and Investment South Africa (Asisa) in 2022,said life insurers and investment companies identified 8 931 cases of fraud and dishonesty, resulting in losses of approximately R77 million.

Fortunately, these companies were able to prevent losses amounting to R1.1 billion.

Dennis Munusamy, Investigations Manager at Hollard Life Solutions shares that, Hollard Life Solutions, for instance, prevents losses of around R20 million.

“Fraudulent activities in life insurance include a range of deceptive practices, including false death claims, beneficiary fraud, and fabricated policies. With technology advancing rapidly, fraudsters are also on the lookout for increasingly sophisticated schemes, necessitating insurers to constantly update their fraud detection methods,” Munusamy said.

He said that recent trends in life insurance fraud show newer ways of fraudulent activities, including individuals impersonating others when acquiring a policy, brokers altering beneficiaries' details, and the manipulation of death circumstances and police reports during the claims process.

According to the insurance company, criminals were also targeting vulnerable individuals, taking out life and funeral assurance policies, with the proceeds channelled back into illicit activities in cases of unnatural deaths, such as gang-related violence, and this was costing the burial and life insurance industries billions of rands.

It said one common tactic used in fraudulent claims involved funeral policies, which may impose waiting periods of up to six months for deaths due to natural causes.

“This measure was designed to deter individuals from taking out a policy once they were already sick and aware of their impending death. However, there are typically no waiting periods for claims related to unnatural causes,” it said.

Munusamy shared that they had seen several horrendous trends emerging in fraudulent insurance claims related to unnatural deaths, including what was called hit-and-run schemes, where some families stage unnatural deaths after their loved ones passed away naturally during the waiting period. He said the body was removed from the mortuary and placed in a road where it could be struck by a vehicle. The family then proceeded to file a claim after reporting a false “culpable homicide” case.

He said other schemes included the sale of unidentified bodies, where mortuary employees have been implicated in selling unidentified bodies to syndicates in the funeral insurance industry. These bodies were then used to file claims against policies obtained fraudulently, sometimes days or months earlier.

According to Hollard Life Solutions, the purchase or rental of unclaimed bodies was another scheme, where employees of funeral parlours and mortuaries purchased deceased corpses in the funeral insurance market and sold or rented them to syndicates. These bodies were then used as collateral for policies that were falsely obtained several months prior, it said.

The company said paper children syndicates were also a growing insurance fraud trend. “This scheme involves claims for children who have reached the maximum age for Sassa benefits. The child is covered by the policy, and a claim is submitted for the child's death outside the waiting period. There is often no proof of the existence of such a child, and it is usually the uncle or aunt who lodges the claim, not the biological parents.”

Munusamy said late registration of death for the assured life was another one of these schemes. He said that however, in this instance, syndicates often operated in rural areas, identifying deceased individuals who have not yet been officially recorded as deceased with the Department of Home Affairs. These syndicates then take out funeral covers on these individuals, wait for some time, register them as deceased, and submit claims just as the waiting period ends, he said.

Munusamy said the company has also seen murder for money, which was a type of insurance fraud that’s currently on the rise, particularly in the Eastern Cape, with policies being taken out between one day to three months ahead of the murder. “Once the individual has been murdered, they claim against them.”

“To combat fraud, insurance companies are proactively implementing measures to deter fraudulent activities, including working in close collaboration with law enforcement and regulatory agencies. Companies, both members and non-members, receive regular information from the Insurance Crime Bureau (ICB), which enables insurance companies to take decisive action against fraudsters. The ICB was established to address the surge in organised fraudsters exploiting insurance for financial gain.

“In cases of actual loss, insurers work closely with the ICB, the Financial Intelligence Centre, and the South African Police Service to recover costs. Through these concerted efforts, the insurance industry aims to stem the tide of life cover fraud and protect the integrity of insurance schemes for all stakeholders,” Munusamy said.

He says insurance companies were increasingly turning to artificial intelligence to combat insurance fraud, utilising predictive modelling and data analytics to identify and prevent fraudulent activities.

Munusamy notes that both insurance companies and consumers play crucial roles in curbing fraudulent activities in the insurance industry.

Hollard said consumers should also be vigilant and report any suspicious activities or attempts at fraud. “Always protect your personal information, to prevent identity theft and fraudulent activities against your name. By working together, insurance companies and consumers can help reduce the prevalence of insurance fraud,” Munusamy said.