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Life cover fraud - a reality in SA - here's what you need to know to protect yourself

Life cover fraud - a reality in SA - here's what you need to know to protect yourself
17-04-24 / Sisanda Ndlovu

Life cover fraud - a reality in SA - here's what you need to know to protect yourself

Johannesburg - Life cover fraud has been in the spotlight following the harrowing case of former policewoman Rosemary Ndlovu, who was sentenced to life in prison for orchestrating the murders of six family members between 2012 and 2018 to reap insurance payouts. While not all instances of life cover fraud are as extreme, it has left a profound impact on South Africa’s long-term insurance industry. 

Dennis Munusamy, Investigations Manager at Hollard Life Solutions explains, “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.”

According to the Forensic Standing Committee of the Association for Savings and Investment South Africa (ASISA) in 2022, 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 R1.1bn.

Munusamy shares that, Hollard Life Solutions, for instance, prevents losses of around R20 million annually from fraudulent claims, particularly on direct funeral and life policies. Such fraudulent activities are often driven by financial desperation, with individuals resorting to deceit to maintain their standard of living.

He says 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.

Criminals are 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 is costing the burial and life insurance industries billions of rands.

One common tactic used in fraudulent claims involves funeral policies, which may impose waiting periods of up to six months for deaths due to natural causes. This measure is designed to deter individuals from taking out a policy once they are already sick and aware of their impending death. However, there are typically no waiting periods for claims related to unnatural causes.

Munusamy shares, “We have seen several horrendous trends emerging in fraudulent insurance claims related to unnatural deaths, including what is called hit-and-run schemes, where some families stage unnatural deaths after their loved ones pass away naturally during the waiting period. The body is removed from the mortuary and placed in a road where it could be struck by a vehicle. The family then files a claim after reporting a false 'culpable homicide.'”

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

The purchase or rental of unclaimed bodies is another scheme, where employees of funeral parlours and mortuaries purchase deceased corpses in the funeral insurance market and sell or rent them to syndicates. These bodies are then used as collateral for policies that were falsely obtained several months prior.

Paper children syndicates are 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.

Late registration of death for the assured life is another one of these schemes. However, in this instance, syndicates often operate 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.

Munusamy says, “We have seen murder for money, which is 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,” explains Munusamy. He says insurance companies are 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. On the one hand, insurance companies are responsible for implementing robust fraud detection measures and collaborating with law enforcement agencies, and regulatory bodies among others to effectively combat fraud. On the other hand, consumers have a responsibility to act ethically and honestly when interacting with insurance products. This includes providing accurate information when applying for insurance, reporting any changes in circumstances that may affect their policy, and submitting legitimate claims only.

“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,” says Munusamy.

Here are some ways in which consumers can start being vigilant:

Check credit bureau profiles: Regularly check profiles with major credit bureaus and set alerts with the Insurance Crime Bureau (ICB) for industry checks.

Broker checks:  You can also run checks against your name to see if any new policies have been taken out against your name without your consent. To do this, you can ask an insurance broker to run checks against all insurers to see if new policies have been taken out in your name.

If policyholders suspect any fraudulent activities, report these to your insurer. Policyholders can also report fraudulent activities to the insurance fraud hotline, or the Insurance Crime Bureau, or the South African Police Service.

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