R787.6 million – that’s the value of life insurance fraud detected in South Africa in 2021. According to the Association for Savings and Investment South Africa (ASISA), life insurers picked up 4,287 fraudulent and dishonest claims last year. They say that this is a notable increase from 2020, when 3,500 cases totalling R587.3 million were discovered.

But it’s not just the life insurance sector that’s being plagued by fraud – criminals are targeting all kinds of insurance. Fraudsters are claiming funeral policy pay-outs for deceased relatives who don’t exist. Car insurers are facing rising numbers of claims for theft and damages that don’t occur – there’s no end to the scams. Common forms of fraudulent activity that costs the South African insurance industry millions each year include:

Inflating or padding an insurance claim – claiming for a stolen R100,000 watch, for example, but inflating the value to R200,000 without proof that it was worth that amount.

Giving inaccurate information in an insurance claim – not being honest about the facts of the incident that led to the loss or damage being claimed for.

Submitting false insurance claims – claiming for loss or damage that never took place, when the claimant makes up a fictitious burglary, mugging or hijacking, for example.
 

Creative fraud techniques being used

Scam artists are getting creative when it comes to ripping off insurers. In May 2022, a BusinessTech report revealed that a South African nurse had tried to con an insurer out of a severe disability benefits pay-out. She had claimed that she was pricked by a stray needle at work, leading to her contracting HIV. She submitted her claim and a test indicating that she’d contracted HIV, even though she took anti-retroviral drugs soon after the needle incident.

‘The life insurance company’s forensic department investigated the claim and found several inconsistencies and no records of the client being treated for HIV,’ the report noted.

The insurance company asked the nurse to go for a further test with an independent lab. But she then admitted that she hadn’t submitted her own blood for testing – she had used the blood of an HIV-infected person instead. Her insurance provider reported her fraudulent claim to the police. After legal proceedings, she was sentenced to 5 years in jail, suspended for 5 years, and had to pay a R10,000 fine or face 6 months’ imprisonment. If the insurance company hadn’t performed a forensic investigation of this claim, it would have lost R1 million to insurance fraud.

The reality is that fraudulent claims can get through the system, and fraudsters get away with millions. Insurers must then raise their premiums for life, car, home, and niche policies to ensure that there’s enough cash in the kitty to pay legitimate claims, so insurance fraud adds to the cost of everyone’s insurance.
 

Why you shouldn’t attempt insurance fraud

Whether it’s long-term (life) or short-term (vehicle and asset) insurance, stay clear of trying to submit fraudulent insurance claims. Insurers use advanced methods to detect fraud and it’s likely that you will be caught. Forensic investigation methods can unearth inaccuracies, so whenever you submit a claim it’s best to be completely honest.

If you ignore this advice, you could face any, or all, of the following consequences:
 

1. No pay-out at all

If you pad your claim by increasing the value or number of items lost and your insurer finds out, they can choose to reject your claim completely and you won’t get a cent. Even if you genuinely lost an asset, trying to claim for more than it was worth could leave you without any pay-out at all to replace it.
 

2. No one will insure you in future

Some insurers also blacklist you if you commit insurance fraud. They won’t grant you a policy in future, and when other insurers find out that you’re flagged as a fraudster, they won’t insure you either. Get caught making a false claim today on something minor like a smartphone, and you could find yourself with no insurance options later in life on high-value assets like your house or car.
 

3. You can be fined and/or sent to prison

The key fact to remember about insurance fraud is that it’s a serious crime. If your insurer finds out that you are trying to lodge a false claim, a padded claim, or one in which you’ve lied about specific details of the insured event, they will report you to the South African Police Service.

You could be arrested and prosecuted – with penalties on conviction that include jail time, fines, or both. Even insurance brokers have gone to jail for insurance fraud, so don’t convince yourself that you’re smart enough to beat the system. Make sure you have enough insurance to cover all your risks, report any loss or damage honestly, and you’ll have nothing to worry about.

As an honest policyholder, why should you have to face rising premiums because of insurance fraud? Stamping it out is in everyone’s best interest. If you suspect insurance fraud, contact the Insurance Crime Bureau for further assistance.

For trustworthy life insurance and vehicle and asset protection, you can rely on Nedbank Insurance.