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Life insurance products sold in South Africa expose South African insurers to potential misrepresentation and fraudulent claims. In South Africa, insurers and reinsurers alike employ several anti‐fraud mechanisms to minimise their exposure to fraudulent claims. The hardening economic climate, the continued presence of sophisticated syndicates, and the emergence of artificial intelligence (AI) create the need for insurers to keep up to date in the fight against fraud.
As part of our contribution to this fight, and towards optimising claims risk management procedures, Gen Re conducted a fraud survey in the South African market. In addition to benchmarking best practices, we wanted to identify development opportunities in the investigation of fraud by life insurance companies. Respondents were asked to disclose their company’s fraud prevention and detection practices by answering several quantitative and qualitative questions.
The clients surveyed comprised a significant share of the South African insurance market.
The Association for Savings and Investment South Africa (ASISA) compiles industry fraud statistics and releases a fraud media statement annually, based on data provided by long-term insurance companies.1 Figure 1 shows the ASISA fraud statistics for the period 2018 to 2021. Apart from 2019, there has been an increase in fraud numbers year over year. ASISA noted that the highest incidence of fraud and dishonesty takes place in the funeral insurance space, followed by death products, disability, hospital cash plans, and retrenchment cover. The ASISA spokesperson was quoted as saying: “Since funeral insurance policies do not require blood tests and medical examinations and are designed to pay out quickly and without hassle when an insured family member dies, criminals and dishonest individuals most commonly try their luck in this space.”2
ASISA attributed the increase in 2020 to the COVID-19 pandemic and the tough economic climate it created. In contrast, ASISA attributed the increase in fraud numbers in 2021 to the deployment of more sophisticated fraud detection mechanisms in the industry, which allowed for an increase in the detection of fraud.
ASISA has yet to release the 2022 data but announced that its current areas of interest include material non-disclosure, fraudulent documentation, murder for money/“Killsurance” schemes (as coined by the Rosemary Ndlovu saga)3, and “paper babies”, where insurance is taken out on children who do not exist other than on paper.4Gen Re is keeping a close eye on these areas and monitoring any developments.
Gen Re’s experience in claims and risk mitigation processes has shown us that suspicious indicators of potential fraud include, but are not limited to:
The survey identified several areas of strength and opportunity among participating insurers.
|
100% |
Compile fraud statistics |
|---|---|
|
100% |
Investigate “tip-offs” |
|
89% |
Have formal policies to address anti-money laundering (AML), countering the financing ofterrorism (CFT), and politically exposed persons/politically influenced persons (PEP/PIPS). |
|
78% |
Verify deaths against the Department of Home Affairs/Astute database |
|
78% |
In-house forensic teams |
|
67% |
Assessors are trained to identify red flag fraud indicators |
|
44% |
Update claims to the Astute Claims Register |
|
33% |
Maintain an internal database of red flag indicators |
|
33% |
Benchmark their claims with the market using the Astute Claims Register |
Source: Gen Re South Africa Reinsurance Fraud Survey Data, 2022
To combat insurance fraud, we need to rely on proven methods such as investigating capabilities, identifying, and monitoring suspicious activity, training assessors and organisations, managing data and benchmarking. We can leverage emerging digital, AI and data analytics technologies to enhance our fraud detection, mitigation, and prevention in the financial services sector. The global market for AI-based insurance fraud detection is predicted to reach USD 17 billion by 2028.5 General Adversarial Networks (GANs) are proving it is possible to use this technology, but these are still in their developmental phase.
Gen Re will continue to keep clients up to date about the latest developments being employed locally and internationally, and to partner with service providers who can enhance our clients’ offering in this space. Based on our survey findings, we recommend that consideration be lent to the following action items, if not already done so:
Familiarity with trends, schemes, and suspicious indicators is an important line of defence. Therefore, fraud awareness training for staff should be routinely refreshed, not done only when onboarding. Gen Re continues to offer fraud training to our clients. To learn more about this training, ask your Gen Re representative or contact Heather Thurtell directly.
A layered approach to fraud detection is ideal, combining manual screening for suspicious indicators, automation, and advanced analytics. Good data analysis on accurate data, together with improved modelling techniques, will become even more significant in the future. Therefore, the development of tools to analyse policies, claims data, and fraud statistics to predict and detect potential fraud is recommended. Gen Re is available to share our expertise on modern data analytics techniques.
Early claims should be investigated thoroughly for non‐disclosure, including screening for suspicious indicators and referral (where indicated) to internal or external fraud resources (e.g. forensic investigators or forensic services providers). Death/Living status should be verified with the Department of Home Affairs.
Within the confines of what is legally permissible, internal databases on suspicious indicators should be maintained so that claim information can be checked against this database. Such a database keeps a record of suspicious indicators such as funeral parlours, mortuaries, medical undertakers, doctors, brokers, and financial advisers, suspected of, or implicated in, previous fraudulent behaviour. This list may include serial numbers of stolen death register forms, the names of medical doctors who have had official forms stolen, and other such known evidence. The assessor should be checking all claims against this database and, should any matches be found, the claim is usually referred for further investigation by a forensics team. Gen Re, in collaboration with our Head of Global Special Investigations, can assist clients to create a suspicious indicator database. To learn more about creating such a database, ask your Gen Re representative.
The long‐term insurance industry is constantly innovating preventive measures to combat insurance fraud, including the use of AI, data sharing for early detection of trends, and an increased focus on field investigations. Gen Re is committed to the fight against insurance fraud. If you detect fraud, or have suspicions of fraud, you are encouraged to report it to the appropriate authorities. If you want to join the conversation, please feel free to reach out to the author or your Gen Re representative.
