Claim fraud on the rise: insurance firms hard-hit – Bizcommunity.com

Despite being in the business of risk mitigation, insurance firms themselves are often subject to risk in the form of insurance crime.

Source: Supplied. Dr Jerry Chetty, manager of the Business Integrity Unit at Santam.

This is a notable increase from the previous year when fewer than 3,500 cases of fraudulent and dishonest claims to a value of R587.3m were uncovered. Statistics for insurance crime in the short-term insurance industry is not readily available.

The Insurance Crime Bureau estimated that the short-term insurance industry lost about R7bn in 2019 due to insurance crime namely 20% of the R35bn worth of claims paid out. As the risk landscape changes, insurers must keep up to date with developments in fraud risk-mitigation strategies if they are to reverse this process.

Through their research, South Africas largest short-term insurer, Santam, has pinpointed some of the areas in which insurers are facing challenges and how they can be combatted.

For example, the claimant may inflate a genuine claim and falsify certain details for financial gain. Claims processes, which have been implemented by insurers to speedily assist policyholders in claims settlement, are being exploited by criminal syndicates.

Some see submitting fraudulent and dishonest claims as a quick and uncomplicated way to help alleviate that pressure.

People filing dishonest or fraudulent claims often rationalise this fraudulent behaviour by tricking themselves into believing that filing fraudulent claims is a victimless crime as no-one gets hurt.

Attitude towards behaviour is related to the outcome and cost factor involved in continuing with a specific behaviour; subject norms are the views which peers or society have about the specific behaviour; and behaviour control refers to the ease or difficulty in continuing with the behaviour.

Theorical understanding is a useful component to include when developing an anti-fraud programme as it includes both transactional and behavioural aspects.

With that said, these crimes can be split into four broad categories, each with its unique characteristics:

One of the examples we uncovered at Santam was as follows. A policyholder claimed for items which were not stolen or which the policyholder did not own during a legitimate claim for a housebreaking incident. This was done so that the policyholder could receive a higher claims settlement amount.

Most correspondence is done by email and as soon as a field assessor is dispatched, the claim is often cancelled, and the claimant becomes unreachable.

Business-email compromise and ransomware attacks are prevalent to industries that are data dependent or that are regularly involved in processing payments.

An alert management system for the collection of both complainant and intelligence-driven information is a critical early-warning system in detecting insurance crime. Complainant-driven platforms include the various whistleblowing channels available for people to anonymously report suspicions of insurance crime.

There are various technology solutions which offer good early-detection capability in identifying patterns and behaviour. We have combined technology with sophisticated intelligence and analysis machinery that can help us detect emerging risks and neutralise them before they get out of hand.

Together, these solutions are able to track a change in behaviours from fraudsters which gives us the advantage of responding quickly. We have also learnt that low-value claims matter and should also be vigorously monitored. As we see with low-value claims where we send out field assessors, fraudsters follow the path of least resistance and when confronted with a robust defence are likely to abandon their plans.

Another way to discourage fraudulent claims is through the deterrence-letter theory. Research has found that the filing of fraudulent claims decreased when insurers advised policyholders about the negative impacts of insurance crime on society and the possible repercussions a person could face for filing inflated or false claims. Such initiatives are cost-effective methods for insurers to employ as part of their antif-raud programme.

Finally, by adequately training frontline staff, sharing information with fellow stakeholders in the industry, undertaking more research and conducting extensive consumer awareness, we can reverse the trajectory of these crimes.

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Claim fraud on the rise: insurance firms hard-hit - Bizcommunity.com