Fraudulent activities in the life insurance sector have become a major concern. According to the Association for Savings and Investment South Africa (ASISA), some R787.6m worth of fraudulent and dishonest claims were made in 2021.
“Life insurance fraud is a serious crime that affects the industry as a whole. This includes policyholders, who end up paying higher premiums to cover the costs of fraudulent claims,” says Shafeeka Anthony, marketing manager of JustMoney.co.za, a site that helps educate South Africans to make good money choices.
A lack of financial education is at least partly to blame for fraudulent life insurance claims. Consumers may not understand the complexities of life insurance policies; and may be more susceptible to fraudulent schemes or scams. Corruption is also a significant issue in South Africa, and it can create an environment in which fraud can thrive.
- Read a JustMoney article on staying afloat in a tough financial environment.
Main types of life insurance fraud
JustMoney spoke to sector experts to ascertain the three most common types of life insurance fraud. Understanding these can help you to avoid committing a crime, which can result in prosecution, even if you commit fraud unintentionally.
1. Application fraud
If you knowingly provide false information, misrepresent yourself or your health history, or conceal material facts in your insurance application, this constitutes fraud, says Lindokuhle Shandu, an honours degree-holder in criminology and forensic studies.
“Whether or not your goal is to qualify for more coverage or lower premiums, lying on your application is illegal and may be reported to the appropriate jurisdiction,” he notes.
Insurers pay particular attention to claims that are made within the first few years of a policy’s inception. If information is lacking, this suggests that the policyholder knew they had, for example, a critical illness, but did not disclose it when they took out the policy.
Sales advisers can also commit fraud to generate upfront commission, especially if they are under pressure to make sales, says Peter Kerford, head of Group Forensic Investigations at Momentum Metropolitan.
“Quality sales, where premiums are paid every month, are more difficult to achieve during tough economic times,” he says.
“Prospective clients can be tricked into accepting policies they don’t want by responding to a one-time PIN, for example. You may be pressured into confirming the PIN before having read the message,” he warns.
2. Forgery of ownership
Fraudsters frequently commit identity theft, pretending to represent reputable insurers to gain access to funds.
“Fraudsters may try to change critical contact information before attempting a withdrawal request. This helps them to delay detection,” Kerford says.
They may also try to change the ownership or beneficiaries of a policy. However, only a policyholder is empowered to do this, says Shandu.
“Your insurer should actively engage with you before any changes are made to your policy,” he says. “This can also help expose fraudulent attempts by syndicates who hope to benefit unlawfully from the policy.”
3. Disability or death fraud
Disability cover is critical for paying your bills if you’re temporarily or permanently disabled. However, if you fake an illness or disability to get a policy payout, you risk a fine and a lengthy prison sentence.
Similarly, submitting false or fraudulent death claims will be prosecuted to the full extent of the law, says Kerford. He cites a case in which a policyholder, funeral parlour owner, and doctor conspired to have the policyholder declared deceased to claim a payout of millions of rands.
“Insurers work with the South African Police Services to ensure these cases are thoroughly investigated,” he says.
- Being a victim of fraud not only jeopardises your financial security, but it can affect your credit history. Check your credit score for free, today.
How to protect yourself
To prevent becoming a victim of life insurance fraud, or breaking the law unintentionally, South Africans should note the following tips.
- Be honest and transparent: Always provide truthful information to insurers when applying for policies. Disclose any pre-existing medical conditions, previous claims, and other information that may impact your eligibility for coverage. Lying or omitting important information can result in the rejection of a claim, or even criminal charges.
- Read the fine print: Carefully review the terms and conditions of your policy before signing it. Make sure you understand what is covered and what is not, as well as any limitations or exclusions.
- Check communications: If you receive an SMS purporting to be from your insurance agent or broker, or you’re asked to click on a link or confirm a PIN, check the validity with your insurer before taking action.
- Keep your personal information up to date: It’s important to keep your broker or insurance provider updated regarding any changes in address or personal circumstances that are relevant to the policy. Be wary, however, of unsolicited calls. You should never provide personal details to telemarketers or other cold callers.
- Be alert. Check your monthly bank statements and credit report for anomalies.
By following these tips, South Africans can help prevent life insurance fraud and avoid breaking the law, says Anthony.
“If you suspect that someone is committing life insurance fraud, report it to the relevant authorities immediately. You can also report any fraudulent activity to your insurer,” she says.
Report fraud: The Insurance Crime Bureau – Insurance Fraud line: 0860 0025 26 | SMS 32269 | insurance@fraudline.co.za.
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Caption: Protect yourself and your insurance policy, and be aware of the various forms of life insurance fraud, advises JustMoney.