Insurance industry tightens security to outsmart fraudsters

While fraudsters continue to target insurance companies with bogus claims, the industry says imposing stringent terms and conditions when applying for insurance policies will affect the market negatively.

At least 8,931 cases of insurance fraud and dishonesty with a financial loss of R77m were detected and investigated in 2022, while more and more perpetrators of such fraud continue to be arrested in high-profile cases that have made headlines in recent times.

The Association for Savings and Investment SA (Asisa) says this is due to more resources deployed by its members and insurance companies to fight and detect fraud.

However, consumers often ask themselves why the same energy is not being applied to protect ordinary people by verifying and informing the insured person that a policy has been taken on their life.

Jean van Niekerk, convenor of the Asisa forensic standing committee, said this approach would be an almost impossible task to apply.

"It is important to differentiate between life insurance policies and funeral insurance policies. Life insurance policies generally involve risk underwriting and assessment, which ranges from medical and lifestyle questions to blood tests and medical examinations. As a result, the insured person will always know that a policy has been taken out on his or her life," said Van Niekerk.

He said that funeral insurance policies, on the other hand, have been designed to be more accessible for the entry-level market to offer financial support in times of bereavement.

"While strict terms and conditions apply in terms of the policyholder protection rules, it is impossible to apply the same underwriting requirement as life cover, which would result in a number of exclusions.

"Since there are no medical underwriting requirements, those covered under the policy may not know about the cover unless the policyholder tells them. You can include anyone on your funeral policy as long as they are family, subject to the insurer’s limits," said Van Niekerk.

A reality for many South Africans is that one person is likely to be expected to pay for the funerals of several family members and many policyholders do not tell their family members that they have insured them for funeral cover due to cultural beliefs, which consider it disrespectful to talk about death since this can be misunderstood as wishing for their death.

Some people take advantage of this secrecy for nefarious reasons, and the way that funeral policies are designed make it simple for people to attempt to defraud them.

Funeral policy benefits can be as high as R100,000 and some insurers pay double the benefit for accidental deaths. In most cases, there is also no limit on the number of policies you can take out.

"Funeral policies are also designed to pay out quickly and without hassle when an insured family member dies. In some cultures, the funeral must occur on the same day.

"If life insurers start applying the same stringent underwriting criteria to funeral policies as they do to life policies, the unintended consequence would be that the product would be less accessible in the low-income market, which would no longer be able to secure funeral cover," said Van Niekerk.

SA Insurance Crime Bureau CEO, Garth de Klerk, said on a daily basis, a wide variety of financial products, banking products included, are abused in multiple different manners by greedy people.

"We are dealing with millions of lives insured, some of which are not easy to communicate with. Insurers are continuously looking for more effective ways of underwriting, educating and communicating – however this is not as easy in reality as it sounds in theory," said De Klerk.

According to Asisa, organised criminals were involved in 68 of the 3,268 cases of fraud involving funeral policies in 2021. These syndicates would take out funeral insurance on victims they subsequently kill in order to submit a claim.

One of the high-profile cases that shocked the country was that of Nomia Rosemary Ndlovu, a former policewoman, who was handed six life sentences for the murder of her partner and five family members in order to claim funeral and life insurance taken out on their lives.

Experts said perpetrators usually target vulnerable people such as relatives who are homeless or abused drugs and alcohol. 

"The perpetrator hopes to claim a death benefit. However, these crimes are not common, and when they are committed, the people involved rarely get away with it, as several high-profile court cases have shown.

"It is also important to note that all policies, whether life or funeral, come with an exclusion that states that if the beneficiary commits a crime that results in the death of a family member covered by the policy, no benefit will be paid," said Van Niekerk.

He said murder is uncommon.

"Far more common, for example, is fraud involving criminals working with mortuaries to get hold of unclaimed dead bodies and using these dead bodies to claim death benefits," he said.

If you suspect that someone has taken out cover on your life unlawfully, you have the right to make contact with that insurer to verify this or contact your financial adviser for advice.

You can report insurance fraud safely, easily and anonymously to the SAIB on 011-021-1432/3/4/5.