INSURANCE FRAUD MENACE?

25 APRIL 2014

INSURANCE INSTITUTE OF HARARE

FRAUDAny person who makes a misrepresentation-

a)intending to deceive another person or realising that there is a real risk or possibility of deceiving another person; and

B) intending to cause another person to act upon the misrepresentation to his or her prejudice, or realising that there is a real risk or possibility that another person may act upon the misrepresentation to his or her prejudice

Shall be guilty of fraud if the misrepresentation causes prejudice to another or creates a real risk or possibility that another person may be prejudiced

MISREPRESENTATIONMisrepresentation means any act or omission

of any kind whatsoever which wrongly or incorrectly represents any fact, law, character, circumstance, opinion or other thing whatsoever and, without limiting this definition in any way, includes-a) a false statement of fact or law or a false

expression of opinionb) silence on the part of a person who has a

duty to speak, knowing that another person has been or will be misled by the silence

MISREPRESENTATIONf ) the use, publication or uttering of a

document which contains a false statement, knowing that the document contains a false statement or realising that there is a real risk or possibility that it does so.

INSURANCE FRAUD DEFINITION“Insurance fraud occurs when individuals

deceive an insurance company, agent or other person to obtain money or financial benefit to which they aren’t entitled. It happens when someone puts false information on an insurance application and when false or misleading information is given or important information is omitted in an insurance transaction or claim”-The State of Utah Dept of Insurance Fraud Division

INSURANCE FRAUD DEFINITION“Insurance fraud is thus an act or omission

resulting in illicit collection of an insurance benefit. It encompasses all fraudulent acts from completely fabricated claims, inflation or paddling of legitimate claims, false statements on insurance applications, or internal fraud by staff, and sometimes executives”-J.J.NGULUBE

IMPACT OF INSURANCE FRAUDTHE RISE OF FRAUDULENT CLAIMS IN

THE INDUSTRY- “FACT OR PERCEPTION”1) How many companies maintain fraud

databases and can conclusively claim that insurance fraud is increasing year on year

2) What is the known cumulative impact of insurance fraud on the Zimbabwean short term insurance industry

3) How significant is the threat of insurance fraud to the profitability of your business

4) Does your company have anti-fraud policies and how effective are they in your opinion

IMPACT OF INSURANCE FRAUD5 ) How are fraudulent claims detected in

your organisation6 ) Is the issue of insurance fraud a strategic

issue within the business7 ) Is your company able to effectively assess

the impact of fraud on the bottom line

REALITY IS THAT IT IS DIFFICULT IF NOT IMPOSSIBLE TO CONTROL WHAT WE CANNOT MEASURE

TYPES OF INSURANCE FRAUDUNDERWRITING FRAUDCLAIMS FRAUDASSETS FRAUD

CLAIMS FRAUD-HARD FRAUDDeliberate perpetration of an insurable loss-

arson or stage managing road traffic accidentInsuring an asset already damaged pre-

inception of the insurance contractInsuring a non-existent assetBackdating cover to incorporate a loss which

occurred priorMultiple insurance & multiple claims for the

same subject matter of insurance

CLAIMS FRAUD-HARD FRAUDSUBSTITUTION OF OWNER ON EXISTING

INSURANCE POLICYSALVAGE MISAPPROPRIATION OR

CANIBALISATION SUBSTITUTION OF UNLICENSED DRIVER

WITH LICENSED DRIVER

SOFT FRAUDPaddling/inflating a genuine claim to

incorporate the excess, commission or accommodate paybacks

Provision of inflated desk quotationsOverstating quantity or value of items stolenAssessors incorporating commissions into fee

notes

FACTORS INFLUENCING FRAUDPEST ENVIRONMENT- CREATION OF NEW

INDUSTRY/ECONOMIC SUBSECTORS-DEALERS

HIGH REWARD-LOW RISK PROPOSITIONDECLINING MORAL & ETHICAL

STANDARDSCOMPROMISE ON UNDERWRITING

PRACTICESPREVALENCE OF ZIMDOLLAR MENTALITY

IN BUSINESS PRACTICES

PREVALENT FRAUD INDICATORSGROSS OVER INSURANCEACCIDENTS OCCURING AT ISOLATED

SPOTSACCIDENTS OCCURRING AT ODD HOURS

INVOLVING UNACCOMPANIED DRIVERSEVASIVE RESPONSE BY POLICE WHEN

FOLLOWING UPDELAYED SUBMISSION BUT PROMPT

REQUEST FOR COMPENSATIONREVIEW OF SUM INSURED IMMEDIATELY

PRIOR TO LOSS

COMMON PRACTICESMOST CLAIMS REFERRED FOR

INVESTIGATION BY MANAGEMENT AT SETTLEMENT STAGE

MOST CLAIMS REFERRED AT 2ND ISTANCE FOR INVESTIGATION

COMMON TYPES OF FRAUDPADDLING/INFLATING IS MOST COMMON

& MOST SEVERE AS IT RECURS DAILYINSURING OF DAMAGED ASSETS PRE-

INCEPTION OF CONTRACTARSON OR STAGE MANAGED CLAIMSSUBSTITUTION OF DRIVERSMISREPRESENTATION OF DESCRIPTION

OF USESTAGED MANAGED ROAD TRAFFIC

ACCIDENTS

EXAMPLES OF OTHER FRAUDSINFLICTING ADDITIONAL DAMAGE ON

CUSTOMER’S VEHICLESTAGE MANAGING BOAT THEFTTHEFT OF NONE EXISTANT VEHICLEDISAPPEARANCE OF NONE EXISTENT

TOBACCO BALESGENUINE FIRE CLAIM INFLATEDALTERATION OF DATE OF LOSS ON GIT

LOSSSTAGE MANAGED PERSONAL ALL RISKS

LOSS

RESPONSE MEASURESBACK TO BASICS UNDERWRITING

APPROACHa) Proposal formsb) Named drivers on private motor policiesc) Agreed value instead of market value for

grey importsd) Vehicle values’ databasee) Conditional own damage cover subject to

vehicle inspection as a pre-requisiteAPPRECIATION BY STAKEHOLDERS THAT

FRAUD IS INDEED A MENACE & POSES A THREAT

RESPONSE MEASURESINCORPORATION OF ANTI-FRAUD

POLICIES CREATION OF AND SHARING OF FRAUD

DATABASESRE-ESTABLISHMENT OF INITIATIVES

SUCH AS BUSINESS AGAINST CRIME AVAILABILITY OF ANONYMOUS WHISTLE

BLOWING FACILITIESCONSOLIDATED INDUSTRY APPROACH TO

FIGHTING INSURANCE FRAUDESTABLISHMENT OF MUTUALLY

BENEFICIAL RELATIONSHIPS BTWN INSURERS & ASSESSORS

CONCLUSIONTHE PERSON WHO REMOVES A

MOUNTAIN BEGINS BY CARRYING AWAY SMALL STONES-CHINESE PROVERB

RESPONSE MEASURESMANNING CLAIMS DEPT WITH YOUR

MOST COMPETENT EMPLOYEES