‘Blow the whistle on insurance cheaters’
THREE years ago the South African Insurance Association launched the Insurance Crime Bureau to investigate and prosecute fraudulent insurance claims.
This means that if you are found making a fraudulent claim from an insurance company you could be prosecuted.
Residents of South Africa should blow the whistle on fraudsters since they are causing damage to the economy and hurting others in the process.
The other problem they deal with is an incorrect perception that the insured are labouring under.
“When it comes to paying out claims the South African short-term insurance is beset with incorrect perceptions, many consumers incorrectly believe that when claiming for damaged or stolen goods, the insurer is either not likely to pay out enough to cover the item or will attempt to reduce the claim as far as possible, insured individuals are convinced that claims need to be inflated to ensure that after an insurer reduces the claim, the settlement amount is equivalent to the lost amount.
The insured do not realise that this action is in fact fraudulent and might prejudice the entire claim, as well as the insurer’s decision to insure that consumer in future.
The intention of the short-term insurance concept is to restore the consumer to the same financial position she-he was in before the claim.
Instead of inflating the claim after a house robbery or damage, consumers should review their short-term insurance policy prior to suffering a loss.
“One of the most important things consumers can do is to annually assess the value of their household items, check that all items are correctly covered and that any new items have been taken into account.
“If the sum insured reflected on your policy is less than the actual value of your household goods, you are under-insured.
Under-insurance is one of the biggest and most misunderstood areas in the short-term insurance industry. Many clients believe that if they understate the value of their goods the premium will be lower and will therefore save them money in the long run.
“The truth of the matter is that under-insurance leaves many insured clients in a very vulnerable place at the time of a claim.”
If under-insured, the principle of average will be applied and the claim will be settled proportionately, leaving the insured to cover part of the loss.
For example, an individual’s household contents were insured for R50,000 (sum insured). The insured was burgled and R30,000 worth of goods were stolen (claim amount). An insurance assessor will assess the value of the stolen goods and find that the value of the remaining items is in fact R70,000.
The insurer immediately knows that the sum of insured value was too low and calculates an appropriate value by adding the claim for the stolen or damaged goods to the value of the items remaining in your home – in this case R70,000 plus R30,000 – the correct amount that the client should have been insured for therefore is R100,000.
In this example the individual is considered to be 50 percent under-insured.
The amount that will be paid out, due to the formula of average being applied, is therefore going to be only R15,000.
“It is therefore essential to contact your broker when purchasing an expensive item and ensure that the sum insured is updated accordingly. It is also wise to adjust the value of your household contents to reflect inflation at least once per year.
The second challenge at claims stage centres on the proof of ownership requirement.
In some cases the insured presents a claim in which items of high value do not have any supporting documents as proof of ownership, such as an invoice, product manual or valuation certificates. In this situation the insurer might limit the claims payout for the item in question or even exclude it completely.
To avoid this hurdle it is suggests that all invoices and manuals for major appliances and high-value items should be filed and stored safely for reference purposes,
“Fairness is at the heart of the insurance claims process and if you play open cards with your insurer and advise them of any changes, then the claims process will run smoothly and the perception of having to inflate a claim to get what you are paying for is eliminated.
The South African Insurance Association, estimates that insurance fraud is costing insurance companies at least R2 billion a year – equivalent to about 10 percent of the claims submitted.
Stakeholder relations manager for the association, says that these statistics are way too conservative and it is estimated that local insurance fraud is in line with international trends and that fraudulent claims amount to about 30 percent of the claims submitted annually.
The attitude of 30 percent of insured South Africans is that, in the event of a claim for losses or damage, they have a right to get back more than they are actually entitled to receive.
The South African Insurance Association says that in 2008 the short-term insurance industry paid claims worth R22 billion.
If the estimates are correct that means about R6,6 billion of the money paid out was fraudulently acquired by the people insured.
Report insurance fraud to: South African Insurance Crime Bureau, PO Box 2522, Halfway House, 1865. Telephone: +27 11 021 1432/3/4/5 Fax: 0866 317796 Website: http://www.saicb.co.za/ Insurance Fraudline: 0860 002526