If insurance crime continues, it will affect underwriter’s risk assessment

Published Nov 29, 2023


If insurance crime continues unabated in South Africa, it could impact the affordability of insurance for an average South African and change the way underwriters view and assess risk, according to Santam South Africa’s largest short-term insurer listed on the Johannesburg Stock Exchange (JSE).

Santam head of business integrity Jerry Chetty said seeing inflated and false claims as a criminal activity and helping South Africans reach a fuller understanding of the consequences, required a fundamental moral and policy shift.

He said the insurance industry was not a standalone sector but was rather a connector of various industries and ultimately, an important component of economic development.

"Large-scale financial prosperity, for example, is connected to increased motor vehicle purchases, and increased activity in construction, agriculture, and banking. The backbone of these industries is effective risk management, which is where insurance comes in."

For this reason, Chetty said a blow dealt to the insurance industry in this case in the form of growing insurance crime could catalyse a series of knock-on effects in other sectors, which could hamper economic growth in the long term. This, in turn, has direct implications for the individual well-being of South Africans as well as the welfare of the collective, he said.

According to Santam, Insurance crime was typically committed in two ways. "In the first instance, individuals inflate a legitimate claim by claiming for items not stolen, lost, or damaged thereby dishonestly increasing the value of the claim. In the second instance, individuals submit false claims by staging incidents e.g. the theft of their assets or vehicles, and thereafter submitting claims for these fictitious events."

The insurer said criminals targeted the most vulnerable persons in society; including the poor, elderly, and students. There have been cases, for example, in which students in search of accommodation have supplied their personal information to fraudsters under false pretenses information was then used in fraudulent claims. There have also been instances where criminals duped the poor into providing personal information and these criminals thereafter use the said information in fraudulent claims.

According to data collected by Santam, the incidence of insurance crime was evenly divided between motor claims (48%) and non-motor (43%) claims. The most common strategies used by insurance criminals involved claiming for losses incurred before the inception of a policy, claiming for false or staged incidents, and submitting false claim information.

Furthermore, Santam said while the onset of the digital age has clear benefits for how insurance crime patterns were detected, the Forensic team at Santam has been successfully using technology to identify insurance criminals, their patterns, and the way they perpetrate insurance crime. The Forensic team has, through the use of technology, identified a new and emerging trend which the team termed “community participative” insurance crime. In these cases, family members or members of tight-knit communities share information and assist each other in committing insurance crimes.

Typically, the emergence of new technology is often accompanied by the emergence of new, more sophisticated criminal strategies. Further down the line, this has implications for insurers, who are called upon to underwrite these novice risks and become exposed by paying out claims due to losses caused by these new criminal strategies.

The increase in claims related to the theft of keyless cars illustrates this interconnectedness of criminal activity. Tech-savvy criminals have developed tools that can interrupt the signals transmitted from key fobs to keyless cars. These incidents are known as CAN or relay attacks.

Similarly, criminals have been found to clone vehicles or use damaged vehicles in insurance crime scams.

To safeguard against these occurrences, Santam has partnered with the South African Fraud Prevention Services and has maintained a close working relationship with the South African Police Services in the criminal prosecution of insurance crime cases. "We also engage closely with the Insurance Crime Bureau (ICB), an industry body responsible for representing the insurance industry in dealing with organised insurance crime."

Meanwhile, the Shoprite Group said its crime-fighting efforts had resulted in a year-on-year decline in armed robberies and burglaries, and its successful prosecution of criminals had ensured sentences totalling 1 384 years and three months including 24 life sentences in the past three years.

In addition, suspects still awaiting trial, where the Group successfully opposed bail had to date been in custody for the equivalent of 395 years and 8 months.

Shoprite Group security and loss prevention head Oswald Meiring said their top priority remains creating a safer environment for our customers and their employees.“Securing arrests and sentences are therefore critical to deter and ultimately reduce crime.”