Life insurance industry uncovers ghoulish scamming

South Africans are reportedly renting and buying dead bodies to falsely claim from their life insurers. This revelation is contained in a report by the Association for Savings and Investment South Africa (Asisa).

In 2018, life insurers rejected 1,915 funeral claims totalling R176.4-million, of which 1,127 were found to involve fraudulent documentation. Another 156 fraudulent claims showed syndicates were involved, and in seven cases, beneficiaries were found to have caused the death of the policyholder.

“If fraudulent or dishonest claims are not detected and stopped, initially it is the life company that suffers. If fraud and dishonesty are left unchecked and push claims rates up to untenable levels, life companies will eventually be forced to increase premiums and then it impacts on honest policyholders,” Asisa told Daily Maverick.

The convener of the Asisa Claims Standing Committee, Donovan Herman, reckons life insurers owe it to honest policyholders to protect the integrity of the long-term insurance model by preventing fraud and dishonesty:

“If we allow fraudulent and dishonest claims, honest policyholders will ultimately end up footing the bill through higher premiums driven by untenable claims rates.”

Herman said while life insurers are frequently accused by the public of trying to avoid paying claims, the numbers tell a different story. In 2018, life insurers paid 99.3% of claims made against fully underwritten individual life policies.

Old Mutual found itself in a tangle when a KwaZulu-Natal family who sought a R30,000 life policy payout for a family member went to extremes and dumped the deceased’s body at an Old Mutual branch. Following a backlash, the company paid speedily and claimed a 99% payout rate.

Herman reckons that funeral policies don’t require blood tests or medical examinations and are designed to pay out quickly when an insured family member dies.

“Unfortunately, this makes it tempting for criminals and dishonest individuals to take out funeral cover for people who do not exist with the intention of later submitting claims using death certificates issued for dead bodies rented or bought for the purpose of committing fraud,” Herman said.

Daily Maverick asked Asisa why it was that KwaZulu-Natal and Eastern Cape had the highest and second-highest number of fraudulent and dishonest claims. According to Herman, KwaZulu-Natal has a 35% dishonest and fraudulent claims rate, and the Eastern Cape 18%.

“Not only is it much more difficult for life companies to verify and investigate claims in provinces with vast rural areas like KwaZulu-Natal and the Eastern Cape, but, in addition, funeral and entry-level policy sales volumes are also the highest in these provinces,” Asisa said.

The newly released 2018 Asisa-commissioned statistics show that the total number of irregular claims was lower in 2018 than in 2017, but the claims value remained almost the same.

South African life insurers detected 3,708 fraudulent and dishonest claims to the value of R1.06-billion in 2018, and most of the fraudulent activity in 2018 took place in the funeral insurance sector.

Life insurers detected 5,026 fraudulent and dishonest claims worth R1.13-billion in 2017. DM