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The rising risk of insurance fraud

ARTICLE BY

  • Soul Abraham
  • Chief Executive for retail at Old Mutual Insure
  • Old Mutual Insure

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The rising trend of insurance fraud, including a newer type of sophisticated fraud using generative Artificial Intelligence, has become a significant risk in the non-life insurance industry, particularly in the current economic climate in South Africa, where tough economic conditions are leading more people to attempt some form of insurance fraud.

Over the past year, we have observed a 35% rise in identified fraud claims at Old Mutual Insure.

The explosion of Artificial Intelligence (AI) tools, through, for example, ChatGPT, is facilitating another step-change in the sophistication of fraud, allowing fraudsters to make claims on behalf of clients using deep fake video, voice spoofing, document forgery, advanced social engineering, email phishing and synthetic identify fraud. Chat platforms that have immediate shareability functions like voice notes also increases the risk of fraud.

Against this background, it will become increasingly difficult to identify fraudulent claims. The insurance industry needs to work together to stop the likelihood of fraudulent claims increasing to unsustainable levels. This is because we not only need to protect the industry, but the policyholder, who is arguably at the biggest risk of being at the losing end of the trend. If it continues unchecked, insurance companies will be forced to increase pricing by raising premiums, or reducing cover, which then worsens the protection gap for the policyholder.  The cost of living is already high and policyholders struggling with economic hardship making it even more important to keep insurance affordable and focus on retaining customers.

What is the insurer’s responsibility?  

As insurers, we’re well-equipped to deal with fraud. Old Mutual Insure remains committed to paying 100% of all valid claims, which is why we are investing in mitigating strategies and technologies. We are rolling out voice analytics technology that can help verify genuine claims made by a human and avoid generated voice claims. We have put in more robust and sophisticated anti-fraud systems to detect inconsistencies, incomplete or inaccurate information or suspicious behaviour.

In addition, we are increasing our customer-facing contact significantly to verify that claims are legitimate.

To protect all legitimate claims and good customers, we must combat fraud. There are grave consequences for anyone having committed insurance fraud, including being refused insurance cover, or even a prison sentence.

How brokers can help eradicate insurance fraud

Given the serious nature of these repercussions to policyholders, it is extremely important for every stakeholder in the insurance industry to remain vigilant against fraud, especially brokers who are often the first point of contact for policyholders. Below are proactive measures brokers can take in this regard:

  • Educate policyholders on the issue: Consider regular communication around the consequences of being found guilty of insurance fraud. It is important to understand that it’s not the main policyholder who can be found guilty – anyone claiming under that person’s policy can be held liable for fraud.
  • Thorough assessment of claims: Conduct a comprehensive evaluation of all claims. Ensure that all necessary documentation is provided and review the claimant’s history to identify any suspicious patterns.
  • Training and awareness: Stay up to date with the latest fraud detection techniques and provide ongoing training to your team. Being well-informed will help us identify red flags more effectively.
  • Verify all claims: Verify claims by asking questions and phoning the policyholder directly on the numbers you have on file for them, rather than returning calls on numbers that are unlisted on your client’s account.

Furthermore, brokers need to be aware of the following five red flags that may signal a fraudulent claim:

  1. Delayed reporting: Claims that are reported significantly after the alleged incident occurred should raise suspicions.
  2. Inconsistent statements: Discrepancies in the claimant’s account of events, particularly when providing different versions to different parties, can indicate fraud.
  3. Unusual loss patterns: Frequent claims for minor losses or an unexpected spike in claims activity may warrant closer scrutiny.
  4. Lack of documentation: Missing or incomplete supporting documents could be a sign of fraudulent activity.
  5. Unwillingness to cooperate: If a claimant is uncooperative or resistant to providing additional information, it may indicate fraudulent intent.

By staying vigilant and working together, brokers and insurers can effectively combat the scourge of insurance fraud and ensure that policyholders are safeguarded and not indirectly penalised for the bad actors in the system.

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