From a warm and balmy Johannesburg as we fully embrace the season of Spring and all it’s beautiful blooms, we were brightly welcomed by IIG’s own rare flower and Head of the Education Portfolio, Tebogo Raphathelo. She provided a brief introduction of the topic touching on the significance of insurance fraud in the current economic climate in South Africa where tough economic conditions and a proliferation of Artificial Intelligence (AI) is creating a perfect storm. Tebogo then introduced our esteemed speaker for the day.
Carolyn Thompson
Carolyn has a Hons. Degree in Actuarial Science and started at Old Mutual Insure (OMI) in the pricing team where she moved into and ran the personal lines pricing. She currently heads up the product, underwriting and pricing for the retail division at OMI. She is also A Fellow of the Actuarial Society of South Africa and has a post-graduate diploma in Leadership from Stellenbosch Business School as well as being a proud mother of two.
Through insights gained through OMI, Carolyn provided a detailed overview of insurance fraud, trends both national and international as well as what brokers and everyone else throughout value chain can do to help.
What does Insurance fraud look like? Generally, it’s a combination of inflated claims and/or outright false claims e.g., stolen vehicles or a burglary that never took place or a staged accident. Furthermore, there are often intentional damage claims e.g., arson and falsification of dates/circumstances as well as gross policy misrepresentation.
Inflated claims impact quite severely on future premiums. During a legitimate robbery claim, clients often “sneak” in extra items. Sadly, outright false claims whereby the event did not take place at all are also on the increase. Staged accidents are also on the rise as well as burning buildings as the potential claim payout is more lucrative than the sale of the business. Young students using vehicles of older drivers is also quite common as the premiums are significantly less for older drivers.
Fraud trends:
- Claimants using new fraud strategies,
- More claims being registered digitally/adds complexity to fraud handling. Not speaking directly to the insurer makes it harder to pick up on fraud.
- Difficult economic conditions are resulting in higher fraud cases and cause people to lean towards fraudulent behaviour.
Although generally theft is much easier to stage, the number of repudiated claims has increased. Insurers have become better in picking up fraud.
Based on research done depicted on the graph above, consumer fraud has frightfully increased by a whopping 57% per year.
AI is being used to commit insurance fraud by:
- Generating false information
- Phishing emails to gain access to systems,
- Analysing large amounts of data to identify potential victims and financial transactions.
- As much as companies are building models to profile potential people that lean towards committing fraud, fraudsters are building similar models of potential victims.
- Fraudsters are also now using Chat GPT which makes it much more difficult to determine fraudulent documents and claims.
What does insurance fraud look like in South Africa?
Inflation post Covid skyrocketed, and the repayments of houses purchased in 2021, have increased by 40%. South Africans are under serious financial pressure. A third of our population is unemployed and unable to find suitable jobs, leading to increased crime rates.
Reinsurance premiums increase with higher claims and capital requirements increase with higher claims. Commission increases with premium, and several expenses are incurred within insurer companies investigating claims. Insurers are reconsidering the drive towards digital, and self-service as insufficient information is captured online.
Insurer Actions:
- More claims investigated to filter out credible claims.
- Fighting AI with AI – implementing tech like voice analysis to detect stress.
- Improved data collection – require granular level of details.
- Talent development and new skills
Our turnaround times are better in South Africa.
Customers are not having a great customer experience due to extended timeframes in investigations of claims.
Impact on customers:
- Increased pricing
- Longer quoting time
- Telematics and IoT devices
- Longer time to claims resolutions,
- Leading to customers exiting the insurance market
What can Brokers do to Help?
- Anyone in the value chain can flag issues:
- Vague descriptions of items or events,
- Inconsistent account of events,
- No witnesses,
- No salvage,
- No police case,
- Items not blacklisted,
- No proof of purchase,
- Keep client information secure,
Unfortunately, with the sophistication of current technology there are Apps available that can mimic a person’s voice which can then be used to commit fraud or any other dubious activity.
Carolyn then closed her session with a last note:
*Collaboration across the industry is required to eliminate fraud, keep our customers loyal and the industry sustainable.
Tebogo thanked our speaker and facilitated a short Q&A session.
Article by: Asiya Swaleh
