Helping the insurance industry save billions

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By Collin Molepe, chief operations officer at Bryte Insurance Company Limited

The role of insurance in boosting economic growth is traditionally underrated. The fact is that just a 1%1 rise in insurance penetration can drive gross domestic product (GDP) growth by an additional 2%2. Within the South African context, the insurance industry contributes more than 15%3 to the country’s GDP and considering South Africa’s insurance penetrations sits at 14%4, the possibilities for enhancing our economy are immense.

We also face the challenge that – driven by increasing levels of crime, growing economic pressures and decreases in consumer buying power – insurance fraud is on the rise. Perceptions exist that such fraud is a grey area, a ‘socially acceptable deception’, rather than the criminal activity it really is. The perpetuation of these behaviours severely impacts the industry’s sustainability and subsequently, the opportunities it could provide for national economic growth.

Within the short-term insurance industry specifically, the cost of insurance fraud is estimated at about R4.5 billion5 annually, and some reports suggest that as much as 30%6 of all claims have a fraudulent element. Instances of fraud have become much more intricate; the technologies and processes used are increasingly sophisticated, making it much more difficult to detect fraud.

Some examples of how fraud is committed, include:

        Taking the blame for an unlicensed driver/someone who was driving under the influence of alcohol or drugs;

        Sending fraudulent cost-estimates to your insurer/manipulating invoices;

        Pretending that an injury occurred at a business’ premises and then claiming compensation from the establishment;

        Committing arson and pretending it was accidental;

        Staging break-ins – residential and commercial claims; and

        Buffering a theft claim with additional items that were not taken.

Slipping through the proverbial cracks

As insurers, we are legally required to establish, maintain and operate an adequate and effective claims management framework – one that must provide for a compliance programme for combating fraud. Savvy insurers are investing in robust, fraud risk management strategies, which can include expensive fraud detection technologies such as automated voice-layered solutions.  These can detect inconsistent tone/irregular responses and create a red flag on the claims file.  Some also make more creative use of artificial intelligence by rolling out the technology to other business units beyond the claims processing department – an approach that can help with early detection rather than reactive analysis. However, even with such measures, there are many that will continue to slip through the proverbial cracks.

Why a bundle of sticks is not easily broken …

With insurers losing millions annually, it becomes a lose-lose situation; insurers end up absorbing significant and unnecessary losses that translate to market-wide premium increases for customers.  Combatting fraud is therefore the responsibility of every player within the insurance value chain – quite literally, your neighbour’s fraudulent claim could be the reason your premium is raised.

The role of the South African Insurance Crime Bureau (SAICB) in bringing together the industry to combat organised insurance crimes and fraud has been remarkable. With a focus on empowering the short-term insurance industry and protecting consumers, the SAICB is the ‘insurance policy’ for the insurer. The additional checks and balances offered by the SAICB go beyond what’s legally required, offering added layers of protection, and the technologies available complement those of individual stakeholders.

In less than a decade, industry players have derived significant benefit from the SAICB through:

        Access to critical insurance crime-related data, which does not impact the competitive advantage of insurers but rather serve as red flags for the industry;

        Statistics on fraud as well as well as evolving trends;

        Coaching and training for investigators, the SAPS, member companies, and so on; and

        Advice on measures that may be implemented to curb instances of fraud.

But, proactive, industry-wide collaboration remains critical; working together as insurers in combatting fraud does not hamper our competitive advantage but rather enhances the sustainability of the industry. Recognising the inherent power of data filtering and pooling collective resources is imperative for the benefit of not just insurers, but also intermediaries, customers and the economy. Collaboration will help bolster insurance fraud risk management strategies, uncover fraudulent practices, boost confidence in the industry and drive down customer premium costs. A win-win-win when we get it right.

 

Sources:
1 Lloyd’s Global Underinsurance Research
2 Lloyd’s Global Underinsurance Research
3 PWC 2013
4 https://assets.kpmg.com/content/dam/kpmg/pdf/2016/07/2016-Insurance-Survey-v2.pdf
5 International Fraud Awareness Week data 2013 and South African Insurance Crime Bureau 2015
6 Censeo Assessment & Verification