Buy online
Fraudulent policies will cost your business and could damage your reputation! “Financial advisers must do everything they can to prevent fraudulent policies to ensure the long-term sustainability of their businesses,” says Kobus Wentzel, Executive Head of Sales and Distribution, at 1Life Insurance. With advice from our forensics team, he shares how business owners can detect, prevent and report fraud.
Insurers lose R77 million to fraud
Asisa reported 8 931 instances of fraud in 2022, valued at over R1 billion. Over half, 57%, were sales fraud, where agents and/or advisers aimed to benefit from commission or fees. A further 314 fraudulent applications were detected, and 2 618 fraudulent and dishonest insurance claims detected. Some fraud was prevented, but in total Asisa members lost R77 million due to fraud in 2022.
How fraudulent policies affect your business
When a fraudulent policy is written with the intention of benefitting from the commission or pay-out, the result is a loss of income for the business owner.
In a typical sales fraud scenario, a business owner would receive commission on policies written by agents or representatives and pay the agent or representative their fee or commission. When the fraud is detected a few months later, usually when premiums are no longer being received, clawbacks kick in and the business owner is out of pocket. If the agents or representatives have moved on, as often happens, the business owner will rarely be reimbursed.
Fraud can also be committed when there is an intention to benefit from the pay-out, such as insuring an additional member who does not exist, is terminally ill, or where there is a criminal intent to end their life. When these types of frauds are committed, the business owner may also suffer financial and reputational damage. For example, a policy may be taken out and premiums paid until waiting periods are over and a claim made, usually after six months. This can also result in clawbacks, and if it happens frequently an investigation may take place into the business.
When an insurer detects fraudulent policies in a business, they may restructure commission models for the business owner as persistency has dropped. These commission models are often less favourable and can adversely affect the business’ cash flow. Worse still, the business’ reputation and good name, a key success factor for any financial adviser, suffers. It’s not a good outcome.
How to detect and prevent fraud
Our forensics team has these tips to help you detect fraud in your business:
Create a culture in your brokerage that all policies must be written in the presence of the policyholder
Do not allow agents or representatives to write a new policy with a third party, the policy should always be written with the client and in the presence of the client. A third party facilitating a policy is a warning sign that there may be fraud.
Validate documents and personal details from an independent source
You can verify IDs and bank accounts of policyholders with third parties, such as credit bureaus, before submitting applications. Stolen IDs are reported on the Southern African Fraud Prevention Service website, where you can also verify IDs. DebiCheck provides an additional verification of bank account details for debit orders as banks authenticate the information based on their records, not what is shared on application forms. Be warned that if clients are not willing to DebiCheck when taking out a policy it could be a sign of fraud.
Finally, make use of a welcome call to check details with the policyholder.
Make sure there is an insurable interest
Funeral policy members need to be related either by blood or marriage, and the beneficiary must have an insurable interest in the main member. Request that agents or representatives confirm the relationship between members and the beneficiary. If the premium payer is not a member, or is a beneficiary, they should check that there is a relationship to the main member. If a policy covers distant family members, such as cousins, but not a spouse and/or children, this may also indicate possible fraud. For example, question why a main member is not covering their spouse but is covering their cousin’s children.
Also be wary if the person taking the policy is the premium payer, not an insured member, and nominates themselves as beneficiary. Business owners can randomly check applications to ensure these checks have been done by agents and representatives.
Look for inconsistencies in personal information
Your agents and representatives also need to be on high alert when a person does not know their own personal information or where the information provided is inconsistent, for example an additional member is referred to as a sister, then a cousin, then a niece.
Look for patterns
If a large number of policies from one agent or representative all have claims within a year, this could indicate fraudulent policies. If there are a high number of policies from a small institution, such as a local police station or school, it could also be a warning sign of fraud.
Trust your gut instincts
Financial services business owners are people experts and can tell quickly when someone is lying, or something isn’t right. This is a gut feel, based on years of experience of learning to read people. If something feels wrong, either with an agent or a representative or policies being submitted, check it out.
When you suspect or detect fraud in your business
Take action! It’s a legal requirement that all advisers, representatives and agents are fit and proper so any suspected misconduct must be investigated and reported to the regulator, the FSCA and the Financial Intelligence Centre (FIC). If you have sufficient evidence, you should also report a fraud to the South African Police Services (SAPS).
You can also contact the Insurance Crime Bureau (ICB) who will investigate suspected fraud.
How 1Life Insurance teams up with advisers to fight fraud
1Life is introducing biometric verification for new policies from October 2024. Using a cell phone, policyholders will be verified using a facial scan. Biometrics will be introduced in a phased approach.
Furthermore, using 1Life’s digital sales and servicing platform Vantage to capture applications online ensures third party checks are completed and manages the risks of fraudulent sales and impersonations.
The 1Life Insurance Forensics team is also available to assist with fraud investigations and can be contacted via email, telephone or anonymously using an online form.
These digital and biometrics controls, along with the assistance provided by the 1Life Insurance Forensics team, mean that the risk of fraud is mitigated prior to the claims stage - a relief for South African business owners facing sharp increases in fraudulent sales!
Fraud prevention is good business
The incentive to commit insurance policy fraud is significant and funeral policies are the easiest target as no underwriting is required. When advisers and brokerages report no or very few fraudulent policies and maintain high persistency, they gain access to favourable commission structures. Losses due to fraud are limited and they can build a business with a good reputation that is trusted in the industry.