Every year, insurers are paying for this trend and that cost is being passed down to the consumer.
South Africa’s short term coverage industry is paying an estimated $389.6 million every year (4 billion South African rand) in order to compensate for the insurance fraud that it is experiencing in that country.
There have been a growing number of cases of fraudulent claims over the last few years.
According to Santam Ltd., a Cape Town based short term insurer, this year, alone, there have already been 79 cases of commercial insurance fraud worth 7.3 million South African rand. This is the situation with only one insurer and the year is not yet complete. According to the Santam head of audit and forensics, Helen du Toit, false and inflated claims are the two leading scam types that are costing the company and the industry.
Insurance fraud is a growing problem around the world, but it is costing South African consumers quite a lot.
According to the Association of Certified Fraud Examiners, companies of all industries and sizes are vulnerable to insurance fraud. Last year, the organization released a report that indicated that an estimated 5 percent of the revenues of businesses were directed toward paying for the costs generated from these scams.
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Du Toit explained that “Fraud is fast becoming a critical challenge. We at Santam are working with stakeholders like the South African Police Service to promote awareness of fraud and are continually improving our systems of detection and prevention.” She also pointed out that the consequences associated with insurance fraud risk being “dire”. She explained that when a party is caught as being a part of a scam, that individual or business will have their entire claim repudiated, could have their policy cancelled, and could face criminal charges.
The Santam head of personal lines, Attie Blaauw, added that the company is aware of the fact that the majority of policyholders are not taking part in insurance fraud. Instead, they are honest and open when they make their claims. However, “padding” their claims – where the claim amounts are inflated – is becoming a growing practice among some policyholders. While this may not represent the majority, it is enough to drive up costs overall, despite the fact that those taking part may think of it as a harmless practice.