12/12/2012
Insurance Fraud in Motor Insurance in Zimbabwe
If one has been unfortunate to be involved in an accident which resulted in their insured vehicle requiring repairs, which were indemnifiable in terms of their policy you would have gone for a quotation. Upon arrival invariably you are asked; “Is it insurance?” But why would the repairman want that information in particular.
Invariably and inevitably, I think we’ll agree that the main motivation to this question is enable the garage to inflate the quotation sometimes unreasonably.
Alternatively, some car owners would convince the garage to repair e.g. pre-existing damage and build in the costs in the current bill.
Whatever the scenario, in the end, the insurance claim payout will end up being adversely different to what was supposed to have been paid.
Welcome to the world of insurance fraud in the motor insurance set up.
Thus while our discussion centres on motor insurance and in particular motor vehicle accident repair, insurance fraud permeates all policies of insurance. As recent and past press reports have hinted; some are highly organized and involving syndicates and across national borders or intercontinental.
So what is insurance fraud?
Insurance fraud can be said to occur when an insured or someone in relation to an insurance process, knowingly makes a falsified claim or misrepresents facts/information in relation to an insurance claim or process, with the sole intention to obtain some benefit or advantage to which they are not otherwise entitled.
Some of the ways fraud is perpetrated through claims for:
• Genuine but exaggerated claims
• Fictitious incidents/losses
• Staged losses e.g. accidents, vehicle theft
Insurance fraud is often perceived as being different from other types of crime as it is viewed as a victimless crime – no one is prejudiced.
As things stand, the making of a false claim or the exaggeration of a genuine claim by a few hundred USD is considered insignificant to the finances of insurance companies! However, the reality is very different.
Studies show that most claims are genuine, but a minority of policyholders makes fraudulent/genuine exaggerated claims involving large cumulative amounts which end up being paid by honest policyholders.
The IPEC market report for second quarter 2012, states that motor is the leading short term insurance class with a figure of $43,921,701-00 gross written premium written as at half year ended 30 June 2012; followed a distant second by fire with $22,931,823-00.
It experienced a growth of 43.25% from 2011.
International surveys suggest that insurance fraud in most countries is somewhere around 10% of total premiums, which in the case of Zimbabwe would cost around $ 4.4million lost per annum, although indications are that the correct figures could be way up.
International studies have shown that different classes of insurance have varying levels of fraud.
Statistically the lowest levels of fraud tend to be in the domestic building class (6.1%), pleasure craft class (5%) and health and personal accident (9%).
Not surprisingly, the highest levels of fraud have internationally been found to be in the motor insurance classes (over 10%), commercial material damage class (13.3%), with the highest level of fraud in travel (20%).
Zinara says there are about 400,000 licensed motor vehicles (hence insured number?). Some estimates say there are up to 1,000,000 vehicles in Zimbabwe.
So how much is really being lost to fraud?
Figures are hard to extract.
This is an account which has always recorded a 100% loss ratio. If we assume that processed insurance claims are inflated by a two, thus using the GPW of $43,921,701-00, as per the IPEC report, on a 100% loss ratio, valid claims would be half and loss due to fraud would be an estimated $21,960,850 annually.
Whatever the actual loss quantum due to this malaise, $4.4m or $21.9m, the fact is it exists and is significant.
How can insurance fraud be managed?
Insurance Claims Register
In some countries insurance companies have agreed to the establishment of an Insurance Claims Register (ICR).
The ICR is an electronic register that holds a central record of all claims lodged with participating insurance companies, so that those companies can access the claims history of a client, when underwriting new business and processing claims, for the specific purpose of checking for fraud.
The ICR enables insurance companies to check the accuracy of the data submitted with policy applications and claims.
Such details as name, address, date of birth and claim details (insurer, type of claim, date of claim, amount of claim and status of claim) are captured.
Physical Counter Checking
Theoretically, there exists a countermeasure arrangement where there are systems on the ground and hands on to help cross check the validity of each and every claim. This is through so called assessment offices which commendably exist in almost all Zimbabwean direct insurers’ offices. This is the case even for those without fully fledged risk management teams.
However, for this method to be effective, it requires to be monitored itself, so as not to perpetuate the problem.
