Fraud risk can be mitigated with robust fraud controls

The claims validation process is critical to detect and combat the out-of-control fraud that is perpetrated in South Africa. The validation process involves gathering information during the reporting stage of the claim. Obtaining statements and supporting documents are crucial in determining the validity of that claim. The aim is to ensure that the claim is legitimate – a fraudulent claim should already be identified at the reporting stage. If it is a legitimate claim, the client should be paid out without any delay. Irregular and/or fraudulent claims must be seen in a very serious light and should be validated in detail. The challenge is in improving the detection of fraud without the claims process being impacted negatively. The client must not be prejudiced by a delay in finalisation.

The processes of claim investigations and the identification of a fraudulent claim cannot be separated as both these processes are integral in claim validations. The basis of both processes is the claims information and subsequent investigation. The only purpose should be to determine the validity of claims.

Insurance companies use a methodology called “risk assessment” to calculate premium rates for policy holders. Using software that computes a predetermined algorithm, insurance underwriters gauge the risk of you filing a claim against your policy.

Building a risk-aware culture

Integrated risk management is a set of practices and processes supported by a risk-aware culture and enabling technologies, that improves decision making and performance through an integrated view of how well an organisation manages its risks. Various programmes are used to identify the threats/risk, at inception of the risk and during the claim reporting process. These programmes were designed to assist in identifying risk /red flags and to analyse the proposed risk.

A risk should only be accepted when the benefits outweigh the cost. Specific modules are utilised to predict and manage unnecessary risk.
By anticipating the risk, the organisation is better positioned to manage it effectively through proper planning. It is important to make risk decisions at the right time and at the right level. Risks can only be managed, once identified. Constant monitoring and reviewing of risk are important factors.

To summarise, integrated risk management is used to reduce negative surprises and to increase gains. This will result in reducing performance variability and improving resource deployment. In doing so, both the client and insurance companies are protected against individuals/entities out to defraud. Thus, the process is intended to protect the client and the insurance company.

We are aware of the lack of successful prosecution in fraud related cases, mostly due to the fact that fraud is seen as a victimless crime and the inability of state organisations to effectively present the case in a criminal court of law. Fraud will only be taken seriously when fraudsters are successfully prosecuted and harsher penalties are enforced. Despite the solutions and programmes as discussed, the contribution of certified fraud examiners in the process is still relevant to ensure a successful outcome when it comes to criminal prosecution.