Fraud tools and innovative fraudsters
Do we have adequate tools to detect fraud and are these tools assisting to combat fraud or does it empower fraudsters to be more innovative in funeral insurance?
There is a definite set of measures that are implemented daily in the funeral insurance industry to detect and prevent fraud. However, some of these measures aren’t performing the functions it was intended for and rather supports fraudsters when used in isolation. Fraud prevention in the funeral insurance industry is tough. Due to the lack of proper controls, small quantum claims, the lack of underwriting and the fact that funeral insurance is more commonly defined as micro insurance (and therefore subject to less stringent regulation), fraudsters find it easy to commit fraud and, more often than not, get away with it. It is more likely that funeral claims, which are smaller in value but high in volumes, tend to produce a greater loss in Rand value in comparison with less frequent life insurance claims.
CURRENT MEASURES AND TOOLS TO DETECT AND PREVENT FRAUD: EFFECTIVENESS AND PITFALLS
Internal detection and investigation by insurers themselves proves to be effective to some extent, however, there are numerous risks involved. This begs the question of whether insurers, have the internal resources and controls to manage such risks. Insurers must maintain a fine balance between combatting insurance fraud and treating policy holders fairly by expeditiously honoring bona fide claims. The independence of insurers will therefore always be in question when investigating their own claims.
Fraudsters will aim to challenge insurers’ decisions and threaten brokers, sales representatives and insurers, with whatever methods available, in order to gain the undue benefit. As a result of this pressure, brokers or insurers fall in the never-ending pit of manipulation and end up being used as marionettes to bid the fraudster’s doing. Internal corruption by investigators and staff remains a challenge and fraudsters often exploit these individuals to ensure success in their various schemes.
Another downfall of this measure is that the insurer will be limited to its own risks and will have a vague idea of what is experienced in the market as a whole. Insurers will also find it difficult to deal with the high volumes of funeral claims and will require heavy manpower to manage these volumes in the short space of time applicable to funeral products.
Reciprocal information sharing by insurers has its advantages but unfortunately the high volumes of funeral claims that are submitted on a daily basis make it impossible to detect and prevent fraud timeously and efficiently. Syndicates are aware of these “black boxes” and constantly change names, identity numbers and account numbers to mislead brokers and insurers into believing it is a legitimate claim. Without proper data analysis, changes in names or trends will go by undetected. On top of this, insurers are faced with certain confidentiality and privacy challenges.
Policy wording with proper exclusions and a zero tolerance by insurers are definitely aiding in preventing fraud. But again, insurers and brokers will be left with a monopoly challenge where the zero tolerators’ sales will decrease somewhat in comparison with more lenient rivals whose sales will undoubtedly increase. The important fact to remember here is that bad clients equal bad business and even worse profits.
Increasing legislation (such as POCA, PRECCA and the like) contributes to criminalising fraudulent and corrupt behavior and serves as a deterrent to fraud.
3rd Party investigating services proved to be the consistent antidote to an ever changing fraudulent milieu. In order to be successful, they need to be one step ahead of the fraudsters. Proper data-analysis tools, efficient human resources, a broad overview of insurers’ claims and risks and independency is but a few beneficial factors that will assist in not only detecting fraud timeously but also preventing it.
However, a zero tolerance to fraud by the broker or insurer (no matter how detrimental the financial impact) is of essence and if combined with the above mentioned measure fraudsters will have no other option to drop out of the race.
Only when all the measures are applied in conjunction with a true focus on minimising the drawbacks, a significant change in fraudulent behavior will be observed.