While the insurance industry has seen exponential growth in the last five years, there has been an increasing incidence of frauds, which are driving up the costs of insurers and premiums for policyholders. The insurance industry incurs a loss of more than 8% of its total revenue collection in a financial year due to fraudulent claims.
In a recent Ernst & Young survey, 40% respondents felt that fraud cases in insurance have gone up substantially. The most common frauds are related to overstating claims and the manipulation of documents. In the general insurance segment, a large number of frauds occur in health insurance and this particular segment loses around R1,000 crore every year on false claims. Misselling is rampant in insurance and the senior citizens are the most vulnerable as they do not understand new products. About 31% of the respondents in the survey indicate that insurance companies are most affected by misselling
The average ticket size of each fraud can be anywhere between R25,000 to R75,000. Around 30% of the total frauds are in the ticket size of up to R25,000 and around 19% in the ticket size above R1,50,000. The survey points out that fraud can increase premiums for policyholders by up to 3%, which is an additional costs for those who pay their premiums diligently.
There is an urgent need for insurers to put in place a dedicated anti-fraud department that will proactively identify suspicious claims that have a high possibility of being fraudulent. Respondents say around 40% of insurers do not have an anti-fraud department and there is a need to do data analysis using various forensic tools and put in place an effective fraud risk assessment framework.