Life insurers rejected R1.13bn worth of “fraudulent and dishonest claims” in 2017, with dishonest death claims more than doubling in value from 2016, according to the industry body representing insurers in SA.

In November, Momentum came under immense public scrutiny for rejecting a life policy payout to the widow of hijack victim Nathan Ganas. The insurer said that Ganas, who was shot dead in a hijacking at his home, had failed to disclose high blood sugar and because of the non-disclosure would reject the claim. A public outcry forced Momentum to create a new product that would compensate qualifying victims of violent crime.

A total of 316 claims were rejected in 2017 for non-disclosure or misrepresentation, the Association for Savings and Investment SA (Asisa) has revealed. Asisa represents the majority of SA’s asset managers, collective investment scheme management companies, linked investment service providers, multi-managers, and life insurance companies.

The industry body said that while the number of actual fraudulent cases more than halved from 13,488 rejected claims in 2016, the actual value increased from R1.03bn to R1.13bn.

While the value of rejected, or thwarted, fraudulent and dishonest claims surpassed a billion rand, Donovan Herman, convener of Asisa’s claims standing committee, said that rejected claims accounted for only 0.24% of the total amount paid out. In 2017, life insurers made benefit payments to the tune of R469bn.

Herman said that while life insurers are often criticised for trying to find reasons not to pay, the numbers clearly show a different picture. Efforts to uproot fraud and dishonesty are to protect the integrity of the savings of honest policyholders, he said.

“The reality is that as the custodians of a significant portion of SA’s savings pool, life insurers are obliged to protect the integrity of this pool and the interests of honest policyholders by preventing fraud and dishonesty.

“If we left fraud and dishonesty to spiral out of control, honest policyholders would end up footing the bill through higher premiums driven by untenable claims rates.” 

Herman named and shamed the provinces that were the “most dishonest”. According to Herman, 31% of all fraudulent and dishonest claims were detected in KwaZulu-Natal, followed by the Eastern Cape (22.3%) and Gauteng (20.5%).

The Western Cape accounted for 6.7% of the claims declined due to fraud, the Free State saw 5.1% fraudulent claims rejected, and other provinces were responsible for 5% or less claims declined due to fraud.

The numbers

Unpacking the numbers, Herman said that 2,111 death claims to the value of R564.2m were rejected in 2017 on the grounds of fraud and dishonesty. This was a significant increase from 2016’s 444 rejected claims of R275.2m.

In 2017, the majority of rejected death claims were due to the submission of fraudulent documents, while 316 claims were rejected for “misrepresentation or material non-disclosure”.

There was a marked decrease in the number of rejected funeral claims, down to 1,025 worth R34.9m from 11,302 rejected claims worth R168.3m in 2016.

Regarding disability claims, Asisa said that misrepresentation and material non-disclosure by policyholders was by far the biggest reason for disability claims worth R516.5m being declined in 2017. Out of the 775 claims not paid, 757 were rejected on these grounds. In 2016, 621 claims worth R578.8m were rejected.

Herman said, “Since disability claims tend to increase when the economy is under strain, we are not surprised that dishonest claims also increased significantly.” He said policyholders are tempted to hide existing health conditions to secure lower premiums. “This is very short-sighted since the life insurer is likely to uncover deliberate attempts to hide material information, which will lead to claims being declined.” 

There was, conversely, a decrease in the number of fraudulent hospital cash plans, while there was an increase in rejected retrenchment benefits. Of the 126 retrenchment benefit claims in 2017 (up from 74 in 2016), 113 were rejected for misrepresentation and non-disclosure and 13 for fraud.