Nicola Mawson
Insurance fraud is all too prevalent, from overstating a claim to a whole fabrication of a loss. There are some things you just cannot make up. Like a case when a man burnt down his house after being served with eviction papers by the sheriff of the court. Straight after the sheriff spoke to the man, he went inside and, as the judgement reads, “set it alight”.
The sheriff, naturally enough, called the fire brigade. Which is perhaps the only sane thing that happened in this story recounted in a decision by the Financial Services Tribunal, which was hearing a matter on whether the broker had been fairly debarred.
The broker comes into it because he added the property to an existing policy and demanded that the cover on the house take place with immediate effect – after it had been set on fire. A claim was then lodged, but the policyholder lied and said the house burnt down when the house was already insured.
The broker’s disbarment was, unsurprisingly, upheld.
Another case, which went all the way to the Supreme Court of Appeal, covered a claim stemming from a burglary in which the claimant alleged that more items were taken than was actually the case.
While this matter dealt with points of law, it’s worth noting that the judgement pointed out something that is perhaps all too common.
“Of course, some people put forward inflated claims for the purposes of negotiation knowing that they will be cut down by an adjuster. If one examined a sample of insurance claims on household contents, I doubt if one would find many which stated the loss with absolute truth.”
There are also instances where an actual burglary seems like a good opportunity to claim for items that had previously been misplaced or broken. A KwaZulu-Natal High Court decision deals with exactly this.
The insured was burgled, but then also claimed for a cellphone that was in for repairs, as well as a necklace that had previously been stolen, and paid for, by his former insurance company.
What’s interesting here is that the policy specifically stated, which the judgement upheld, that any fraudulent misrepresentation meant that all benefits under the policy were cancelled. Because of adding a cellphone that was in for repairs, and non-existent jewellery, to the claim, the insured parties did themselves out of any payout at all.
Another case, heard in the North Gauteng High Court, was over a man who claimed accommodation costs after his house was flooded, but didn’t stay at the hotel. The insured had to pay back the amount for the accommodation he didn’t use, and his insurance was cancelled.
While the insured needs to prove that there was an event leading to the claim, it’s the insurance company, not the person who claimed, that needs to prove that fraud took place.
Naked Insurance co-founder, Ernest North, told Personal Finance that a lot of fraud, if not most, takes the form of smaller claims from people who don’t think of themselves as criminals. “It could be someone you know, like a friend who adds a tablet they never owned to their claim after their home is robbed or insures their phone after they dropped and broke it with the aim of claiming later.”
The University of Johannesburg has summarised types of insurance fraud. The first would be fabricated claims for a loss that never occurred, exaggerated claims that would – for example – include stating that something was stolen during a robbery that wasn’t there at all, with a third category being when there’s a valid claim, but the insured thinks he or she needs to perpetrate fraud to ensure that it gets paid.
North explained that people often think insurance fraud is victimless. “But even small lies can lead to serious consequences such as cancelled coverage, rejected claims, and being listed on a fraud database, making it difficult to get insurance in the future,” he said.
In addition, insurers might also pursue criminal charges, North said.
“Beyond personal consequences, fraud drives up premiums for everyone, making insurance less affordable for those who need it most. It also slows down the claims process, frustrating honest customers,” he added.
Naked has provided a few examples of fraudulent behaviour:
- Lying about your insurance history — for example, not disclosing your claims or mentioning that your previous insurer cancelled your cover.
- Providing false information about what you’re covering — like claiming your home has burglar bars and security gates on all the windows and doors when it doesn’t.
- Failing to disclose negligent acts that led to a loss — for instance, leaving your notebook lying in plain view in your unlocked car while you pop into the shop.
- Being untruthful about the claim’s circumstances — like pretending that you were driving the car at the time of an accident, rather than your husband.
- Claiming for an item that was broken, lost or stolen before you got insurance — for example, insuring your phone that already has screen damage with the plan of claiming in a couple of months.
- Exaggerating the size of your loss — pretending that your stolen clothing was all high-end brands or adding a few extra items to the claims list after a break-in.
- Falsifying invoices to prove ownership — your insurer will ask for proof of ownership of the thing you’re insuring, usually in the form of invoices. It might be tempting to fake one if you’re worried your claim will be rejected. Rather tell your insurer so that they can allow you to prove ownership in alternative ways.
PERSONAL FINANCE