Reports from the forensic departments of life insurers show that the "buying and renting of dead bodies" for the purpose of obtaining fraudulent death certificates is a popular modus operandi, the Association for Savings and Investment South Africa said on Monday.
Its statistics show that most life insurance fraud in 2018 related to funeral insurance.
Life insurers rejected 1 915 funeral claims worth R176.4m in 2018, of which 1 127 were found to involve fraudulent documentation. Another 156 fraudulent claims showed syndicate involvement and in seven cases beneficiaries were found to have caused the death of the policyholder.
Funeral policies do not require blood tests and medical examinations and are designed to pay out quickly and without hassle when an insured family member dies, explains Donovan Herman, convenor of the Asisa Claims Standing Committee.
"Unfortunately, this makes it tempting for criminals and dishonest individuals to take out funeral cover for people who do not exist with the intention of later submitting claims using death certificates issued for dead bodies 'rented or bought' for the purpose of committing fraud," said Herman.
Overall, South African life insurers detected 3 708 fraudulent and dishonest claims to the value of R1.06bn in 2018, according to Asisa. These included fraudulent or "irregular" claims relating to funeral claims, death claims, disability claims, hospital cash plans and retrenchment benefit claims. In 2017, life insurers detected 5 026 fraudulent and dishonest claims worth R1.13bn.
According to Herman, 35% of all fraudulent and dishonest claims were detected in KwaZulu-Natal, followed by the Eastern Cape with 18% and Gauteng with 17%. The Western Cape was responsible for 9% of claims declined due to fraud and dishonesty. All the other provinces were responsible for 5% or less.
"If we allow fraudulent and dishonest claims, honest policyholders will ultimately end up footing the bill through higher premiums driven by untenable claims rates," explains Herman.
He says while life insurers are frequently accused by the public of trying to avoid paying claims, the numbers tell a different story. In 2018, life insurers paid 99.3% of claims made against fully underwritten individual life policies, to the total value of R15.1bn.
Herman notes that there has been a significant decrease in misrepresentation and non-disclosure across all long-term insurance categories from 2017 to 2018. To him that indicates to that policyholders are becoming more aware of the "potentially devastating financial consequences" of not honestly disclosing important information that could materially affect the terms of a policy.
Misrepresentation occurs when a policyholder deliberately provides misleading information to a life insurer, while material non-disclosure refers to the failure of policyholders to disclose important information about a medical condition or lifestyle.
* Compiled by Carin Smith