Fraudulent insurance transactions are common occurrences in the lives of the everyday people around us. Equally, studies that have been carried out on this subject indicate it’s a widespread phenomenon the world over.

One such study by the Coalition Against Fraud indicated that the United States alone loses $80 billion to insurance fraud.

The British Broadcasting Corporation (BBC) in another study put at £5.7 billion a year the money being lost to insurance gone bad. Besides, a 2018 KPMG study indicated that insurance fraud in the United Kingdom increased by 78 percent, an estimated £1.2 billion in just a single year.

While researching for this article, an insurance official told us in confidence that due to Africa’s limited capacity to detect fraud, the rate may be higher on the continent. He pointed out that health caregivers and policyholders are at the forefront of medical insurance fraud which to him, ranks highest.

He illustrated how a medical insurance policyholder with a medical card worth $4, 000 in treatment fees, can connive with a hospital; the ‘patient’ takes about $1000 in cash, the hospital claims $3,000 ‘treatment fees”, and the insurer makes a loss.

Yet, did you know that fraud does not only rob the insurance company but affects even the genuine customer? Hear what James Maycock, Partner Forensic, KPMG-UK, says:

“Insurance fraud has a massive impact on many people: the victims, insurance companies and, of course, everyone else who is left to pick up the cost through higher insurance premiums,”

As companies increase premiums to factor in fraud-related expenses, fraud erodes the continent’s opportunities to create wealth and economic development.

Additionally, insurance fraud tarnishes the image of insurers and renders the business less appealing to the public.

In South Africa, for instance, the fraudulent practices in the medical insurance industry cost members between R22-billion and R28-billion a year, a figure which is very high and will no doubt have a devastating impact on the economy. This constitutes about 25 percent of all premiums paid by SA’s 8.8 million medical aid members.

The Observer a local print newspaper in Uganda, reported that hospitals were colluding to defraud insurance companies. Their report indicated that 82 percent of fraud incidences were recorded inside doctors’ rooms at the time of the investigation.

Doctors were faulted for facilitating medical fraud by signing onto or approving dubious medical forms. The Uganda Insurance Regulatory Authority and some insurance companies later deregistered a number of hospitals from their medical schemes over fraud.

Strategies to Reduce Medical Insurance Fraud in Africa 

This article will interest you: The Key Guiding Principles To Consider Before Buying Insurance.

As a human capital development institution, we believe that for insurance penetration to increase on the continent, premiums should be affordable, claim settlements expedited, and fraud minimized.

To achieve this, ethical practices, amongst both the insurance companies, customers, and third parties, must be cultivated.

The growth of the sector means more tax to governments, employment opportunities, and, most importantly, wealth creation by the insurance subscribers.

Therefore, we recommend these three broad strategies that can be used to reduce fraud, especially medical insurance fraud.

Corroborate with others on customer data.

Technology has made access to information very easy. And insurance companies can leverage customer data in terms of correlations, relationships and associations to provide insights into who their customers are, forms of fraud at organisational, employee or third-party level.

‘In God we trust but man we monitor.” Fraudsters operate in complex networks, and so should insurance companies if fraud is to be reduced.

Insurance companies should be able to share data in confidence about their customers. The banking sector, for example, has adopted the Credit Reference Bureau (CRB), a collaborated approach which has helped to substantially reduce fraud amongst institutions.

A study by Cifas and Hill Dickinson confirms that using fraud data from other sectors is effective in identifying and fighting insurance fraud.

Human Capital International, therefore, strongly recommends that policymakers and insurance actors set up effective national, regional and continental databases of customers, where information about customers can easily be accessed, to ease fraud detection, identification, and prevention.

Check and double-check your employees, third parties

Prevention is better than cure, is a known philosophy that health care workers have adopted for centuries now. Behind that philosophy is the realisation that when a disease is prevented, it reduces the burden on the health systems in terms of spread and treatment, and on individuals in terms of cost, or at worst, death.

Related article: Insurance Industry – The underutilised Vehicle for Creating Generational Wealth.

Applying it to insurance, KPMG in a study: ‘Fraud Risk Management’ recommends that in hiring insurance employees, due diligence must be done.

“An important part of an effective fraud and misconduct prevention strategy is exercising due diligence in the hiring, retention, and promotion of employees and relevant third parties,” reads part of the study. Also, being in a hurry to sign up people on policies without double-checking the details they have provided.

A study by the National Institute of Justice in the US recommends that insurance companies should commit to a routine and systematic measurement of losses due to fraudulent and abusive billing practices because it is the employees with wrong attitudes who undertake this fraud. Importantly, since medical insurance is on the rise, a very elaborate procedure must be adopted when choosing which hospitals to work with.

Invest in fraud investigation

Progressively investing in fraud detections is crucial. It must be noted that insurance fraud is usually conducted by a network of fraudsters who utilise strong collaborations to commit the act.

Therefore, funding fraud investigating activities must be made a priority in combating fraud activities. The relationship that exists between concerned parties can help specialised investigators detect organised insurance fraud.

Technological developments in this area can help investigators in their efforts to link different players such as the network between suspected clients and doctors, or the extent of the relationships between parties under investigation.

The information and insights gleaned can then be used to define indicators that point to possible fraudulent operations.

Relying on post-mortem reports to only arrest fraudsters, but not applying technology to prevent their activities, will seriously undermine individual, communal and national efforts in wealth creation for the benefit of many generations.

FRISS, a financial tool, software Zillow, and Clear, can all enable collaboration efforts by insurance companies in combating insurance fraud.

To be able to enhance the full potential of insurance being a vehicle for generational wealth, we must all help to curb the fraud associated with the industry.