Insurance is a risk distribution system that is used to hedge against loss; it is a contract in form of a policy offered to a consumer by an insurance firm to protect against financial loss of an unknown event. In its nature, the insurance business is vulnerable to fraud and malpractice; this is because of the constant cash inflow coming into the insurance firms’ as premiums paid by consumers.
Insurance fraud exists when an individual attempts to profit by failing to comply with the terms of the agreement in the contract. Fraud can be external committed by policyholders or internal committed by employees of an insurance firm in collusion with policyholders. It can also occur at any stage of insurance transaction i.e.:
- Individuals applying for insurance
- Policyholders
- Third-party claimants
- Professionals who provide services to claimants
It is estimated that 25% of insurance industry income in Kenya is fraudulently claimed. According to Association of Kenya Insurers (AKI), research done by Insurance Fraud Investigation Unit (IFIU) detected 83 insurance fraud cases in 2019 worth Kshs.386.34 Million in Kenya. A negative impact of fraud to policyholders is that it triggers increase in premiums offered as firms try to cover the cost of settling false claims and fighting fraud for the business to remain viable.
Many insurance fraud schemes might involve either the insurer, insured, or third party. Some examples of insurance fraud schemes are related to life insurance, worker’s compensation, health care, and vehicles.
Some textbook red flags investigators look out for include:
- If a claim is made after a short period time after the inception of a policy or after an increase in the coverage under which the claim is made.
- If the insured has a history of making many insurance claims and losses.
- Before an incident, the insured asked the insurance agent hypothetical and specific questions about coverage in the event of a loss similar to the actual claim.
- The insured is very insistent about a fast settlement, and exhibits more than the usual amount of knowledge about insurance coverage and claims procedures, particularly if the claim is not well documented.
- In a theft claim, the insured exaggerates or falsifies the cost of items stolen, especially if the insured cannot provide receipts or other documentary proof of purchase and ownership.
- The insured claim is too perfect; i.e. has the exact documentation needed, witnesses, and duplicate photographs for everything, etc.
- The documentation provided by the insured is irregular or questionable,
- The amount of the claim differs from the value given by the insured to the authorities.
- The physical evidence is inconsistent with the loss claimed by the insured.
These red flags are just the tip on the larger pool of ways in which fraudsters defraud in the insurance industry. With the advent of new technology, financial criminals are always looking for new ways to commit fraud. Some notable cyber insurance fraud includes;
- Criminals can gain online access to an insured online account and use it to steal or hijack an incoming claim payment.
- Online ghost broking involves criminals buying or forging fraudulent insurance policies and selling them to unsuspecting consumers who think they are buying legitimate policies, and will find out they have been scammed when making a claim.
- Online application fraud is also another way in which fraudsters use another person’s information to open insurance policies for fake beneficiaries.
It is therefore obligatory for insurance firms and third-party sellers to put up measures to detect and prevent fraud. One of such is the use of investigators who are knowledgeable in the field and keep abreast of the never-ending ways in which fraudsters use to defraud insurance firms and their consumers.
Insurance investigators like other forensic investigators are able to determine the facts behind a suspicious claim. They will gather evidence and produce a report that will confirm the claim or disprove it. They have the skills and experience to conduct interviews, review documents, and even place the claimant under surveillance if needed.