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By Balewa Zyuulu
Last week ,an act of kindness turned into an eye-opener when my neighbor, distressed and apologetic, revealed why she was unable to pick up her child from school. She had been stopped by traffic police, who discovered her car insurance was invalid—a revelation that left her shocked. It turned out the insurance policy she had purchased through an agent was fraudulent.
After further investigation, it was revealed that the so-called “agent” was a scammer who had duped numerous unsuspecting individuals into purchasing counterfeit insurance policies. My neighbor, like many others, had trusted the agent, believing her policy was legitimate until the traffic police flagged it as missing from their system.
While this story has a personal angle, it revealed a broader issue affecting both consumers and insurance companies.Therefore,in this edition of the Business Forum we shall focus on unmasking the scourge of Fraud that affects the insurance sector.
Insurance fraud can take many forms, including fake agents selling counterfeit policies, policyholders exaggerating claims, or insiders within insurance companies engaging in unethical practices. For consumers, falling victim to fraud can mean financial loss, legal troubles, and exposure to significant risks. For insurance companies, fraud increases operational costs and reduces public trust.
Insurance is a way to protect yourself financially against specific risks like fires, floods, theft, or accidents. In Zambia, there are over 40 general insurance companies, but only 2.8% of the population uses their services. To improve how they serve customers, many insurance companies are now using the internet and e-commerce platforms. However, they still face big challenges like insurance fraud, which increases their costs and reduces profits. This also affects their reputation, customer loyalty, and overall service quality.
Insurance fraud has emerged as a critical challenge for the global insurance industry, threatening the stability and credibility of a sector that exists to provide financial protection. With its inherent susceptibility to deceit due to large liquid assets, the insurance business is often targeted by both organized schemes and opportunistic fraudsters. If left unchecked, this menace has dire consequences, including rising premiums, inflated costs, and the risk of insurers going out of business.
Understanding Insurance Fraud
Insurance fraud involves deceitful practices aimed at unlawfully benefiting from insurance policies. It can be perpetrated by both buyers and sellers, spanning life, healthcare, property, and automobile insurance.
For buyers, fraud includes falsifying information, exaggerating claims, or staging accidents. Sellers may engage in practices such as collecting premiums without providing coverage or manipulating policies through methods like “twisting” or “churning.”
Fraud can be classified into two main categories:
Impact of Insurance Fraud
The ramifications of fraud are far-reaching. It leads to increased operational costs for insurers, which are often passed down to consumers through higher premiums. Fraudulent activities also undermine trust between insurers and their clients, complicating genuine claims processing and jeopardizing the industry’s reputation.
Combating Fraud
To mitigate fraud, the insurance industry must adopt comprehensive measures targeting prevention, detection, and enforcement.
Corporate leaders, particularly CEOs, must set the tone for a zero-tolerance approach to fraud. Clear values and ethical standards should be reflected in company policies and practices.
Insurers must establish robust fraud control frameworks, including regulatory compliance, risk assessment, and internal controls. Key components include:
Legislation such as whistleblower acts encourages the reporting of fraud while protecting informants.
Insurers should openly articulate their stance on fraud and educate stakeholders about its consequences.
Regular assessments of fraud risks in underwriting and claims processes help in mitigating vulnerabilities.
Verifying customer identities and information during policy issuance reduces the chances of fraudulent applications.
Training programs for employees on fraud detection and compliance, coupled with consumer education campaigns, foster a culture of transparency and accountability.
Cooperation with law enforcement agencies, industry peers, and private organizations specializing in fraud prevention strengthens collective efforts to combat fraud.
Rigorous investigation of suspicious claims, using both reactive and proactive approaches, ensures fraudulent activities are detected and deterred. Employing data analytics tools can reveal anomalies and patterns indicative of fraud.
Developing industry-wide databases to track client histories, claims, and prior fraudulent activities enhances background checks and fraud prevention. Tools like FRISS solutions aid in early detection by analyzing claims data for red flags.
The Role of Technology in Fraud Prevention
Technological advancements have become indispensable in tackling insurance fraud. Data analytics, machine learning, and automated claims auditing provide insurers with powerful tools to identify fraud trends, outliers, and inconsistencies. By leveraging these technologies, insurers can stay ahead of fraudsters and safeguard their operations.
For consumers like the case of my neighbor’s fraudulent policy is a reminder of the need for vigilance when purchasing insurance.
But how can we ensure that such fraud does not occur?
Always confirm that the insurance agent is authorized by the respective insurance company. Many companies provide a list of their agents or brokers on their official websites. Additionally, request and review official documentation of the policy.
Whenever possible, purchase insurance directly from licensed companies or through their verified representatives. Online platforms provided by insurance companies can also be a secure option.
After purchasing a policy, check with the insurance company to ensure it has been registered in their system. This can be done by contacting their customer service or using their online verification tools.
If you encounter a suspicious agent or fraudulent activity, report it to relevant authorities, such as the Pensions and Insurance Authority (PIA) or the local police, to protect others from falling victim.
According to experts like Dr Masiye Banda,Insurance companies must also step up their efforts to combat fraud. Investing in advanced digital systems to track and validate policies can help reduce incidents of fraud. Additionally, conducting regular audits, educating their customers, and collaborating with regulators and law enforcement can create a more secure environment for all.
“Although Insurance fraud is a serious threat, but it can be effectively mitigated through coordinated efforts, robust policies, and technological innovation. As the industry continues to evolve, stakeholders must prioritize integrity and accountability to ensure long-term stability and trust.” he said.
As the old adage goes, “It is better to fail with honor than to succeed by fraud.” Insurers, consumers, and regulators must unite in their fight against fraud to create a fairer and more secure insurance ecosystem.
The Author is a multiple award winning Journalist and Economist.
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