How insurance fraud is impacting South African consumers

Insurance fraud is becoming more frequent, more sophisticated, and far more costly. In 2023 alone, South African life insurers and investment companies detected 13,074 cases of fraud and dishonesty, a staggering 46% increase from the previous year’s 8,931 cases. Losses linked to these activities jumped by 128%, rising from R77.2 million in 2022 to R175.9 million in 2023, according to the Association for Savings and Investment South Africa (ASISA).

This increase isn’t just due to more people trying their luck. We’re seeing a definite shift in how fraud is being perpetrated. It’s more organised, more deliberate, and often coordinated. It’s no longer just individuals inflating a claim. There are syndicates, fake brokers, and even inside help in some cases.

From seemingly harmless exaggerations to fully fabricated claims, the spectrum of insurance fraud is wide and deeply damaging. A growing trend involves customers manipulating electronic device claims, often with help from repair shops or friendly IT contacts.

For example, clients will claim their phones or laptops are irreparably damaged, supported by a manufactured damage report, to secure a brand-new replacement. If the device is discontinued, insurers often replace it with the closest equivalent, usually a better, newer model. It’s become a clever way to upgrade your gadgets without paying for them.

Other increasingly common claims include lightning or power surge damage to electronics and roof leak claims, many of which are maintenance-related and excluded from insurance policies. To counter these tactics, insurers are relying more heavily on technology to vet claims, including requiring proof like IMEI numbers and blacklist references for mobile phones, or deploying assessors to physically inspect damage before approving payouts.

Fraudulent claims like these also have a ripple effect on the entire pool of policyholders, where insurers are forced to increase premiums across categories that are considered high risk, including jewellery, electronics, and portable tech. It’s frustrating because the majority of policyholders are honest, but they’re being penalised for the dishonesty of a few.

To address these challenges, insurers are increasingly implementing fraud prevention strategies that leverage technology such as predictive analytics and AI-powered systems. These flag inconsistencies across multiple data points make it harder for fraudulent claims to slip through. Insurers are also working together towards the common goal of stamping out fraud by sharing data to identify repeat offenders and syndicate activity, while internal forensic departments conduct investigations, sometimes even scanning social media to verify the details of a claim.

If fraud is detected, the consequences are serious. The policy would be cancelled, and the client would be flagged across insurance industry records. If they try to take out a new policy elsewhere, they’re legally required to disclose this history, and many insurers will decline to cover them.

Advice for policyholders

For consumers trying to stay on the right side of the claims process, the rules are simple: be honest, submit accurate information, and notify your insurer of any material changes to your risk profile. Omitting details, like a new address, any changes in how a vehicle is used, or new drivers, can lead to a claim being denied or the policyholder even being accused of fraud.

Customers should also be wary of scams disguised as insurance communication. Fraudsters often use phishing emails and texts to trick people into clicking malicious links or disclosing sensitive information. Poor grammar, strange formatting, and a sense of urgency are often tell-tale signs of a scam.

The reality is insurance fraud doesn’t just harm companies, but impacts every single policyholder. We all end up paying the price, either in higher premiums or reduced cover. That’s why early detection, data sharing, and client awareness are so critical to keeping the system fair and sustainable.

* Van der Schyff is a manager of the private division at GIB Insurance.

PERSONAL FINANCE