Metropolitan insurance warning

The long-term insurance sector is increasingly falling victim to fraud, which threatens to erode trust and force insurers to limit the coverage they offer. 

Insurers may also be forced to implement additional fraud prevention strategies, which would raise the cost of providing insurance and pass on that additional cost to individuals. 

This is feedback from Metropolitan’s head of protection solutions, Luke Nel, who outlined some of the common fraud strategies and how individuals can protect themselves in a recent research note. 

Momentum and Metropolitan merged in December 2010 to form Momentum Metropolitan Life, creating the third-largest life insurer in South Africa.  

Nel explained that the long-term insurance industry plays a critical role in the financial services ecosystem, protecting the financial future of South Africans against uncertainties. 

However, the integrity of this vital sector is increasingly under threat due to fraud. This kind of deception erodes trust and can jeopardise insurers’ ability to provide these essential services, Nel said. 

From a broader perspective, crimes of this nature can also negatively impact policyholders, their families, and communities at large.

Insurance fraud takes many different forms, many of which relate to a lack of disclosure from clients or improper disclosure.  

One big issue in health insurance is when policyholders fail to disclose pre-existing medical conditions. People leave these details out to dodge temporary exclusions on their policy. 

When they later claim benefits for these hidden issues, the truth usually surfaces through claims investigations. Their claim can be rejected, and their policy cancelled for non-disclosure. 

To manage this, health insurance policies usually have general and temporary waiting periods for pre-existing conditions. If someone claims during this time for something they didn’t disclose, it’s a red flag. 

Claims are verified and investigated before being paid. This helps insurers to check that claims are legit and based on honest information.

There are very few lengths to which fraudsters won’t go to commit these types of crimes, Nel said. Some have lied about hospitalisation and have forged documents to support their claims.

Common fraud tactics in life insurance

In life insurance, fraud often shows up as misrepresentation and non-disclosure, with most fraudsters giving false information. 

Misrepresentation occurs when someone knowingly gives false information, such as lying about their income, education, or health, while non-disclosure means leaving out important details. 

People might use these tactics if they know that their real health status or certain medical conditions may result in them being denied coverage or having to pay higher premiums.

Nel explained that these tactics are highly ineffective. Policyholders get a false sense of security that they are covered, while in fact, they do not qualify for the product or are paying the incorrect premium. 

Their claim may not be paid or only partially paid when the insured event occurs.

Another common type of fraud is when people take out a life insurance policy for someone they know is sick and in whom they don’t necessarily have an insurable interest. The latter means that you would suffer financially or emotionally if the person insured were to pass away. 

Without this, taking out a policy is purely for financial gain and voids the objective of insurance.

For this reason, it’s important for people to ensure that they have represented their relationship with the insured person correctly, as part of their family or someone they depend on financially.

If the insurer discovers that the policy was, in fact, taken out on a non-insurable life, the claim may be invalidated, wasting valuable time, money, and resources. 

Many insurers, such as Metropolitan, employ both proactive and reactive strategies to combat fraud. 

Proactively, data is used during the enrolment process to cross-check applicants’ disclosures with historical data. This helps identify discrepancies and other critical information upfront. 

Additionally, verifying income and employment details ensures that the premiums charged and the coverage provided are appropriate and justified.

Reactively, at the claim stage, the accuracy of the information provided during the application process is verified. This isn’t about finding new information but ensuring that what was originally disclosed is true. 

Further claims verification includes checking health and lifestyle disclosures, relationship legitimacy, and other crucial details.

Fraudulent claims significantly impact the entire insurance industry, increasing the time and resources required to process claims, leading to longer processing times and higher costs for legitimate claimants. 

These aspects make insurance less accessible and more expensive in the South African market, Nel warned.

By submitting fraudulent claims, individuals not only harm the insurance company but also other policyholders. This behaviour drives up costs and complicates processes, affecting the overall client service experience.