Insurance and fraud: odd bed fellows

They probably have visited you or your office. They are mostly girls. They move alone or in groups of two. They will first ask whether you have any insurance cover with another provider. Regardless of your response, they will tell you about their insurance offering from life to non-life.  They will talk and talk. It can get boring, but because they are 21304 ‘ladies’, you just listen on. They will never bother about the insurance cover you actually need, but what they think you need.

 


After the meeting, they will send you an email showing the various covers and the respective costs. Never mind that their pricing is too complex to understand. But that is insurance. Even the Uganda Insurance Association (UIA) knows that people do not understand insurance. Why then bother to make it simple?

As you try to decode what they sent, you will notice that this is a template email as you will see another company’s name in the documents they sent you. Those are insurance salespersons for you.  Welcome to the insurance industry in Uganda.

Fraud everywhere!

The nature of insurance business makes it susceptible to fraud. It is a risk distribution system that requires the accumulation of liquid assets in the form of pool funds that are later available to pay loss claims. Insurance companies generate a large steady flow of cash through annual insurance premiums. Steady cash flow is an important economic resource that is very attractive and easily diverted. Large accumulations of cash make insurance companies susceptible to fraud schemes. Insurance companies are under great pressure to maximize the return on investing the pool or reserve funds which make them  vulnerable to high yielding investment schemes, construction frauds and interest fraud.

Premium fraud

You cannot obtain insurance cover unless through an agent or broker. Once you sign the insurance over, the agent collects the premium, but doesn’t remit the money to the insurance company providing the cover. To the policy holder, you think since you’ve paid, you are covered. Yet in the books of the insurance police issuer, you have not yet paid the premium and therefore your contract is void. If you don’t get to need any claim in a given year, the agent will go away with the fraud. Your coverage is valid for a given year. After that, you will have to renew.

However, in case you get an accident and seek compensation, you will start failing to get through to your agent’s telephone. Some insurance agents tend to delay with the client’s payment for long instead of presenting it to the insurance as soon as possible. This fraud can be prevented through customer awareness and training.  Policy holders must be advised never to pay cash to agents and also every time they sign insurance cover, they contact the insurance company via email or telephone to confirm the status of their accounts.   Unfortunately insurers in Uganda have done little user awareness training on this issue.

One of the recognized big complaints of several policy holders in Uganda is inefficient claims management. Most policy holders are often denied compensation on the basis of failure to remit premium fee in time or incomplete document. Sometimes the agents are allowed to interface with these people. It becomes difficult to identify the exact cause of the problem. Most of the time, it is a result of fraud by the agent by failing to submit client’s premium.

Fictitious payees

An agent or a clerk can change the beneficiary of record to a fictitious person and subsequently submit the necessary papers to authorize the issuance of money. Fraud by its nature is clandestine and involves several parties.  It is easier to change the records of the rightful beneficiary to that of the fraudster and share the loot.

To overcome such a scam, the insurance company must obtain all personal information of the policy holder including their recent passport photo or ID. This information must be updated on annual basis every time the policy is renewed to ensure up date information is kept on the file.

Fictitious death claims

An insurance agent may obtain a fictitious death certificate and requests that a death claim check be issued. The agent receives the check and cashes it. The agent can also write a fictitious application and, after the contestable period (usually two years), submit a deceptive death claim form and obtain the proceeds.

The above frauds bring bad will to the insuring public. It is the responsibility of the entire insurance industry players to address the abnormality and promote ethical business.

To find more about fraud, there are more articles at Summit Consulting fraud awareness

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