30% of Malawi’s insurance claims fraudulent—IAM
The country’s insurance industry is hit by fraudulent activities, with 30 percent of all claims processed being false particularly in the motor insurance section. The problem erodes profit margins and pushes up premiums for consumers, industry experts say.
But Insurance Association of Malawi (IAM) president Dorothy Chapeyama said from the cost-benefit perspective, most insurance firms believe it is cheaper to pay fraudulent claims than to challenge or investigate them further.
She said most companies think the process is lengthy, costly and cumbersome and, in most cases, unrewarding.
“There is, however, very little literature in Malawi on cases of proven fraud and although exchange of information would play a major part in the fight to stop fraud, statistics in our market is not easily accessible despite an agreement at the IAM that members should be sharing statistics,” said Chapeyama in a speech made at the anti-insurance fraud training in Blantyre.
She said there could be good reasons for this but argued that when information is not shared or provided timely, it becomes a major obstacle to detecting fraud and taking action.
Chapeyama said the training, organised by Business Development Facility (BDF), came at a time the insurance fraud is increasing.
Insurance experts contend that insurance fraud is a global occurrence that has resulted in insurance companies world over losing billions of money every year.
Chapeyama also said insurance firms do not share statistics of fraudulent claims to avoid bad publicity often associated with repudiating claims.
“They even run the risk of liability for bad-faith lawsuits for failing to pay suspicious claims when the claimant does not admit the company findings,” she explained.
In essence, there is no legal obligation on insurers to resist fraudulent claims and prosecute perpetrators; hence, there are no cases of individuals or companies who may have been prosecuted under the charge of committing insurance fraud, thereby contributing to the rising incidents of fraudulent claims.
Chapeyama said insurance fraud puts pressure on the business and costs are borne by policyholders and consumers since insurance companies charge higher premiums to cover their losses from fraud.
“Individual and business premium rates go up and businesses often pass on the increased costs to their consumers,” she said.
Chartered insurance practitioner Duncan Bvomerani, in a recent write-up, said insurance fraud has existed ever since the beginning of insurance as a commercial enterprise.
He said insurance fraud can be hard or soft, explaining that hard fraud is pre-meditatively perpetrated while soft fraud is opportunistically executed.
“The prevalence of insurance fraud in the country takes three principal dimensions: insurance premium diversion, staged claims and exaggerated claims. Premium collection [from direct customers or intermediary channel] generates much of insurers’ revenue to meet their obligations.
“Premium diversion is prevalent in the direct channel transaction. Perpetrators of this form of fraud are opportunistic, but optimistic employees who potentially hack the company’s receipting system to serve their interest above the client’s, thus, internal fraud,” he explained.
