Businesses & Financial News

Insurance firms decry fraud, forgery

By Steve Umidha

Insurance fraud and forgery crimes perpetrated against insurers continue to eat into companies’ profit margins with the insurance sector emerging one of the key targets for cheats.

Figures released by Insurance Regulatory Authority (IRA), show that fraudulent motor vehicle (accident) claims, fraudulent medical claims and forgery claims were large contributors to the industry fraud cases reported in last quarter of 2020 – with cases of businesses operating without proper licenses also a key concern.

In a report released Monday, IRA said that 42 such cases among others including fraudulent motor insurance (Damage/Theft) claims were reported by insurance firms through its Insurance Fraud Investigation Unit (IFIU) Fraudulent Motor Insurance (Damage/Theft) Claim.

Given these developments, the latest data by the industry regulator points to the challenges still faced by insurers to defend themselves against fraudulent claims and abuse of annuities despite existing enforcement mechanisms.

The sector whose penetration levels have been on downward spiral since 2018 is particularly vulnerable to money laundering activities due to the wide range of money transfer processes inherent to the trade, from transfer of ownership to withdrawal at maturity, premium overpayment, premium refunds and other ills some of which are not reported.

Life insurance firms are at particular risk because of the massive flows of funds into and out of their businesses.

Most life insurance firms offer highly flexible policies and investment products that provide room for customers to deposit and subsequently withdraw large amounts of cash with a relatively minor reduction in value – an area that has consistently been a target for fraudsters most of which are inside dealings.

The last five years has however seen a growing number of insurance companies adopt innovation and modern technology to help curb the vice.

“On positive trend is lower cost of doing business which may due to use of technology during the lockdown as a result of COVID-19 as indicated by decrease in direct expenses,” IRA noted in a statement.

In Q4 2020, general insurance premiums amounted to Sh 130.84 billion. Medical and motor insurance classes maintained a leading position in terms of contribution in general insurance business premium at 33.0 per cent and 34.4 per cent respectively.

Motor Commercial gross premiums decreased with the highest amount of Sh 1.97 billion followed by Personal Accident with Sh 1.17 billon.

“The global socio-economic shocks from the Covid-19 Pandemic continued to be felt during the quarter under review. The increase in new infections coupled with the emergence of new strands of the COVID-19 virus remain a challenge to policy makers around the globe,” notes the statement by IRA.

Further the data shows that insurers reported claims incurred amounting to KES 57.36 billion during the period under review. This was a decrease of 0.4 per cent from Sh 57.60 billion reported in the fourth quarter of the previous year.

Medical, motor private and motor commercial had the highest amounts of paid claims at 37.7 per cent, 26.0 per cent and 22.7 per cent respectively of total industry paid claims under general insurance business.

Meanwhile, the National Treasury in consultation with the Insurance Regulatory Authority (IRA) is considering an insurance sector overhaul to woo investments and are going all out to pull in investors through public and stakeholders participation on a new insurance policy.

The National Insurance Policy whose public participation ends on Friday aims to strengthen the existing industry policies, legal and regulatory environment for the insurance sector in Kenya.

“The ultimate goal is to increase insurance penetration through improved access, usage and affordability of insurance products and services,” said IRA.

In addition, the regulator says the policy hopes to provide an enabling environment for sustainable development, promotion, and maintenance of an inclusive, efficient, fair and stable insurance sector.

According to the Insurance Regulatory Authority (IRA), Kenya’s Insurance penetration, which is the ratio of gross direct insurance premiums to Gross Domestic Product (GDP), declined to 2.4 percent in 2018 (2017: 2.7 percent. The world average insurance penetration stood at 6.1 percent in 2018/19.

The general reinsurers incurred claims amounting to Sh 15.85 billion and direct expenses (commissions and management expenses) of Sh9.10 billion. The resultant was an underwriting profit of Sh 351.54 million and operating profit of Sh 3.42 billion as at the end of Q4 2020.

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