Businesses & Financial News

KENYA: Insider-insurance fraud on the rise

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By Steve UMIDHA

Fraudulent claims and organized insurance crimes are becoming increasingly prevalent, with as many motorists conceding to falling prey to everything from bad-faith claims to scams.

More consumers with motor-related covers are now concerned that the practice is widespread and larger than was previously thought.

What’s worse, those narrating their experiences on social media say it is an insider job by rogue employees of certain insurance firms who are believed to be conspiring with auto assessors and other entities to profit from gullible consumers.

“Friends if you ever get into an accident, even when you have merely scratched each other’s cars, do not shake hands and ask each driver to go and fix or paint his/her car. There is an emerging scam whereby you shake hands, you go home thinking all is well,” social media user @wakilinomad stirred a Twitter conversation that has since gone viral.

In one of his cheeps, @wakilinomad with a username Rutto narrates how such crooks are also colluding with unidentified auto garages in falsifying documents including bank cheques, and satisfaction notes to rip-off customers, unknowingly, with caution to victims to have the police involved in case of an accident.

“False repair reports are prepared for huge sums of money, false photos of a car similar to one of the guys with its plate number are then taken with severe damage, false garage receipts, invoice cheques, and satisfaction notes made – all for huge sums of money.”

It brings to a sharp focus the never-ending fear of insider dealing in the insurance sector that continues to deny underwriters their fair share of revenues with many continuing to count losses in claims settlement.

A 2020 industry statistics estimate more than 40 percent of motor vehicle insurance policies in Kenya are fraudulent according to a study by Kenyan insurance Tech Company Bismart targeting 146 people settled in Nairobi alone.

Insurance fraud is believed to undermine 8 to 10 percent of the turnover of local companies. The most common practice is when motorists anticipate being hit, then fake injuries then report the car to file a claim.

Theft by agents was thought to be falling in recent years following the creation of the Insurance Fraud Investigation unit (IFIU) by the Insurance Regulatory Authority (IRA) – the industry watchdog, and a specialized unit under the umbrella of the Directorate of Criminal Investigation.

The unit is among other factors meant to protect the interests of policyholders, insurance beneficiaries, and the general public.

But despite the existence of the unit, insider fraud at insurance companies continues to thrive. In 2020 for instance, such cases jumped 13.4 times to Sh258.4 million from Sh19.2 million the previous year, according to the IRA.

It cited a number of cases of stealing by insurance employees as well as complaints against insurers without including fraudulent claim settlements, with the motor class the biggest casualty and a target by scammers.

The latest IRA data shows that, claims paid increased by 12.7 percent in the second quarter of 2022 to Sh34.51 billion compared to Sh30.60 billion paid in Q2 2021, while medical, motor private, and motor commercial had the highest amounts of paid claims at 44.4 percent, 25.2 percent, and 20.7 percent respectively of total industry-paid claims under the general insurance business.

On the other hand, long-term insurance premiums increased by 20.5 percent to Sh70.66 billion compared to Q2, 2021 Premiums that were at Sh58.66 billion – a period in which Insurance Industry Premiums hit Sh163.06Bn.

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