Surge in South Africans committing fraud

South African life insurers and investment companies detected 13,074 cases of fraud and dishonesty in 2023, a 46% increase from the previous year when 8,931 cases were detected.

This was outlined by the Forensic Standing Committee of the Association for Savings and Investment South Africa (ASISA), which recently published its second set of comprehensive fraud statistics for the industry.

According to ASISA, the industry lost at least R175.9 million to fraud and dishonesty in 2023, a 128% increase from the R77.2 million lost in 2022.

However, early detection of fraud and dishonesty prevented losses worth R1.5 billion in 2023 compared to R1.1 billion in 2022.

Most fraudulent and dishonest claims in 2023 were uncovered in KwaZulu-Natal (KZN), followed by Gauteng, the Western Cape and the Eastern Cape. The biggest increase in cases was recorded in the Western Cape.

Convenor of the ASISA Forensic Standing Committee, Jean van Niekerk said that this surge can be attributed to a combination of the following:

• Ongoing innovation of detection methods by forensic departments;
• Increasingly desperate consumers are willing to commit a crime for extra money; and
• Criminal syndicates who see life insurers and investment companies as lucrative soft targets.

Van Niekerk emphasised the importance of the savings and investment sector in keeping fraud in check. This is crucial to avoid significant losses due to fraud and to prevent increased claims from raising premiums for honest policyholders.

“Seen in isolation, the fraud statistics paint a bleak picture; however, they should be considered part of the bigger industry picture, which shows that the majority of policyholders and beneficiaries are honest,” said van Niekerk.

He said that this is evidenced by the 95.9% payout rate in 2023 to the beneficiaries of 892 817 life and funeral cover policies to a value of R39.9 billion.”

He added that at the end of December 2023, ASISA members managed 43.8 million risk and savings policies and collective investment schemes assets worth R3.5 trillion.

“A loss of R175.9 million to fraud and dishonesty is significant, and our industry is focused on clamping down on criminal activity through continuous evolution and adaptation,” said van Niekerk.

However, he said that many life insurers and investment companies have dedicated forensic departments focused on clamping down on fraud and dishonesty by identifying criminal trends as they emerge.

These departments use digital tools like AI, improved collaboration, and biometric identification to detect and prevent criminal activity.

Additionally, they share data through industry bodies, such as the ASISA Forensic Standing Committee, to identify trends and collaborate with law enforcement and regulators in tackling financial crime.

Breakdown of cases

The ASISA fraud statistics are divided into five categories:

• Remuneration fraud: Fraudulent attempts by call centre agents, tied agents or independent financial advisers (IFAs) to benefit from commission and/or fees;
• Fraudulent applications: Fraud and dishonesty committed at the application stage through misrepresentation, non-disclosure, impersonation or identity theft;
• Fraudulent and dishonest life insurance claims: Fraudulent or dishonest attempts to claim benefits from risk policies such as life and disability cover;
• Fraudulent withdrawals and disinvestments: Accessing investments by fraudulent means from linked investment service providers (Lisps), collective investment schemes (CIS), and retirement funds; and
• Other fraud: Examples include fraudulent attempts to obtain investment policy benefits and bribery and corruption.

Van Niekerk said that more than half of all fraud cases recorded by ASISA members in 2023 were classified as remuneration fraud, showing a steep upward trend from 2022.

Fraudulent and dishonest life insurance claims were the second-highest contributors to fraud cases in 2023. “Unfortunately, losses jumped from R17 million in 2022 to R69.8 million in 2023 driven largely by fraudulent death claims,” said van Niekerk.

While fraudulent applications and actual losses declined, the value of prevented losses was notably high, reflecting significant success in combating application fraud.

However, van Niekerk notes a concerning rise in actual losses, which increased from R23.7 million in 2022 to R40.5 million in 2023, despite a lower attack rate.

This suggests that while fraud prevention efforts are working, the industry still faces substantial risks.

Read: South Africa’s credit rating could take a turn