Fraud threatens health insurance

Doctors and health providers are colluding to drain the health insurance sector of billions of shillings and could kill the industry unless the malpractice is curbed, providers have warned.

They said that the scandal unfolding at the National Hospital Insurance Health Fund (NHIF) is just a tip of the iceberg.

According to industry stakeholders, the losses being incurred by companies offering medical cover is on a steady rise and far outstretches globally accepted levels.

In 2010, for example, a company offering medical insurance was 85 per cent likely to incur a loss on the policy against the globally accepted standard of 50 per cent risk ratio.

Kenya Reinsurance managing director Jadiah Mwaraniah said the medical insurance industry has now become the target of fraudsters, who are colluding with doctors and medical facilities to siphon funds from medical scheme providers.

A government medical scheme for civil servants has raised questions about Sh4.2 billion that was disbursed in just under three months and has seen the entire board and chief executive shown the door.

“Some insurance firms have now employed their own nurses and medical practitioners to verify prescriptions and medications since it is emerging that some of the drugs and ailments are incongruent and do not even exist,” said Mr Mwaraniah.

Record losses

The prescriptions only serve to increase insurance costs that have seen the health insurance segment of providers record losses.

The Association of Kenya Insurers (AKI), the industry lobby group, said the situation is expected to worsen if operations are not streamlined to stem further losses.

The latest available figures show that the insurance industry recorded losses of over Sh530 million in 2010, a situation aggravated by the high amounts that go to settling medical claims.

Data from the Kenya Association of Manufacturers indicate that medical insurance has the highest loss ratio of 81.5 per cent compared to other business lines.

In spite of a review that saw medical premiums reach Sh7.4 billion in 2010, the industry ended up with a loss of Sh530 million.

The segment had returned a loss of Sh236 million in 2009 out of the Sh5.9 billion premium it collected over the period.

Firms that underwrite medical insurance said they have been forced to turn down mega deals because medical claims consistently exceed the segment’s premiums.

“We are cautious about the kind of business we accept because losses have so far defied upward review of premiums,” said Mr David Ronoh, general manager in charge of medical insurance at CIC Insurance.

This is not new to the insurance sector, which seems to attract fraudsters in all its segments. The past decade saw several public service vehicle insurers collapse.

In 1996, the then state-owned Kenya National Assurance Company succumbed under the weight of fraudulent claims and mismanagement, becoming the first company to go under.

Next came Access Insurance Company, followed by Stallion Insurance, Liberty Insurance, Lakestar, United Insurance Company, Invesco Assurance Company, and Standard Assurance.

Mr Geoffrey Njenga, a former managing director of Invesco, recently launched a book, Thriving on Borrowed Time: A Case for Reforming the Insurance Industry, in which he calls for a structural compensation scheme across the entire insurance industry to manage and make it attractive to potential investors.

The book notes that the insurance industry is particularly known for its hunters; the ambulance chasers.

“If you can remember, the former Rift Valley provincial boss called for the arrest of a local advocate who had allegedly stolen from an insurance company through fraudulent claims,” writes Mr Njenga.

It says that a then Kenya National Assurance Company doctor would combine a legitimate prescription with an illegitimate addition that turned out to be an expensive body lotion to inflate medical claims.

There is also the story of a physiotherapist in a private hospital who offered to admit a patient for one day so that the patient could charge the visit to their inpatient medical cover.

“Our nation seems to tumble from one crisis to another. If it is not Goldenberg, it is Anglo-Leasing or fuel and maize rip-offs or even drug peddling.

“Unless we change course and adopt new ways, it seems that we have boarded an overloaded matatu that is being driven dangerously by a deranged crew,” he said.

Kenya Reinsurance is now calling for a structured compensation model and an enterprise-wide risk management strategy to be undertaken by the Insurance Regulatory Authority (IRA) to avoid the pitfalls that have beset the motor insurance industry in the past decade, killing several firms.

In an interview with Smart Company last week, Mr Mwaraniah said only 15 of the 46 insurance firms have life insurance as part of their business because chances of fraud and loss are high compared to other general insurance products.

There have also been complaints from other quarters in the past that medical facilities sometimes inflate their service costs when they realise that they are handling a covered patient whose treatment costs will be paid by an insurance provider.

“The reactions we are seeing over the NHIF medical scheme for public servants is a matter of how it is being administered and rolled out,” said Mr Mwaraniah.

He said unfair competition in the pricing of policies between insurance providers has negatively impacted on the growth of medical cover and urged the IRA to use its powers to set minimum policy prices that will make the industry competitive while remaining profitable.

Private health insurance providers five years ago failed to agree with the government on the cost of providing cover for public servants when the plan to have a universal medical scheme for public servants was first mooted.

An official from AKI who spoke on condition of anonymity said the initial plan was to contract private health insurance providers affiliated to hospitals with enough facilities countrywide to give the current medical cover to public servants.

However, the plans stalled after it came to light that some of the AKI board members had conspired with some people in government to have NHIF roll out the facility. 

Calls for competitive bidding among private health insurers were allegedly silenced to give the national health insurer unchallenged rights to roll out the scheme.

The government gave NHIF the Sh4.3 billion contract medical scheme for civil servants and disciplined forces, citing reluctance by conventional insurance firms to cover the risks.

Days earlier, the industry had also rejected a similar scheme by the government to cover 250,000 teachers, saying it would wreak havoc to their bottom lines.

However, an official from AKI said the government was engaging them in terms that are not favourable in the market. The official said almost all of the 15 private health insurers declined the offer.

The Central Organisation of Trade Unions (Cotu) has claimed that three senior politicians were involved in the medical scheme to have NHIF administer the project to allow them (the politicians) access to some of the money for the next General Election.

Cotu secretary general Francis Atwoli said he would name those involved at an appropriate date.