False claims bleed insurance companies dry

Fraudulent claims are inflating insurance premiums in Kenya by up to 25 per cent.

A survey released by KPMG puts the country’s false claims prevalence higher than her East African neighbours.

KPMG Associate Director James Norman said Kenya had the potential to reverse the trend due to its willingness to report and share data relating to the malpractice.

“Even though nine per cent claims and 3.8 per cent insurance covers in Kenya are fraudulent, respondents showed willingness to share data to the country’s fraud system database,” said Mr Norman.

The survey, which is the first in the region, puts Kenya ahead of Uganda, Tanzania, Burundi, Rwanda and Ethiopia in insurance fraud, with prevalence levels comparable to those in the banking sector.

Regionally, the vice is said to push up premium costs by 17.7 per cent.

Customers collude with staff to make fake insurance financially weakening providers.

Insurance Regulatory Authority (IRA) chief executive Sammy Makove said industry players must take extra measures to curb the trend. “We already have an insurance fraud investigation unit just like the banking industry has, but service providers must now put enterprise risk management systems to deal with fraud. The losses impact negatively on the underwriters’ solvency which may kill them,” said Mr Makove.

ON THE RISE

Kenya’s insurance fraud is on the rise, with motor insurance being the leading culprit, according to the survey.

The study, conducted early this year, involved company chief executives, managing directors, general managers, as well as lower staff in the industry.

Only 32 per cent of the companies surveyed were found to have documented strategies to limit underwriting and claims-related fraud.

Half of Kenyans believe that fraud in the sector is bigger than in telecommunications and banking.

Recently, players in the sector decried huge losses associated with fake claims, especially in general insurance (motor insurance and medical insurance).

According to the industry, 20 per cent of the claims paid for motor insurance are fraudulent while in the medical insurance sector, false claims paid are between 30 and 40 per cent.

Some fraud cases involve individuals who have taken loans to buy cars and fake accidents to get funds to pay the loans, to those who take private covers for public service vehicles.

Motor assessors and garages also collude to commit fraud, with others, selling vehicles across the border and on the pretence that they have been stolen, worsening an already bad situation.

Fraudsters also collude with hospitals to fleece millions of shillings from firms in fake surgeries and treatments, while health service providers are overcharging those who are insured.

The industry’s gross premiums grew by 20.4 per cent from Sh131 billion in 2013 to Sh157.8 billion in 2014, with the general insurance premiums standing at Sh101.3 billion.

Claims incurred under the general business stood at Sh41.9 billion by the end of 2014, increasing by 25.3 per cent from Sh33.4 billion in 2013.