Fraudsters make everyone pay
Insurance fraud costs are factored into your monthly premium - as much as 15 percent.
Insurance fraud was born shortly after the concept of insurance was
discovered, and it costs honest consumers billions of Rands every year because
insurance providers have to increase the cost of premiums in order to take into
account the substantial rate of fraud that is bound to occur thanks to those bad
apples who think they're smarter than everyone else. It is estimated by the
venerable drudges at Standard Bank that the rate of short-term insurance fraud
in South Africa today is a massive 15% of premium costs, or to put it in blunt
numbers, R3 billion every year is siphoned off by these criminals. Long-term
insurance fraud is also alive and well, so to speak, and last year egregiously
fraudulent claims totted up to over R100 million, and those were only the claims
that were discovered.
The frightening point is that we have no idea how much money is really lost to
insurance fraud because the crime is designed to escape detection, so when we
say that R100 million worth of fake life insurance claims were filed that does
not take into account all those insurance scams that were successfully
perpetrated and therefore not discovered.
In the United States it is estimated that $80 billion was lost to insurance
fraud last year alone, which is frustrating because that money could have been
poured into a failing bank instead.
So what is insurance fraud? Well, there is hard fraud and soft fraud - the
former being more severe and premeditated while the latter is the white-lie
equivalent of insurance fraud. In hard insurance fraud a loss of property or
valuables is planned or spun out of thin air in the hope that the insurer will
pay out the value of the policy. As a result buildings are deliberately burned
to the ground, spouses go on permanent visits to the bottom of the ocean floor,
and accidents are oxymoronically planned in advance. In instances of soft fraud
consumers claim an exaggerated amount following a loss. Let's say your car is
stolen. Would it be so terrible to say that your new set of golf clubs were also
in the boot? That way you could end up with two sets of new golf clubs, which
would come in handy if you enjoy best ball. It's certainly less terrible than
faking your own death in order for your family to cash in your long-term
insurance policy (I'm not naming names, but if I was I'd say John Darwin and let
Wikipedia fill in the blanks), but it is still insurance fraud.
Some cases of insurance fraud look like a victimless crime but that simply isn't
true. While all consumers dutifully pay their premiums every year some of them
want to make it worth their while when they finally get an opportunity to make a
claim. So they decide to fix all the dings and scratches on the car and not only
the bumper that was actually damaged when they're in an accident, and figure
that they're entitled to this compensation from the mean, faceless insurance
corporation. But just as society would be reduced to meaningless chaos if
everyone decided that it was okay to lie all the time and never tell the truth,
so too is the concept of insurance drastically weakened when people decide to
cheat the system. In fact, the system is only as strong as the fundamental
honesty or truth-telling of the majority of participants, so when insurance
fraud is committed by some we all end up paying more.
It is estimated that anywhere from 25% to 33% of all automobile insurance claims
have an element of fraud to them. These scams range from claims for personal
injuries that were not in fact sustained during the accident, to exaggerating
the damages to car and or person after the fact. At the other end of the
spectrum in terms of severity, insurance fraud can often be the motive for
murder, and there are numerous examples of awful crimes that can be traced back
to juicy life insurance or property insurance policies. But let's leave that for
pulp fiction detective novels and try to prevent insurance fraud in our everyday
lives, since the only ones hurt in the long run are the honest members of society.