Is insurance fraud a major problem in Botswana?

*ALFRED MULENGA
Correspondent | Friday November 30, 2007 00:00

But in industrialised countries like the United States and England, insurance fraud is a major problem that receives serious attention. It troubles insurance brokers, transnational corporations and governments.

In the US, the Coalition Against Insurance Fraud (CAIF) estimates that fraudulent insurance claims amount to at least US $80 billion every year. Healthcare insurance fraud is said to be a particularly serious issue. The National Health Care Anti-fraud Association (NHCAA) estimates that at least three percent - over $50 billion - of the nation's annual health care outlay is lost to outright fraud. A study by the Association of British Insurers (ABI) shows that one in 10 adults - five million people - admit to having made a fraudulent claim on general insurance policies, such as home or motor vehicle insurance. It was revealed that opportunistic fraud carried out by individual customers alone costs over 800 million sterling annually. In total, the ABI estimates that insurance fraud costs nearly 2 billion. According to the Financial Services Authority, insurance fraud as a whole costs the UK economy around 14-20 billion a year.

Accounting firm, KPMG, in its September issue of Frontiers in Finance, says that although insurance fraud is often seen as a victimless crime, it is obvious that the related costs are borne by all consumers. In addition, the costs of prevention, detection and investigation can impose a substantial economic penalty on insurance companies - both directly and indirectly.

Insurance fraudsters fall into various categories. On one extreme is the individual consumer who suffers a genuine loss, but pads the claim to recover more than is due. He or she may be motivated by the fact that they have been paying these premiums for years and now it is time to get some of the money back. Then there is the premeditated fraud, which involves outright deception.

KPMG analysts explain that it is becoming increasingly clear that gangs are involved in systematic fraud campaigns. Some years ago in the UK, there was a wave of injury claims alleged to have been caused by tripping over broken paving slabs. More recently organised criminals on both sides of the Atlantic have been operating crash for cash scams - deliberately staging car crashes and claiming for loss, damage and injuries such as Whiplash, which are difficult to diagnose and assess.

It is estimated that criminals in Britain 'earn up to 4 million a week from such fraud money which may often be used to fund other crimes'. Experts have sounded a warning that as developing countries experience growing insurance penetration, it is inevitable that fraudsters will follow.

So to what extent has insurance fraud become a problem in countries such as Botswana, South Africa, Zambia and others in the SADC region? Botswana is said to have one of the highest road accident rates in the world. Could this sad state of affairs partly be the work of a syndicate of ruthless panel beaters or insurance agents hell bent on making a quick buck? What about the spate of unexplained factory fires? Could they be a product of some desperate investor eager to reap where he or she did not sow? What about the farmers, especially the cattle barons suffering losses due to drought? How much are they claiming?

Efforts to get comments from the Directorate on Corruption and Economic Crime (DCEC), and the Motor Vehicle Accident Fund (MVAF) were fruitless at the time of going to press. (Sila Press Agency).

*Additional reporting: KPMG: Frontiers in finance (September, 2007)