How fraud is suffocating young insurance industry

A car bond in Kampala. There are fraudulent cases where the price of a car is doubled when it is being insured. FILE PHOTO

What you need to know:

Weak. Uganda has the lowest insurance penetration in the region at 0.8 per cent.

Kampala. A section of Ugandans have taken profiteering a little bit too far.
For example a car that was bought at Shs15 milllion will have its cost exaggerated overnight to twice its original value when it is being insured.
There are those who will fraudulently exaggerate the extent of damage sustained in a car accident or property.
Some even go as far as making claims for accidents that never really happened. Others even go a notch higher and stage a real motor accident.

As if that is not bad enough, cases of a person faking his own death or people faking a person’s death or causing a person’s death for the insurance payment is no longer a big deal or something unheard of.
These are just some of the challenges that the insurance industry in Uganda, currently with a penetration of 0.8 per cent, the lowest in the region, is faced with.

The survey
The 2015 KPMG East Africa Insurance Fraud Risk Survey reveals that the most common form of fraud regionally is non-disclosure except for Uganda where it is exaggeration.
This means that out of 10 people, nine are likely to exaggerate the value of what they are insuring, therefore getting compensated much more than they would have fairly deserved.

According to the KPMG East Africa Insurance Fraud Risk Survey, although the detected claims in Uganda were valued at $10,000 (Shs36 million), it is considered that the total cost of claims fraud is at $500,000 (about Shs1.7 billion).
“The results send a clear message that fraud is indeed a significant financial, strategic and operational risk to the sustainability of the sector and is on the increase in both the policy and claims arena,” reads the 2015 KPMG East Africa Insurance Fraud Risk Survey.
The report further indicated that, “Uganda had the highest scores for increased policy fraud but the lowest for increased claims fraud and the lowest regionally for the percentage of fraudulent policies and claims, suggesting fraud is not as widespread in the country or the extent is understated.”

The same report also shows that Uganda detected less policy fraud than Tanzania and less claims fraud than both Kenya and Tanzania.
In addition, it also had the lowest scores for estimated number of policies and claims that are fraudulent and how much fraud adds to the premium.
This would support the perception that there is less fraud in Uganda but it also suggests there is a lot more undetected fraud, especially as fraud is rising in both arenas-policy and claims.
In insurance, the insurance policy is a contract between the insurer and the insured. It determines the claims which the insurer (insurance company) is legally required to pay.

Security threat
In an interview recently, Mr John Karionji, the chief executive officer Insurance Company of East Africa Ltd (ICEA), said fraud in insurance is a much bigger problem that extends to banking industry as well, warning that if not checked swiftly, it could turn out to be a security threat.
He said: “It is difficult to quantify the extent of the fraud here but what is evident is that it is on the increase. And everybody should be part of the team to fight it or we will all lose—and lose badly.”
He continued: “We are already emphasising thorough validation of claims and documentation to detect this form of fraud but we are also asking for a specific strong legislation spearheaded by the regulator on this nature of insurance fraud.”

This is because many people are involved, including (and not limited) to insiders, lawyers and the police in perpetuating insurance fraud. And to stop this value chain, a tough piece of legislation needs to be instituted quickly.
On the other hand, Mr Peter Manyala, an independent claim assessor, said the biggest problem with insurance fraud here is that it makes the cost of insurance expensive.
The KPMG industry survey shows that it increases the cost of insurance by more than 10 percent.

“With fraud being a major concern, means that insurance companies will be spending a lot of money paying fraudulent claims and that definitely make the insurance policies expensive,” Mr Manyala.
He proposes that police should up its investigation as a lack of tight report only helps to perpetuate fraud.
He also urged the industry players to rise above petty rivalries and make this an issue—talk about it instead of suffering silently.
Among other things, the report recommended better assessment of risk and improved internal controls, let alone a strong national and regional legislation.

The fraud
Insurance generally refers to the exchange of risk for money. A consumer pays a premium (amount of money paid) to an insurance company, which issues a policy that identifies certain risks it will assume.
Insurance fraud occurs when someone engages in a course of action intended to obtain money or something else of value from an insurance company, or an insured individual or business, through false pretenses, misrepresentation of material facts, or other fraudulent conduct.
A deliberate scheme to obtain financial or similar gain by using false statements, misrepresentations, concealment of important information, or deceptive conduct is also known as fraud.

Fraud typically involves getting property to which someone is not legally entitled, but it is different from criminal offences categorised as theft in two important ways.
Theft generally involves directly obtaining money or something else of value by stealing it, or by the use or threat of force. Fraud is therefore often considered a form of white collar crime, unlike most forms of theft.


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