“INSURANCE fraud is a serious criminal offence. More than 2.1 billion pounds of undetected insurance fraud is committed every year…” reads the Insurance Fraud Register (IFR) website of the United Kingdom (UK).
In today’s article, I feature a Zambian fraud episode which happened last year. For the purposes of confidentiality, I will withhold the real names of parties involved.
Mr X decided to insure his vehicle through Y Insurance Brokers in June 2013 but did not avail the vehicle for physical inspection.
The following month he logged in a total loss claim worth over K50,000 alleging that his vehicle had caught fire.
Credit goes to the insurer for being prudent at underwriting stage. What the insurer did was to insert a clause in the policy that the insurance was issued subject to physical inspection of the vehicle.
The insurer followed up in futility several times through the broker to have the vehicle inspected.
After a month or so, the insured logged in a claim probably thinking the insurer would have forgotten about the inserted clause in the policy.
Upon receiving notification, the insurer instituted investigations into the matter. The broker was very cooperative and should also be commended for exhibiting professionalism in the whole episode.
All claim-supporting documents were perfectly submitted at a go without any errors.
As per claims requirement, the insurer was now supposed to inspect the vehicle and was given directions where the abandoned shell remained, which was near the Democratic Republic of Congo and Zambia border.
The police station which issued the police report was over 100 kilometres from the scene.
The reason for not using the nearest police station was well-known to the insured.
The insurer was now forced to check the docket at that far-away police station. After enquiring from the police officers, they confessed that they didn’t visit the accident scene but instead they issued a police report based on what they were told by the insured.
They further stated that they didn’t have the means of getting to the accident scene. Information was now unfolding about the staged fraud.
At that point the insurer decided to fight all the way until the truth was established. He (insurer) was forced to go back to the accident scene and gather information from eye witnesses.
The beauty about a village set up is that when such incidents occur, everyone will know about them.
Taking advantage of this, the insurer asked the people around the area and learned that the incident took place in May, which was way before an insurance policy was effected.
After establishing facts, the insurer wrote to the insured via the broker that the claim was repudiated.
Accordingly, the broker was on the side of the insurer because of what came to light and when the insured was served with the letter from the insurer, it was the end of the episode.
We can see from this case that the insured wanted to reap where he did not sow. There was breach of utmost good faith, which is the cornerstone of insurance.
The insured has the full knowledge of the subject matter and based on that information, the insurer accepts the risk presented. Surely if there is breach of utmost good faith, there should be severe consequences.
This case is also an eye opener to the insurance industry, especially on the need to be prudent at underwriting stage.
Though there are no formal records, like in developed countries, to show how much the industry has been defrauded, there is strong suspicion that insurers in Zambia have lost some significant amounts due to fraud.
Our friends in developed countries have made tremendous strides to fight insurance fraud.
For example in the UK, the Association of British Insurers (ABI) sponsors the IFR.
According to the IFR website, the IFR is the first industry-wide database of known insurance fraudsters. It is the latest step in the ongoing battle against insurance fraud.
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[The Author is a Chartered Insurer with nine years industry experience]