Economy

Fire tops Sh386m fake policy claims

accident

An overturned vehicle on Naivasha-Kinangop road. FILE PHOTO | NMG

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Summary

  • Fire insurance accounted for Sh200 million or 51.8 percent of the value of fictitious claims—an indication that some individuals deliberately torched their homes or business premises to fetch some money from insurers.
  • This was followed by fraud on motor insurance (Sh52.87 million), life insurance (Sh44 million) and medical insurance (Sh42.5 million).
  • Insurance fraud is a menace to the sector because it reduces the profitability of insurers and inconveniences genuine customers since insurers are forced into a lengthy process of vetting claims as a way of cutting Investment in the valuation report.

The value of fraud in Kenya’s insurance sector rose 24.4 percent to Sh386.3 million in the year ended June 2019, new data by the Insurance Regulatory Authority (IRA) shows, driven by false fire policy claims.

Fire insurance accounted for Sh200 million or 51.8 percent of the value of fictitious claims—an indication that some individuals deliberately torched their homes or business premises to fetch some money from insurers.

This was followed by fraud on motor insurance (Sh52.87 million), life insurance (Sh44 million) and medical insurance (Sh42.5 million).

Insurance fraud is a menace to the sector because it reduces the profitability of insurers and inconveniences genuine customers since insurers are forced into a lengthy process of vetting claims as a way of cutting incidents.

Fraud in vehicle policies was in the form of fictitious accidents, forged insurance certificates and forged theft of motor vehicles. The regulator discloses in the latest annual report that the blocked fraud came in the year its investigative arm—Insurance Fraud Investigation Unit (IFIU)— received and detected 83 fraud cases, down from 91 the previous year.

A separate report by the Association of Kenya Insurers (AKI) showed that 14 of the 37 companies that had covers for domestic and industrial fires made underwriting losses.

The investigative unit was set up in 2011 to deal with cases of fraud in the insurance industry and has seen the number of cases drop for the third year from a peak of 168 in 2017.

However, the value involved in the reduced fraud cases has been rising, posing a financial threat to the insurers.

Of the 83 cases reported last year, a majority (21) came from agents, mainly through theft and commission fraud.

Motor vehicle insurance fraud followed with 20 cases, ranging from fraudulent accident claims to fake car theft claims.

General insurers last year sank into Sh3.27 billion underwriting loss— the worst in over two decades— mostly contributed by motor vehicle insurance.

Underwriting losses from insuring motor vehicles jumped by 92.4 percent to Sh7.35 billion, with private vehicle insurance returning losses for the eighth running year.

Insurance company employees also posed risk to the business with nine cases valued at Sh19.28 million being reported as theft of premiums by staff.

The IRA says the investigative unit spent Sh28.7 million, down from Sh29.6 million the previous year, to investigate the cases. In the previous year, it had spent Sh27.3 million.

Expense ratio—the percentage of premium that insurance companies use for paying all the costs of acquiring, writing and servicing insurance— was highest for aviation (98.21 percent) followed by personal accident (66.7 percent).

Many insurers say fraud has hurt their profitability, kept premiums relatively high and slowed down claims settlement pace. AKI is mulling the use of technology such as blockchain from onboarding to claims processing to help lock out fraudulent claims.

Blockchain is being touted to help cut paperwork, validate documents from customers and provide permanent audit trails that can be used to identify claims.

Last year, insurance industry premiums grew 6.1 percent to Sh229.5 billion while net profit rose 108 percent to Sh15.12 billion. Kenya was ranked third in Africa in terms of gross premium income after South Africa and Morocco.

Long-term insurance business grew 11.4 percent to Sh97.4 billion while general insurance business grew 2.5 percent to Sh132.1 billion.