Fraud tolerance level as a predictor of insurance claims behavior: A South African Study

The insurance sector as a foundation which other sectors depend on is a critical cornerstone of a well-functioning society. An insurer’s strength exists in its ability to foresee, assess, price and mitigate current and emerging risks. Despite the value that insurance brings to maintaining and sustaining society there is large scale abuse of the various insurance products on offer. The abuse is predominately committed through the submitting of either false or inflated claims which negatively impacts the entire insurance value chain from underwriting to claims processes. Insurance claims fraud is classified as opportunistic or organised. Opportunistic claims fraud consists of claims inflation or claims padding for a genuine loss while organised claims fraud involves the lodging a claim for a loss that did not occur and usually involves staging of incidents. Opportunistic fraud is the most common type of fraud experienced by insurers and presents the greatest challenge to the insurance industry. While there are challenges in accurately determining the true costs of insurance fraud; there is consensus that the costs are significant. In response to incidents of insurance fraud insurers have implemented various measures to curb fraud; these measures range from the establishment of insurance crime bureaus, creation of internal investigation teams and the employment of technology as early warning systems. These measures although useful have not been able to be very effective as insurance fraud still continues to rise. Studies indicate that consumer attitudes towards insurance fraud play an important role which must be considered when developing fraud prevention strategies. Tolerance has been identified as an important factor which influence consumer v attitudes towards insurance fraud. Previous studies found that factors such as high insurance premiums, excess payments, consumer relationship with insurers, consumer’s previous claims experience and societal acceptability of insurance fraud played a role in shaping a consumer’s tolerance level. This study was undertaken to explore the role that policyholder tolerance has on predicting claims behaviour in the South African insurance market. The study also aimed at identifying reasons which motivated policyholder’s to commit and deter them from committing insurance fraud. A further aim was to identify the common types of insurance fraud and to measure policyholders’ perceptions towards their primary insurer, the insurance industry, brokers and insurance assessors. The fraud triangle and the theory of planned behaviour were used as theories in support of this study. Primary data for this study was gather through an online self-administered questionnaire and the sample population consisted of policyholders within the shortterm insurance market. A total of 560 completed valid questionnaires were received and analysed. The study shows that respondents have low levels of tolerance for insurance fraud. Results indicated that financial pressure, greed, financial benefit and opportunity were reasons why policyholders’ committed insurance fraud in SA. Factors which deterred policyholders from committing insurance fraud included consumer integrity and honesty, fear of being caught and prosecuted and fairness and value for money. vi Respondents indicated that inflated claims were more prevalent than false claims and it was easier to submit an inflated claim than a false claim. Regarding perceptions the study shows that respondents have a more positive view of their own primary insurer than the insurance industry in general, brokers and insurance assessors. Lastly, the research identified five factors that significantly explain levels of short-term insurance fraud tolerance, namely 'Unfairness/injustice', “Have policyholders’ best interest at heart”, 'Industry relations', ‘Opportunity’ and 'Morality'. The findings of this study could be useful to insurers when developing consumer education and awareness programmes. There exists opportunities for future research regarding several aspects of insurance fraud which was not dealt with in this study