NAIROBI: One in every four shillings paid as premiums on insurance policies is directed to cover fraud, startling findings revealed Friday. An insurance fraud survey carried out by audit firm, KPMG, shows that Kenyans could have paid over Sh30 billion to cover for fraud, equivalent of a quarter of annual premiums paid to insurance companies.
The study which could explain why insurance products are relatively expensive and subsequently low uptake, KPMG’s Director James Norman said the prevalence of fraud could also be a deterrent to potential investors in the sector.
“fraud in the insurance sector has adverse effects on the economy due to low confidence level by the business community including potential investors,” Norman said. Industry estimates show less than 3 per cent of the Kenyan population has some form of insurance, ranging from life covers to protection against damage on property.
It is only Tanzania, at 31 per cent, that fared worse than Kenya, in the survey carried out in four countries including Rwanda and Uganda. Rwanda was ranked top at only five per cent of premiums covering fraud, according to the respondents, followed by Uganda’s 10 per cent. Norman told a stakeholders’ conference that the motor insurance business was most affected by fraud.
Insurance companies’ employees were found to be colluding with customers to file illegitimate claims. “Even more worrying was the acknowledgement that the hotspot fraud in Kenya is in the motor class, with own customers committing the most in collusion with staff.” KPMG’s findings point that the problem of insurance fraud was bigger than earlier thought, with the Insurance Regulatory Authority reporting annual losses at Sh4 billion.
Insurers have pegged fraudulent claims relating to motor and medical insurance at anywhere between 20 and 40 per cent. Unlike in KPMG’s findings that fraud on motor insurance class was worst hit, individual firms have reported that nearly half of medical claims are fraudulent. See Also: KPMG insists court report on Mumias Sugar was factual That concern has pushed most of them to using biometric identification for their clients, rather than photo identities.
It is plausible to say that the high prevalence of fraud in the insurance business and the inability by the individual insurers to stamp it out, is subjecting honest clients to unnecessarily costlier policies.
