NAIROBI, Kenya, Feb 20 – Insurance industry players hope to significantly reduce the perennial and rising cases of fraud in a few years, once an initiative geared to stem the vice becomes optimally effective.
Through the newly launched Insurance Fraud Investigation Unit, the industry also hopes to detect fictitious claims before they are paid out to reduce fraud cases which in turn lead to heavy losses for many firms.
“Ordinarily what happens is that after an accident occurs, there is a syndicate that immediately packages (fictitious) claims which means that the insurance company has to deposit money (to pay the claims). That inflates the costs of claims for no apparent reason,” Commissioner of Insurance and Insurance Regulatory Authority Chief Executive Officer Sammy Makove explained.
The motor insurance industry is worst hit with the loss ratio – the total amount of claims paid out in relation to the premiums collected – escalating over the years.
Between 2004 and 2007 for example, claims accruing from commercial and private motor insurance covers averaged a ratio of 63 percent while in 2005 they were at 75 percent.
Currently, it is estimated that 40 percent of the claims paid out by Public Service Vehicles (PSV) insurance underwriters are fraudulent which explains the poor performance of this class of insurance.
For the medical insurance category, the losses were at 45 percent in 2009 and as a result health insurance policies remain above the reach of many Kenyans.
However, the elimination of this risk would lower the cost of the insurance covers by similar margins, Makove reckoned.
The unit which has been established in partnership with the Kenya Police has nine Criminal Investigation Department officers who have been working since December 1 2011.
The nine officers first underwent specialised training at the College of Insurance for a month before they were deployed to the field.
So far, Makove disclosed that good progress in detecting this syndicate has been made with the team unearthing various fraudulent activities such as the forgery of insurance covers.
This discovery for instance led to the recent arrest of about 20 PSVs plying the Kayole- Nairobi route that had forged insurance covers.
In recognition that insurance industry players work in cohorts with the fraudsters, the commissioner revealed that several officers are also being probed.
“We have some officers of insurance companies that are under investigation,” he disclosed although he declined to reveal further details on the same.
For the unit to be fully effective, however, he did acknowledge that its capacity needs to be enhanced.
“Right now we are receiving five (fraud) cases per week. According to (Police Spokesman Eric) Kiraithe, a proper investigation would require that one officer handles one or two cases per month. So that is already overwhelming and so we will certainly need to look at the capacity of the force,” he emphasised during the official launch of the team.
Present at the function was acting Finance Minister Njeru Githae who welcomed the initiative adding that it would help to ensure an efficient and stable financial sector.
Insurance penetration is a three percent he observed partly because of the poor perception that Kenyans have of the sector but by resolving this challenge, the uptake of premiums would increase significantly.
“The insurance industry continues to register impressive performance with total gross premium income increasing at an annual rate of 18 percent in 2011. I’m happy to note that the penetration ratio grew by three percent in 2011 up from 2.7 percent. However, we have a long way to go and to do so we have to change the way we do business,” Githae remarked.
He assured the players that the government through his ministry would assist to implement legal and regulatory reforms that would for instance address the weaknesses in the sector’s risk management systems.