Certain product lines are more susceptible to fraud in the Middle East market, according to a first-of-its-kind survey on claims fraud, abuse and leakage in the region.
Thirty-seven prominent life and health insurance companies, both conventional and Takaful products, across the United Arab Emirates (UAE), Kingdom of Saudi Arabia (KSA), Oman, Bahrain, Egypt, and Qatar participated in the study, which also reveals five steps insurers can take to mitigate this risk.
While more than 90% of all claims are settled, two-thirds of respondents indicated that at least 2% of all their claims were declined due to fraud and abuse, and an additional 16% reported that as many as 10% of claims are declined.
Fraud and abuse can lead to claims cost and premium increases across the insurance industry, yet fraudulent activity appears to be particularly concentrated in certain product lines in the Middle East. Almost half of respondents (49%) indicated that group credit life business is more prone to fraud when compared to group life (employee benefits) and individual business. The survey results also revealed potential misuse of group life benefits, including Temporary Total Disability (TTD), Medical Expense and Repatriation, by some group policyholders. The causes for this trend are complex, but insurers cited unsustainable pricing, driven by competition, and frequent replacement (shopping around for coverage) as the top two reasons group life carriers can become more vulnerable to fraud and abuse.
Fraudulent disability claims also appear to be on the rise in the region, according to RGA research. Survey respondents identified two major drivers: a lack of due diligence by the bank at the time of loan disbursal (76% participants), followed by the relative ease of obtaining a disability certificate from the medical board declaring individuals disabled and eligible for benefits (72% of the participants).
So what can insurers do to mitigate these risks? RGA's research suggests five focus areas:
1. Review Policy Language, Declarations and Exclusions –The insurance contract, application, and claim forms should provide adequate protection to insurance companies against fraudulent acts while at the same time providing certainty and transparency to policyholders.
Claims adjudication can only be performed in the context of the insurance contracts, and more specifically based on each policy's terms and conditions. RGA's survey results confirm that a significant proportion of respondents do not have the required definitions contained in their contracts to allow them to act on fraud and abuse. Specifically, detailed fraud and abuse definitions and consequences, as well as a sunset clause, should be included as a standard policy language. In group life and credit life business the absence of appropriate declarations by the life assured at the application and claim stages obstructs a carrier’s ability to investigate claims appropriately, making the carrier vulnerable.
In addition, an overwhelming majority (96%) of participants responded that up to 10% of the total claims reported are declined due to pre-existing exclusions under the policy. The protective value of this exclusion is clearly demonstrated. However participants also observed increasing demand from financial institutions to remove the pre-existing exclusions, together with an increase in Free Cover Limit. Both trends expand the opportunity for anti-selection and the inclusion of many individuals with poor health, perhaps to an extent where the viability of a product can be eroded over time.
See also: Defense Against the Dark Arts
2. Manage Data – Identifying, recording, and analyzing high risk claims helps identify emerging trends and changes in customer behavior, allowing insurers to respond proactively and appropriately by adjusting new business, pricing, and claims practices.
Unfortunately, many Middle East insurers are not monitoring and tracking data related to high risk claims; a quarter of respondents could not confirm the number of claims that they declined due to fraud. One of the consequences of this lack of reporting is the impact it has on the profitability of a portfolio where products may not be priced appropriately. In addition, half of all participants do not record and maintain any record of litigated claims, nor are they aware of the outcomes of the litigated claims. This reflects minimal involvement by the claims team in litigation, and this can be one of the attributing factors for an increasing loss ratio on litigated claims.
See also: Fighting Fraud Today and Tomorrow
3. Organize a Risk Control Unit – The survey findings identified a need to have an internal risk management unit to manage internal and external fraud. The team should be able to investigate fraud for the company and implement corrective measures to ensure strong risk management practices.
See also: Don't Ignore Fraud's Red Flags
4. Involve the Claims Team in Product Development, Legal, and Risk Management Practices – The claims team should be involved at every stage of product development in order to highlight the potential challenges and gaps where fraudulent practices arise. In addition to detecting, preventing and managing fraud, Claims should also take part in the design of terms and conditions, particularly definitions and exclusions, to ensure there is increasing alignment between the intention of the product, its terms and conditions, and the execution thereof at claim stage.
See also: Innovation in Insurance Product Development
5. Communicate with Regulators – Closer collaboration between the insurance regulator and insurers, through an industry association, is encouraged. Creating a platform where pertinent issues affecting insurers and their customers can be addressed in a transparent and responsible way helps provide protection for, and bolsters confidence in, the insurance industry.
See also: An Industry-wide Call to Action
When it comes to claims fraud, every region faces unique challenges, but some truths are universal. Fraud will always remain a risk, but with vigilance and hard work, insurers can manage this risk and emerge stronger.
At RGA, we are eager to speak with clients about any support needed as we confront the challenge of fraud. Contact us to learn more about the resources, solutions, and services available or to access the full survey results.