Over the past few years Zimbabwe has witnessed an increase in insurance fraud largely due to an increase in cyber crimes and complexities in the insurance industry.
The country’s insurance and pensions regulator, Ipec reports that the country is losing over $165 million annually due to different types of leakages like fraud.
Companies like Air Zimbabwe have lost over $10 million through a well planned insurance syndicate and in the first quarter of 2015 First Mutual Holdings received over $1, 5 million of fraudulent claims and most of these were exaggerated claims by service providers.
Speaking at a funeral assurance fraud breakfast meeting on Tuesday, Insurance and Pensions Commissioner, Tendai Karonga said that the level of insurance fraud was overwhelming and threatening the viability of the insurance industry.
Commissioner Karonga said that the high rate of insurance fraud was a threat to the growth of the industry and its claims paying ability as it was depleting the insurance pool.
Insurance companies depend on reserves gathered from insurance pools to pay claims and invest in infrastructural projects and government bonds.
“The entire industry collects about $550 million a year and is losing close to 30% annually as a result of different fraud activities. Consequently industry growth and profitability is under serious pressure and this threatens sustainability of the industry.
“Insurers may be left without capacity to underwrite because of this fraud, in the process exposing genuine customers because you will not be able to pay claims on time,” he said.
Ipec reports that some insurance companies are already failing to pay claims and are staggering their payments to meet their obligations.
“That is not right, we must have the correct reserves and we must have the capacity to settle claims promptly,” said the commissioner.
He also said that this was also a threat to infrastructural development in the country as the leakages through fraud were threatening the ability of insurance companies to invest in infrastructural projects. And the depletion of reserves was limiting the government’s ability to borrow from insurance companies and invest in public service projects like construction of roads.
The insurance industry requires a lot of capital injection to be sustainable. With some of the players in the sector failing to meet the new minimum capital requirements set by the government and calling Ipec to extend its deadlines. Insurance companies are in dire need of capital investments from foreign investors.
However Commissioner Karonga said the risk of insurance fraud turns potential investors away.
Commissioner Karonga noted that insurance fraud consisted mainly of syndicate fraud, failure to remit premiums, exaggerated claims by service providers, and fictitious claims amongst others.
Commissioner Karonga, suggested a draft of measures that insurance companies could apply to minimise or curb the occurrence of fraud.
“As a regulator we want players to tighten their internal control systems, accounting, auditing, claims processing and the quality of staff they employ,” he said.