Insurance regulator investigates Sh239 million policy scam

An insurance scam has hit some air ticketing agents. According to reports from the Insurance Regulatory Authority (IRA), Saham Insurance could have paid out Sh239 million to a policyholder in what goes down as one of the highest fraudulent claims, it has emerged.

This is after Saham Insurance made the pay-out to International Air Transport Association (IATA), an global association of the airlines. IATA, which is the insured organisation, lodged the claim under default insurance cover. IRA says the matter is under investigation.

In the alleged scam, ticketing agents are supposed to remit a certain percentage of the money for every ticket purchased to IATA after sometime e.g a month, to ensure IATA’s interests are taken care of. “They (IATA) expect their accredited agents to get cover to assure them that even if the agent defaults in making the remittances, IATA does not suffer losses,” explained IRA Head Corporate Communications Noella Mutanda.

Deliberate default

This cover is known as default insurance cover or credit insurance cover in some areas. Mutanda explained that the agent failed to remit the amount expected and IATA lodged a claim. The insurer, Saham Insurance, however, was of the opinion that the agent, having known of the existence of the cover, defaulted deliberately. “Their intention, in the first place (the agent) is what is being questioned,” said Ms Mutanda.

The parties involved — agents, Saham and IATA declined to provide details of the deal, saying the matter was subject to a court process. However, Saham Assurance when reached for comment, confirmed that it had indeed given the cover.

“IATA is keeping a close watch on the developments. However, out of respect for the Kenyan legal process, we would not wish to say anything, which could be regarded by the Court as prejudicial to the case before it,” said the airlines lobby through its Manager for Corporate Communications Chris Goater.

The first quarter of 2015 results released last week by IRA, showed fraud cases in the first three months of the year increased to Sh260 million.

However, the alleged fraudulent claim by policy-holder for default insurance programme for sale of air tickets constituted about 92 per cent of the total. There were 26 cases reported in the first three months of this year.

While Kenya’s insurance sector has one of the highest fraud cases, most of them go undetected. A report released early this year by audit firm KPMG shows that while Kenya had low volume of fraudulent claims detected (18), when compared to Tanzania’s 104, Kenya had the highest number of undetected fraud cases in the region.

“Fraud by its nature, is secret. A lot of it is unrecorded. We have the insurance fraud investigation unit (IFIU) manned by police officers and their duties involve investigating and prosecuting suspected insurance related fraud matters,” said Mutanda.

 

Detected claims

The IFIU was started upon request by IRA and was launched in 2011. “Kenya was unable to quantify the detected volume of policy fraud and had a low number of detected claims of fraud cases compared to Tanzania but higher than Uganda. It did however have the highest scores for estimated percentage of policies and claims that are fraudulent,” the report by KPMG read in part.

“This would support the perception that there is fraud in Kenya but it also suggests it is largely undetected, especially as fraud is rising in both arenas – policy and claims”.

Increased cases of fraud have been driving up the cost of insurance cover in Kenya. While fraud adds 18 per cent extra amount to each premium in the region, in Kenya, fraud adds 25 per cent extra amount to each premium, according to the report by KPMG.

Fraud has been rampant in medical claims with health providers inflating medical costs, or in some cases, colluding with policy-holders to defraud insurers.

According to AAR Insurance Managing Director Caroline Munene, this has been the main reason why the cost of medical insurance has been sky-rocketing.