Fraudsters fleecing firms to their knees

By John Oywa

Automobile mechanic Zacharia Makori lay unconscious next to the mangled wreckage of the ill-fated bus. Blood oozed from what remained of his right leg that had been dismembered from the knee in an accident along Keumbu-Kisii road in Nyanza.

As he writhed in pain that fateful afternoon in 2002, two young men coaxed him for his personal details.

He never saw them again, only to learn later that they were ‘ambulance chasers’– a clique of shadowy characters working for fraudsters that have brought many insurance companies to their knees.

Makori, a father of six, later learnt the insurance company that insured the Nyanza Broadways bus had actually collapsed and decided to pursue the bus firm for compensation.  In 2005, a Kisii High Court judge awarded him Sh2.6 million for the injuries he suffered.

Fraudulent claims

Seven years later, today, Makori has not been paid a penny.

Makori is among thousands of victims of the massive fraud in Kenya’s Insurance Industry.

The Kenya Association of Insurers (AKI) estimates the Passenger Service Vehicle (PSV) insurance industry generates about Sh4 billion annually and loses an equal amount through fraud over the same period.

The association further estimates that between 30 and 40 per cent of the money paid for claims are usually fraudulent, forcing the insurance firms involved in PSV underwriting to incur massive loses.

So grave is the situation that in 2009, only six companies out of the 32 underwriting private motor vehicle business made profits.

In 2008, the loss ratio for private motor vehicle insurance was the highest for the industry at 84 per cent.

This meant that Sh84 was paid as claim for every Sh100 received as premium – way above the industry breakdown that allocates 50 per cent to claims – 30 to management and 10 each to agents and shareholders, according to officials at AKI.

Experts say an unstable insurance industry has put thousands of policyholders at risk of losing their savings while many accident victims could be forced to wait for years before getting justice in local courts.

The impact of collapsing firms is already being felt with several compensation cases stuck in courts after underwriters folded up, leaving Public Service Vehicle owners at the mercy of third party policyholders.

Third party policy

Motorists whose insurers have collapsed have had their property auctioned to compensate third party policyholders while others have cases pending in courts.

Medical and motor insurance business segments – the mainstay of the industry, are said to be making loses as a result of increasing fraud. According to AKI’s annual report for 2010, the health insurance segment made the highest loss ratio of 81.5 per cent followed by motor private insurance at 74.9 per cent.

Statistics from the Ministry of Transport and the Traffic Police department show there were currently about 50,000 PSVs on the Kenyan roads.

A 14-seater matatu, for example pays insurance premium ranging from Sh7,800 per month or Sh75,000. The motorcyclists, commonly known as boda boda pays Sh9,100 per year for comprehensive cover.

The Kenya Insurance Regulatory Authority (IRA) Chief Executive Officer Sammy Makove says PSVs paid a total of Sh3.2 Billion in premiums in 2011.

Makove, who is also the Commissioner of Insurance, says that in 2011, total claims made against the insurance firms from accident cases totalled Sh1.5 billion. Out of this, only Sh728m has so far been paid.

But fraudsters could have pocketed almost 40 per cent of this amount already paid out, he noted.

“It is true. In the PSVs, 40 per cent of the claims lodged are fraudulent. Fraud is a serious industry. We have lawyers doing nothing but just cook insurance claims. They manufacture accidents, fake deaths or injuries and even forge police abstracts,” says Mr Makove.

He added: “The wayward lawyers have a way of getting the Insurance claims forms. They then fake names of passengers and even the nature of their injuries. They also fake medical records.” Makove told The Standard On Saturday that although lawyers present medical documents purporting claimants had been treated at certain hospitals, a check in those institutions showed they had never handled such accident patients.

“The lawyers even fake accidents. When you follow up these accidents, you find they never occurred in the first place,” said Makove.

“Armed with the data from the faked accidents and fraudulent court rulings, the lawyers then turn the heat on insurance firms, forcing them to pay under duress. Those that delay in paying have their property auctioned,” says Makove.

Police involvement

He said some police officers also colluded with the lawyers to defraud insurance companies: “One time we were investigating a fraud and we learnt about this particular police station at the coast that issued abstracts of accident victims with similar names all the time.”

One way of obtaining money from the insurance firms fraudulently is by inflating the number of passengers who were in a PSV at the time of the accident.

In Kisii, last year, a matatu that had 19 passengers when it had an accident was later said to have carried 28 passengers when the claims landed before an insurance firm.

“Fraudulent claims normally emanate from third party injuries. You will find a 14-seater matatu generating up to 35 claims.

“It is practically impossible for such a vehicle to carry such a high number of passengers, but the courts go ahead and award the claims,” said a senior Insurance broker who did not want to be named.