Don’t compound violence with fraud

20 September 2021 16:00 by John de Villiers

Businesses and individuals who have suffered losses during the violence and unrest are well advised not to make fraudulent insurance claims for their losses.

The scale of the violence and unrest in KwaZulu-Natal and Gauteng is staggering – over 300 deaths[1], damage and destruction to property exceeding R35 billion[2]; some 800 stores were looted and 100 malls have either been burnt down or have suffered significant fire damage; 50 000 informal traders have lost their livelihoods, and some 150 000 jobs are at risk.[3]

Bearing the costs of recovery

National Treasury will inject R3.9 billion into the South African Special Risk Insurance Association (SASRIA) should it be needed to ensure that they all valid claims by affected clients are met. Other government initiatives include R3.75 billion the from Department of Trade, Industry and Competition (the dtic) and its Development Finance Institutions for the rebuilding of infrastructure, and restoration of equipment, fittings for the premises, stock, and provision of working capital for affected businesses including the micro and informal sectors. However, there is a substantial shortfall, some of which will be met by non SASRIA insurance and given the scale of the losses some claimants might see it as an opportunity to submit false or exaggerated claims. Don’t.

Insurance fraud

For a start, the South African insurance industry and the Insurance Crime Bureau (ICB)[4] are on to fraudsters and are determined to fight fraudulent short-term insurance claims. Claims which by their estimate amounted to nearly R7 billion or 20% of the R35 billion paid out in 2019. The insurance industry is already on high alert with Covid-19 related claims and mechanisms are in place to detect instances of fraud such as:

  • Recording phone conversations for indications of stress and to check the consistency of the claimant’s story when the final claim is submitted.
  • Cross checking of information by using, for example social media network analysis, predictive modelling, and data integration. To this end the ICB brings together the resources of insurance companies, law enforcement agencies and other stakeholders to prevent insurance fraud by sharing information.
  • The ICB also has a toll-free insurance fraud line.
  • Awareness training
  • Using the skills of professionals and experts.

What is fraud?

The most important element of fraud is “the intention to deceive the insurer by misrepresentation or deception and to cause the insurer prejudice.”[5] It encompasses three broad categories:

1. Fraudulently fabricated or unfounded insurance claims[6]

In this case the insured claims for a loss that never occurred, or for a loss that he or she intentionally caused him- or herself, or for a loss that he or she knows will not be paid by the insurer if they know the truth about the circumstances of its occurrence. Here the insured attempts to impose a liability on the insurer that it would, in the absence of his or her fraud, not have incurred at all; to obtain a benefit that he or she would not have been entitled to at all were it not for his or her fraud.

2. Fraudulently exaggerated claims

When the insured claims for more than he or she is entitled to by either exaggerating the value of that what was lost or by including in his or her loss items not actually lost or not lost with the other items. Here the insured attempts to claim more from the insurer than it would otherwise have been liable for and to obtain a larger benefit than he or she would have been entitled to otherwise.

3. Valid claim accompanied by fraudulent means or devices

When the insured’s claim is fully valid but he or she perpetrates a fraud – often a petty fraud in the form of falsifying information or documents – under the incorrect impression that the fraud is necessary to render the insurer liable, or to improve his or her chances of succeeding or reaching a favourable settlement, or even merely to expedite the payment of his or her claim. Here, objectively speaking, the insured does not attempt to claim anything from the insurer that the latter is not liable for.


In the judgment of Schoeman v Constantia Insurance Co Ltd (1) (001/2002) [2003] ZASCA 48; [2003] 2 All SA 642 (SCA) (21 May 2003) it was held that a fraudulently exaggerated claim did not result in total forfeiture of the claim, only the exaggerated portion.  However, the fraudster could still be liable for:[7]

  • Prosecution for fraud,
  • The potential inability to obtain insurance cover in future,
  • Punitive costs orders made by the court, and
  • Delictual liability for expense incurred in investigation by the insurer.[8]

[1] South African Government
[2] Business Insider[3] Sapoa
[4] BusinessTech
[5] The Law of South Africa (LAWSA), Insurance Part 1: (Volume 12(1) – Second Edition) at 385
[6] LAWSA at 386
[8] Schoeman at [26]