February 21st 2018

Business / News

Incidents of insurance fraud on the rise in Kenya

According to Insurance Regulatory Authority (IRA), medical insurance and workmen’s compensations statistics rose phenomenally from 2014 compared to 2015 in the two areas.

By Jack Otwalanewsdesk@kenyafreepress.comTuesday, 24 May 2016 11:54 EAT

Incidents of fraud in Kenya’s insurance industry are on the rise. Industry statistics for 2015 indicate that the fraud cases jumped from 87 in 2014 compared to 102 in 2015 – which represents an increase of 21.8 per cent. According to Insurance Regulatory Authority (IRA), medical insurance and workmen’s compensations statistics rose phenomenally from 2014 compared to 2015 in the two areas.

In 2014, fraud cases on medical claims were only seven which represented an increment of 87.1 per cent. However, it increased to 18 cases or 157.1 per cent, while the workmen’s compensation also increased by 150 per cent. The fraudulent claims lead to  increased loss ratios for insurance firms thereby diminishing profitability and threatening their very existence.

Analysts attribute the causes for the fraudulent claims to several issues. “Insurance fraud  increases costs for the insurer by at least 1 per cent and can go up by more than 5 per cent,” Joe Nyandiko, Manager KenIndia Insurance, said. Mr Nyandiko explained that there is widespread recognition that traditional approaches to tackling fraud are inadequate. He said studies of insurance fraud have typically focused upon identifying characteristics of fraudulent claims and putting in place innovative measures to capture them.

He said one of the main reasons that medical fraud is such a prevalent practice is because nearly all  the parties involved are able to reap benefits from it. “Many physicians, patients and programme administrators involved are sometimes more than willing to accept it when they are told they can benefit from the fraud and thus would be more than willing to accept it,” Nyandiko said.

Association of Kenya Insurers (AKI) Chief Executive Officer, Tom Gichuhi said insurance fraud is increasing worldwide due to tight regulatory restrictions in the financial sector. Mr Gichuhi said while technology is effective in the battle against fraud, it is likely that screening by itself will not offer adequate protection. “It’s imperative for organisations to enhance due diligence, which is a key component in fighting fraud,” he said.

Medical insurance has been making losses with the technical loss ration per class per year estimated to be 80.4% in 2009, 81.5% in 2010, 83.8% 2011, 78.3% in 2012 and 74.6% in 2013.

Interestingly, the advocates/auctioneers which in the past were notorious in insurance fraud rackets have dramatpcally reduced. During 2015, nothing was registered. The profit after tax for the insurance industry reduced to Sh1.9 billion in 2014 from Sh7.04 billion in 2015. The reduction was mainly attributed to bad performance of key insurance firms during the period.

According to the data Kenyan insurance market continues to be largely non-life business driven unlike the world leading economies in insurance. Non-life insurance premiums contribute two thirds of the total premiums in Kenya while life premiums contribute 35.4 percent. “The global scenario, on the contrary, is dominated by life insurance business at 54.8% and non-life insurance contributing 45.2 per cent, which is however, a more balanced position in terms of contribution by class,” the report said.

Total industry’s premiums increased to Sh173.26 billion in 2015 compared to Sh157.78 billion in 2014. However, the premium income reported under life insurance business amounted to Sh61.26 billion while that under general business was Sh112.00 billion.

Jack is a business and society writer at the Kenya Free Press

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