HakiPensheni

The scene of an accident. Con men connive to crash old cars in order to make insurance claims. PHOTO/JACOB OWITI  NATION

By JOHN NJIRU

In Summary

• Medical insurance is the second largest sector in the industry with Sh13 billion in gross written premiums (motor vehicle is the first with Sh29.8 billion) and has been grappling with losses for year

Is your car old, worn out, and with little or no resale value? Well, there is a new, faster, and better way to get more value out of it — if you are willing to pay.

A new service industry has sprouted up in Nairobi’s South B and South C areas. It is made of “professionals” willing to take the risk to smash a car to write-off status for as little as Sh100,000.

The industry is getting busier as more Kenyans discover an alternative route to disposing of cars, especially where the resale value is pitiable.

“You quickly arrange a comprehensive car cover and hire someone to crash it for a fee. Some cars become so damaged you even wonder how the people behind the wheel came out alive,” said Mr Daniel Juma, an underwriter with AON Brokers.

The fee to crash a vehicle starts from Sh100,000, depending on the insured value of the vehicle.

Lang’ata and Mombasa roads are the most preferred scenes of perfect execution.

On Lang’ata Road, the favoured point is the section opposite Wilson Airport, where there is a sharp bend. The police are also said to be involved in rushing to tow the cars away and issuing reports that are supportive of the claims.

The giveaway is that there is normally little or no claim for the injury.

A common car cover is for Sh800,000, which makes both the owner and the executor winners in the stage-managed crush while leaving the insurers bleeding with losses.

Statistics reveal that out of 10 claims filed, four are fraudulent, which leads to the industry losing billions of shillings annually.

Last year, the industry paid out Sh16.1 billion in compensation for the motor vehicle industry, constituting more than 54 per cent of all claims settled in the general class of business.

The industry estimates that 60 per cent of motor vehicle compensations are fraudulent.

Other forms of fraud involve damage to property, arson, faking death, and murder to receive compensation.

The Pan Africa Insurance chief executive officer, Mr Tom Gitogo, said fraud in life insurance is rare because death has to be involved, a feat that is difficult to execute.

“This mainly affects general insurance. Although there is also fraud in life insurance, it tends to be around fake death certificates and other acts that are easy to carry out,” he said.

Greed has led to family members hiring hitmen to get rid of an insured person in order to claim compensation.

A local underwriter grappled with the case of a man who staged the death of his wife in order to claim Sh10 million.

According to a report by the Insurance Fraud Investigation Unit (Ifiu), employees and agents who work for these companies are the most notorious when it comes to stealing from underwriters

They collude with the insured (those covered by insurance companies), the police, doctors, garage operators, and even tow cars to institute irrefutable claims.

And one Mr Peter Githinji is a living testimony of this. Early this year, he was approached by his insurance agent in Nairobi to have his car checked into a garage after a minor accident.

Little did he know that he would innocently join a wider scheme to defraud an insurance firm.

The car was checked in at a garage in Kahawa Wendani estate and he was convinced that it needed more than just a paint job.

The engine system was sordid, the brake pads were in bad shape. But he was not to worry; by just submitting copies of his identity card, driving licence, and logbook, the car would be repaired and the insurer would offset the garage fees.

What Mr Githinji did not know was that the agent had colluded with the garage owner to file a fraudulent claim on his behalf which stated that the car had been involved in an accident and was a write-off.

“They gave me an alternative car to use for the time being. I still don’t know how they did it and convinced the insurance company, but in the end they returned the car to me without major changes but wearing triumphant smiles,” he says.

The truth only emerged when the insurance company called to inform him to pick up his cheque from his agent. 

UAP Insurance general manager Mike Oduor agrees that some cases are professionally set up to pass the scrutiny of a loss adjustor or risk investigator.

“Some of them are very hard to identify unless you have a very smart investigator who will give you a good report. Unfortunately, a number of them are in cahoots with the defrauders,” he says.

The motor vehicle insurance business is the worst affected, with the effects including the death of more than five insurance companies.

Mr Oduor cited the case of a man who arranged for an insurance cover, then a week later filed claims citing wreckage through an accident.

An investigation revealed that the car had been involved in a major accident four years before and had been overrun by grass and bushes after being abandoned.

“Once or twice you will be lucky to meet the not-so-smart ones. In this particular case, the date of the picture, accumulated rust, and the overgrown grass did not go well with the claim. But he had a perfect police report and a towing receipt,” said Mr Oduor.

The medical insurance business has had its share of theft, leading the industry regulator to term it “disastrous subjection of the most lucrative class of business to fraud”.

“Their actions of knowingly providing false, incomplete, or misleading information to an insurer for purposes of defrauding often leads to cash flow problems for the affected insurance companies,” said the Insurance Regulatory Authority chief executive, Mr Sammy Makove.

 

Medical insurance is the second largest sector in the industry with Sh13 billion in gross written premiums (motor vehicle is the first with Sh29.8 billion) and has been grappling with losses for years.



Figures from the Association of Kenya Insurers (AKI) show that the medical sector lost Sh650 million in 2011 compared with Sh530 million in 2010.

Underwriters have fallen prey to doctors, the insured, and other unscrupulous dealers who conspire to rob them through inflation of the cost of medical services or use of fake medical cards.

 

Last year, medical insurers forked out Sh6.8 billion to hospitals that treated patients with insurance. It is estimated that 40 per cent of the claims were fraudulently obtained.

“As soon as you produce that card for treatment, hospitals will introduce other irrelevant services like unnecessary laboratory tests for a cough. There should be discipline in medical centres,” said Mr Makove.

Also, rogue traders in back-streets have set up shop specifically to produce medical cards for patients who do not have adequate fees but need specialised services.

 

They lure school-going children, especially those in day secondary schools, to furnish their parents’ medical cards with promises of money.

According to Mr Makove, the rogues have taken advantage of lack of technology equipment to authenticate the cards in many hospitals.

“Some of the cards given out by insurance companies are not smart (biometric), they just have the photograph of the insured. These photos are easily interchanged and those that are ‘smart’ cannot be verified at all hospitals,” he said.

And women who love cosmetics even use their medical cards to purchase the chemicals, secure in the knowledge that the bill will be taken care of by the insurer.