Insurance brokers colluding with car owners to defraud

By David Mugabe

A survey conducted by financial firm KPMG reveals that insurance brokers are colluding with car owners to defraud insurance firms which is making overall insurance packages expensive.

The “Insurance Fraud Risk Survey” conducted in Kenya, Uganda, Tanzania and Rwanda revealed that rising fraud in the insurance sector is a significant risk to the sector’s sustainability.

Ugandan respondents estimated that fraud accounts for 10% of premiums which means with reduced fraud, the cost of insurance would be lower.

In Kenya, Rwanda and Tanzania fraud is estimated to cost 25%, 5% and 31% respectively in premiums.

The findings presented on Tuesday at the Kampala Sheraton indicate that brokers are exploiting monitoring gaps and there is need to tighten controls while enforcing non-disclosures to minimize misrepresentation.

“Motor fraud is the hotspot area through exaggeration of claim. Insurance brokers are the main conduits in Uganda, brokers are in collusion with clients, they could be changing documentation, facts and value of the vehicle,” noted James Norman, an associate director of insurance at KPMG.

Ugandan respondents also consider fraud increasing in both policy and claims and that 1.3% of policies and 4.61% of claims made are fraudulent in Uganda.

“The scale of the problem is probably bigger than they scored which means it is rampant. The policy holders are the ones suffering. Collaboration within the region could help reduce the problem, there is significant risk within the four countries, this is possible because of a lack of detection from the start, if you stop it at the front door, it won’t get inside,” noted Norman.

Insurance helps premium undertakers to recover during periods of loses and sudden disaster. Penetration in Uganda is still quite low at under 10% although steadily rising.

Uganda media however scored higher than their regional counterparts on the role they are playing in exposing fraud.

40% of the respondents agree that fraud is a risk to the sustainability of their businesses impacting on their ability to train staff, expand and overall insurance penetration.

Despite this, the survey revealed that 83% of respondents do not take into account fraud risk when setting their pricing strategy which is a risk to the long term well-being of the insurance industry.

KPMG says their survey revealed that majority of Ugandans want a national fraud data register and a regional database which would include banks and telecommunications.