The Insurance Regulatory Authority (IRA) is mandated with regulating, supervising and developing the insurance industry in Kenya. The Authority is also mandated to protect the interests of policy holders, insurance beneficiaries and the public. This mandate is executed through a combination of legal and regulatory measures and is aimed at not only ensuring industry stability and market confidence but also spurring growth.
Despite the focus on maintaining industry stability and growth, it is also recognized that the insurance industry continues to suffer negative public perception and image. This reputational risk has been partly attributed to the effects of fraud and other malpractices afflicting the insurance industry. Insurance fraud remains a complex and most significant risk affecting operations of insurers and intermediaries. Its pervasive nature as white collar crime implies that its elimination is bound to be an odious and expensive undertaking. It is an externality to policyholders, insurance beneficiaries and the general public with its interconnectedness costing insurance consumers and the business community in Kenya millions of shillings each year in direct and indirect costs. IRA is alive to this recognition and one of the measures for mitigating the effects of insurance fraud is the establishment of an insurance fraud investigation unit. This is because insurance fraud increases the cost of doing business, places businesses at risk and is a leading cause of insurance company insolvencies. It also reduces consumers’ ability to raise their standard of living due to high cost of accessing insurance services in addition to decreasing the economic potential of the country. Whereas focus on fraud in the insurance industry has tended to expend energy and resources on claims management, it is generally recognized that fraud transcends the ambit of claims administration to involve shareholders, Boards of Directors, Management and staff. Other players in the fraud chain are policyholders, third-party claimants and professionals. 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. The Authority therefore considers such incidences as being out rightly criminal in nature. They constitute some of the reasons that have contributed to the negative perception of the insurance industry by the public; hence the need for operationalization of an Insurance Investigations Fraud Unit.
Fraud is defined as willful misrepresentation of the truth with intent to deceive by one party resulting in actual or potential loss to another party.The International Association of Insurance Supervisors (IAIS) in a guidance paper on preventing, detecting and remedying fraud in insurance defines insurance fraud as an act of omission or commission intended to gain dishonest advantage for a party (fraudster) or other parties. This could be achieved, forexample, by:
i. Misappropriating assets;
ii. Deliberately misrepresenting, concealing, suppressing or not disclosing material facts relevant to a financial decision, transaction or perception of an insurer’s status;
iii. Abusing responsibility, a position of trust or a fiduciary responsibility
Ethical and integrity concerns continue to be raised on the insurance industry given that many players are involved in the insurance fraud supply chain. Their conflicting interests show that insurance fraud has many portals and eliminating it may be complex, pervasive and expensive.
There is need therefore for a well structured framework for determining risk exposure levels of the industry to fraud as well as determining its impact not only on the financial sector but more significantly to the national economy. Fraud affects insurers’ profitability and potentially deals a heavy blow to their financial soundness. To compensate for any arising financing gaps, insurers often resort to increasing premiums whose cumulative effect is higher insurance access costs directly or indirectly for insurance consumers. Fraud can also affect consumer and shareholder confidence, the reputation of the insurer, or intermediary, the reputation of the insurance industry and potentially the reputation of the regulator.
i. Receiving and verifying reports from the report centre
ii. Reasonably investigate leads or opportunities brought to the Unit through referrals
iii. Interview witnesses
iv. Collect documentation and exhibits
v. Document examination
vi. Interview suspects
vii. Make arrests
viii. Charge suspects in accordance with the law
ix. Make reports on levels of/progress on investigations
x. Conduct operations
xi. Fraud awareness (preventive services)
xii. Advice management on ways of mitigating fraud
i. Conduct proper and fit tests
ii. Profile fraudsters
iv. Management of fraud intelligence data
Data/Report Centre and Registry
i. Receiving complaints/reports
ii. Keeping of records
iii. Dispatching of case files to court
iv. Customer care desk. Any cases of insurance fraud or suspected insurance fraud should be reported to the Unit.
In discharge of its duties, the Unit will be expected to work closely and collaboratively with various institutions such as;
i. Law Enforcement Agencies,
ii. Anti Fraud Agencies,
iii. Insurance Companies,
iv. Insurance Industry Associations,
v. Public Sector Agencies,
vi. Policy Holders,
vii. Insurance Intermediaries
viii. Insurance Beneficiaries and
ix. Members of the Public.
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572 503 249 (Orange)
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