Teacher uncovers insurance fraud
Posted by Michael Scholtz on October 15 2008 14:47:17
When south coast school teacher, widow Nonhlanhla Khawula, checked her payslip and found an unexplained deduction for R198.50, she was determined to get to the bottom of it.
And when she rechecked it, she found the deduction had been made by African Life, (now known as Sanlam Sky Solutions), a member of the Sanlam Group, for an insurance policy she had not authorised.
An insurance agent from Montclair, who used to work for African Life, had given a presentation at her school, the Mgai Primary School near Umzinto, in November, 2004, on behalf of Timir Financial Services, trading as Southern Investment Corporation.
Khawula had only authorised deductions for funeral and retirement annuities with African Life.
Mystified, she travelled the 90km to the Durban offices of African Life to ask how and why the funds had been deducted.
Khawula was told that the company's system had recorded a life policy for a Mr and Mrs Khuzwayo, with the beneficiary being the agent.
She did not know the Khuzwayos, and concluded that the agent, armed with her personal information from the authorised policies, had submitted unauthorised and fraudulent policies.
She asked for the immediate cancellation of the payments, but seven months later, the deductions were still coming off her salary.
Eventually, after African Life conceded that fraud had been committed, she was promised a full refund, according to Charles Pillai, the Ombud for Financial Services Providers, who took up the teacher's case and issued a scathing judgment against the "large and high profile insurance company".
"It is significant that Khawula's funds were in the possession of African Life from May 2005 to August 2007, and they have, to date failed to account for it No interest or compensation of any nature was tendered," said Pillai.
Despite a fraud case being investigated, the agent's "status with African Life was active and not blacklisted, nor was he suspended from rendering financial services", recalled Pillai.
Eventually, 10 months of unauthorised premiums, totalling R1 985, were refunded to Khawula. But she wanted more than her money: she insisted Pillai's office continue its fraud investigation.
The subsequent inquiry revealed that unscrupulous insurance agents were using gaps in the government's payroll system to make bogus deductions from the salaries of vulnerable and unsuspecting civil servants.
Thousands of public servants may have fallen victim to the scam, and the fraud "must amount to millions of rands," according to Pillai. Syndicates may well be involved.
Some 207 complaints of unauthorised payments had been received by Pillai's office since 2006 "and it is not unreasonable to conclude that this may be the tip of the iceberg", he said.
There were 33 complaints against African Life, 48 against Channel Life Limited (African Life's sister company) as well as 20 against Liberty Life and 19 against Metropolitan Life.
Now Pillai has called for an urgent probe into the insurance industry's access to the government's payroll system and its abuse.
Insurance companies should also make a "full disclosure" of all the funds they have received from fake policies - and this must be paid back to victims.
Referring to Khawula's case, Pillai said: "I find it highly undesirable that an insurance company of the stature of African Life is able to issue a policy without scrutinising, or even viewing, an application form or proposal."
He said the insurance agent, who resigned from Timir in June 2007, should be investigated by the police.
Khawula said on Monday night she hoped the agent would learn a lesson.
African Life has been ordered to pay her 15.5 percent interest per annum from May 2005 to August 2007. African Life, Timir and the agent were ordered to pay her R350 compensation for her transport costs to Durban, and each one of them has to pay R1 000 as case fees to Pillai's office.
Timir told investigators it was unaware of the fraud allegation against the agent. Had African Life told the Timir office and had it been found that the allegation was true, the necessary disciplinary actions would have been taken, it said.
Sanlam said it was "highly concerned" about the circumstances surrounding Khawula's complaint and would take all necessary steps to prevent possible future transgressions.
A comprehensive review of internal systems had been initiated at Sanlam Sky Solutions in the interests of client protection.