A surreal story of three Zimbabwe men who stole a corpse and burnt it to make it look like a road traffic accident made headlines.
The men hatched a plan to defraud a life assurer in one of the most daring and sensational stories of insurance fraud.
The trio was eventually caught but not before the life assurer had already paid the fraudulent claim of $70 000!
In another high profile case, a past winner of a television reality show got arrested for alleged insurance fraud involving a vehicle.
Insurance fraud pervasive
The two cases are just a microcosm of what happens in the insurance industry all the time. And contrary to popular misconceptions, insurance fraud hurts both insurers and the consumers of insurance.
Insurance companies pay excessive or fraudulent claims which hurt the profitability of the business while clients have to contend with paying higher monthly premiums.
The scourge of insurance fraud is pervasive as it also affects medical insurance companies. They too lament the deep impact fraudulent claims are having on their operations.
For instance, local media reports state that in 2018 alone, a total of $160 million, which had been paid out by medical insurers in the previous year, might have been based on fraudulent claims.
Now for a country with medical insurance penetration of just 10%, such a figure is disproportionately high. It is therefore hardly surprising when medical insurers close shop or decide to trim staff.
Fixed overheads are constantly overwhelming revenues which face another challenge in the form of inflation.
Meanwhile, at the other end of the pendulum are incessant complains of poor service and customer relations by insurance companies.
Clients gripe about the slow pace of claims processing and the subsequent delays in the release of funds.
The real cost of medical insurance fraud
The reality for many medical insurance clients is that these inconveniences could be the difference between life and death.
Zimbabwean medical practitioners—who are too eager to shield themselves from inflation—now insist on a ‘top-up’ payments before treating a patient.
Doctors complain that insurance companies often take their time before releasing funds to them. This leaves medical practitioners with no option but to force patients to make extra payments over and above their normal contributions.
It is sad when patients with life-threatening ailments are sometimes forced to personally sort out payment arrangements before being treated.
It is a combination of these factors that make the business of insuring seemingly an unpleasant one. It is even more unpleasant for the insured.
Attempts to resolve some of these challenges have been made in the past. However, these have fallen short leaving clients’ dissatisfied and uninterested in insurance.
This may partly be the reason the country reportedly has low insurance penetration rates and why insurance companies constantly face viability challenges.
How technology wins this fight
Nevertheless, with the emergence of blockchain technology and digital identities, there are hopes that some of these challenges can be resolved.
Some decentralized blockchain networks come embedded with functionalities that not only pre-empt fraud but eliminate the duplication of duties.
The Algorand and Ethereum blockchain are some of such technologies embedded with this functionality. For instance, Algorand’s smart contracts on Layer-1 automatically enforce custom rules and logic, typically around how assets can be transferred.
This functionality enables exciting and innovative new ways to address existing inefficient and complex financial transactions. With trustless execution on the Algorand blockchain, cost and risk are lowered while allowing for instant settlement of these contracts.
Progressive insurers are embracing this technology because it reduces or eliminates the customary form filling, the back and forth visits between key offices.
Perhaps more importantly, the technology enables prompt payments once certain conditions are met. For long-suffering clients, this is a real draw.
When a contract is written in computer code, as opposed to traditional legal language, it is deemed a smart contract. This programmed contract is set up to execute and carry itself out automatically under specified conditions.
When a smart contract is on the blockchain, both parties can check its programming before agreeing to it, and then let it do its thing, confident that it cannot be tampered with or changed.
A smart card lets two parties agree to complex terms without needing to trust each other and without needing to involve any third parties.
Now in order to enhance the effectiveness of the blockchain technology, it may be necessary to employ another technology that acts as a gatekeeper at data entry points.
Known as digital identifiers (DIDs) this technology enables the creation of unique digital identities. Digital identities are the internet equivalent of the real identity of a person or entity.
Such digital identities can be used for identification in connections or transactions from PCs, cell phones or other personal devices.
A combination of the two technologies ensures that only bona fide clients of an insurance company will access its services.
There is no room for impersonation—a common practice in the medical insurance field—because clients’ digitally issued verifiable credentials (VC) cannot be replicated or tempered especially when stored on a decentralized blockchain. Therefore is no duplication whatsoever!
Time for innovation is now
Once an insurer has built up this infrastructure it becomes easy to quickly identify and stop common fraudulent practices.
With this in place, an insurer has no excuses for failing clients while the insured customer is pre-empted from defrauding the former.
Moreover, with trustless execution on the blockchain, costs and risks are lowered while allowing for instant settlement of these contracts.
At the moment there is a great deal of ignorance of the potential of blockchain as far as the insurance industry is concerned.
Blockchain enthusiasts are confident, however, that once all stakeholders come around the idea of using the blockchain, both insurers and the insured will see more benefits of technology.
New and innovative financial products such as escrow accounts, regulated disbursements and fee execution will become possible.
From the perspective of regulators, the technologies have the potential of improving insurance penetration rates. Higher penetration rates ultimately make the country an attractive destination for foreign direct investment.
Innovation always wins. Therefore it is better for the insurance industry to join the winning team.
Terence Zimwara is an Ambassador with Algorand Foundation, a technology company behind the world’s first scalable and decentralized blockchain that is based on pure proof of stake consensus. The Foundation is offering funding across application development, tools & infrastructure, research, and education & community. You can contact Terence on Whatsapp 263 771 799 901 or firstname.lastname@example.org
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