Trouble for car insurance companies in South Africa

Car insurance companies in South Africa that reject claims due to suspected fraud still need to be able to prove and defend their decision.

This is according to law firm Webber Wentzel, which explained that where fraud is suspected in an insurance claim, suspicion alone is not enough to survive an application for absolution from the instance.

That means the insurer will not be released from the agreement with the insured purely because of a lack of evidence, since the insurer is then responsible for proving the suspected fraud.

Webber Wentzel highlighted a case wherein insurer Auto & General resisted a R2 million stock claim by Kinland Import and Expert Marketing on fraud and proof-of-ownership grounds.

Kinland had claimed under a policy covering its motor vehicle spare parts store after a fire destroyed the stock in September 2023, and limited its claim to the insured value.

The claim was rejected on the basis that Kinland had not provided true and complete information, submitted fraudulent documents and could not prove the value or ownership of the claimed stock.

Once Kinland had provided its evidence, Auto & General applied for absolution from the instance rather than leading its own evidence.

Instead, the insurer argued that the onus was on the insured to provide evidence of the loss, while Kinland countered that it only needed to allege and prove the facts bringing it within the terms of the policy.

The court sided with the insured and agreed that once it showed its loss fell within the primary risk insured against, the onus shifted to the insurer to prove any suspected fraud.

“Fraud cannot be presumed; it requires clear evidence of both material misrepresentation and deliberate intent to deceive,” explained Webber Wentzel.

“The judgment is a useful checkpoint for insurers on how much evidentiary groundwork must be in place before a fraud defence is pleaded and on the risks of testing that defence too early.”

It is also an important reminder for those with car insurance that if their claim is rejected based on suspected fraud, the onus is on their insurer to prove their suspicion.

Insurance fraud is on the rise in South Africa

Car insurance companies in South Africa are right to be suspicious of potentially fraudulent claims, especially amid a rise in what is known as ‘crash-for-cash’ scams.

Both everyday motorists and insurance companies are targeted in this way, with scammers deliberately causing accidents in ways that make it look like the target is at fault, to scam them or their insurance company.

According to Cartrack, it can be difficult to actually prove your innocence when an accident looks like you caused it and you don’t have any proof or witnesses.

Garth de Klerk, the CEO of the Insurance Crime Bureau of South Africa, said that insurance fraud is a hidden crisis costing the industry billions, inflating premiums, eroding trust, and impacting honest policyholders.

The main targets of these crash-for-cash scams are high-end vehicles and corporate fleets or trucks, since these tend to have either large sums of money on hand or premium insurance in place.

Cartrack warned that these scammers don’t always work alone, and instead have a team of scammers to help pull off the insurance claim.

These can include physicians, tow truck drivers and mechanics to extract as much money as possible from the fraudulent insurance claim.

The company noted that, for someone who falls victim to these scams, the effects can be far-reaching and can even be traumatising.

“It also causes a world of headaches because now you have to get an affidavit, make a claim, pay excess, and wait for your car to be repaired,” Cartrack said.