Dirty laundry

May 20, 2014 11:23 am

By Hossam Abougabal

There is a war on fraud with the battlefield stretching across all financial sectors and, although banks in the region are now better regulated, it has only led to the insurance industry being exposed to more fraud and money laundering. AMEinfo explores the implications of fraud on the insurance world and what needs to be done to improve the landscape that’s costing companies millions each year.

According to a report by Thomson Reuters in 2013, insurance fraud in the region is estimated to cost between $1 billion to $2bn per year; this figure is low by global standards, but one must consider the size of the Mena insurance market, which only contributes 0.46 per cent of total world premiums, as per research by Tower Watson. Therefore, such figures are way above what they should be.

AMEinfo’s sister publication Policy, talks to Benjamin Graham, chief risk officer at Abu Dhabi National Insurance Company (ADNIC), about how the industry defines and tackles fraud and its related problems. We also ask Saif Aljaibeji, vice-president of Aetna in the Middle East and Africa, how his firm is establishing checks and processes to identify and deal with fraud early on, and the best ways to tackle abuse and wastage.

Fraud also comes in the form of something much larger than a free check-up or false and exaggerated claims. Money laundering has become a major issue facing financial institutions, particularly in tax-free havens such as the UAE, and it has changed the dynamics of fraud for insurance companies.

Nigel Sillitoe, CEO of Insight Discovery, tells sister publication POLICY that the region’s recent instability has meant that cities, such as Dubai, have become targets for financial crimes and, in particular, money laundering. “Regulators, particularly in Dubai, have been stepping up the pressure on banks to ensure there isn’t a flight of funds to high-risk environments. For example, The Dubai Financial Services Authority, has given some specific instructions in the wake of political and social unrest,” he says.

On the other hand Aljaibeji tells AMEinfo that when it comes to anti-money laundering processes, insurance companies who follow international best practises are up to scratch. “Yes, without a doubt the banking sector is better regulated, but insurance is not at any more risk to money laundering than banking, as we have the same AML mechanism that they have,” he says.

Waste of time

The insurance world faces a much less cynical threat than that of money laundering and international white-collar criminals. A big problem facing the industry is abuse and wastage, and too often these problems are detached from fraud, as there seems to be a perception of normality when it comes to abuse. Aljaibeji claims that the problems of fraud are pretty well managed and that the industry is working to develop the correct tools for tackling fraudulent activities, such as false claims, but the big challenge lies in installing new attitudes towards abuse and wastage.

Aljaibeji also advocates the need to engage with healthcare providers and third-party administrators to educate them about the greater negative implications of abuse and wastage.

On the other hand, Graham has a much more practical solution for tackling wastage and abuse. He claims: “Wastage across service providers in general is an issue for insurance companies, not just those working within the medical sector, but all providers. Surprise visits and audits of service providers help eliminate such wastage and lower the loss ration.”

Although what Graham is saying may be a practical solution for eliminating fraud, the resources needed to implement such a system will cost the insurer money, as well as alienate service providers and make for a trickier relationship, which is why Aljaibeji’s advocacy of education is seen as a cost-effective and sustainable method of tackling wastage and abuse.


On the flip side of the argument, there is a point of view that the insurance world is too disconnected from the technical and expert realities of service providers. What one may call wastage and abuse, another may call ethical and preventative. Although insurance companies do their best to close this technical gap, there is still a conflict of interest that is very difficult to ignore.

Healthcare is probably the most morally sensitive line and insurance companies have done well in equipping themselves with the relevant medical expertise. However, other lines of insurance, such as motor and home and contents, are difficult areas for insurers to be fully aware of the extent of suspected abuse and wastage, which present a dichotomous situation that leave few solutions.

Overall it is clear that the insurance world is in desperate need of appropriately mitigating the risk and essentially the cost of fraud, abuse and wastage. It is by no means a problem caused by the industry, but more likely than not, one that needs to be solved by it. Aljaibei falls under the constructive school of thought that seeks to educate those outside insurance about the affects of fraud on everyone.

Aljaibei and many others want to raise awareness, to shed some light on a lose-lose situation. Regulatory and government initiatives across the GCC region do provide a glimmer of hope, and if the industry is able to come together to share data and information, then we may very well begin to see a viable solution for what can only be described as a vicious cycle.