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Minister meets with banking & insurance industries discussing identity fraud, irregular insurance claims & crime

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Statement by Home Affairs Minister Malusi Gigaba on the meeting with representatives of the banking and insurance industries, SABRIC and ASTUTE

I’m glad to address you after a successful meeting with representatives of the banking and insurance industries – the South African Banking Risk Information Centre (SABRIC) and the Financial Services Exchange, trading as ASTUTE.

We met to discuss identity fraud, irregular insurance claims and related crimes.

This is a very important process for us as government and Home Affairs, as we seek to build a new department that is responsive to the needs of the people. This meeting created an opportunity to share with the industry the critical role that we play as a department and why it is so important for us to have this collaboration with the banks.

The perception is very rife that as a department we only hand-out documents, birth certificates IDs and others. Our work is massive.

Over and above enabling documents, the Department of Home Affairs provides important services to the nation, including facilitating economic development. The second pillar is national security. There was no serious risk reported for instance for the festive season as we check, verify and facilitate movement of travellers in and out of the country. We are critical to the delivery of services to the people.

The tasks I’ve outlined make it very essential for us to reimagine ourselves as a department, to look carefully at how we define ourselves and how strategically we identify the major stakeholders with whom to achieve these goals. And that is why this relationship with the banking and insurance industries is so vital for us. It serves to epitomise the new, smart and collaborative way to improve on our work, the services we offer, and most importantly, in moving South Africa forward.

The leadership of SABRIC and ASTUTE-FSE also felt strongly that this partnership we have is absolutely necessary, with significant value. As ASTUTE-FSE has put it, this is an effective public-private partnership. SABRIC indicated that they are considering a further roll-out to include other banks better to protect and serve the people and meet the needs of the economy.

As we were exchanging notes, it became quite clear that our concerted efforts together to combat these crimes through collaborative initiatives were bearing fruit. We are reporting together therefore to illustrate how much we can achieve through partnerships and joint programmes.

Make no mistake. The problems that we faced were quite huge. Insurance fraud alone had cost South African life insurers and policyholders losses of over millions of rand a year.

In 2013, the Association for Savings and Investments (ASISA) had reported that the insurance industry had lost in excess of R524 million, with more than 2093 fraudulent claims received.

The financial services industry, as a matter of urgency, therefore required urgent intervention sharply to combat the scourge of identity fraud.

One of the viable mechanisms identified was to provide access to data held by the Department of Home Affairs to allow for verification of various aspects of personal identity and documentation, such as death certificates. And so, a lot has been achieved for citizens and the country as a whole.

Banking industry

Let me contextualise. Our mutually-beneficial partnership with the banking industry dates back to around 2007. We launched the Online Fingerprint Verification System officially in 2009.

We formalised our collaboration through a joint partnership between the Department of Home Affairs and the South African Banking Risk Information Centre (SABRIC) expressly to combat fraud and corruption that had robbed banks and our people of millions of rand.

For this to work, we allowed, as Home Affairs, the banks access to the Home Affairs National Identification System (HANIS), so they could verify the identity of their prospective and current clients, using their fingerprints. The use of HANIS verification services is increasing steadily.

This strategic initiative was to ensure that people’s savings, investments, deposits and earnings are secure in the various banking institutions. It was to arm the banks with a reliable online tool for confirming that persons presenting identity documents were indeed who they purported to be.

This System, a first for South Africa, has proved to be a potent weapon with which to stage a daring combat against identity fraud in its many manifestations. Reports received from banks show syndicates now know that they cannot for instance get away with ID photo replacements due to the HANIS Verification, and that identity fraud has therefore decreased.

If we are further to quantify the gains, we would say that the HANIS Verification Service potentially prevents R322m loss per month. Thus, an annual potential prevention estimate could come to about R3.8b. We are mindful also of the difficulty entailed in quantifying identity fraud.

We started out with ABSA, African Bank, FNB, Nedbank and Standard Bank. It is with most of these banks that we had recently launched an innovative, strategic partnership to fast-track the roll-out to millions of citizens the new Smart ID Card, itself a product of high technology intended effectively to protect identity while curbing fraud, corruption and related crimes.

As of December 2015,

  • there are now seven participating banks using HANIS Verification Service
  • there’s movement from 3 682 branches, and using 16 058  finger-scanning devices
  • the number of transactions sent to HANIS are increasing significantly
  • Bank transaction volumes are now 2.5 million a month and up to 150 000 per day.

Over and above its smart crime-combating capacity, the verification system did much to protect the environment, ensuring less paper is utilised. Its capacity for electronic verification using fingerprints has meant less reliance on paper forms, with notable reductions in damage to the planet.

Insurance industry

With regard to the insurance industry, our department has a Memorandum of Understanding with life insurers who are organised under the banner of the Association for Savings and Investment South Africa (ASISA), to help tackle the high levels of fraud plaguing the industry.

This public-private initiative continues to provide participating companies with a direct link to the National Population Register, so they can verify various aspects of personal identity and documents like death certificates, and with good results.

The Verification of Personal Detail system went live on 09 September 2014.

The system allows for consistent automated processes to detect irregularities that can assist with fraud prevention, and therefore has been instrumental in the ‘all-out’ fight against fraudulent insurance claims.

Using this system, participating insurance Companies have been able to fast track the payment of valid claims in favour of beneficiaries who at times desperately need the funds.

It has lowered in significant ways the number of fraudulent claims that are paid by insurance Companies. This has resulted in Companies saving millions of rand.

You would know that fraudulent claims result in increased premiums being passed on to the policyholder. The collaborative effort between insurance Companies, Astute-FSE and the Department of Home Affairs has therefore been highly beneficial to the industry and the policyholders at large.

According to the Association for Savings and Investment South Africa, the total number of irregular death and funeral claims detected in 2014 was more than three times higher than in 2013.

In 2014, 7360 fraudulent claims were stopped, compared to only 2093 in 2013. The value of the claims in 2014 was slightly lower at R 402.8 million compared to R 524.6 million in 2013.

ASISA detailed the irregular activities detected, in October 2015, as follows:

2014 2013
Cases Rand Value Cases Rand Value
Death & Funeral Claims 7360 402.8 million 2093 524.6 million
Misrepresentation/Material Non-Disclosure 3551 296.2 million 1504 478 million
Fraudulent Documentation 3619 86.8 million 545 35.6 million
Syndicate involvement 13 3.4 million 5 0.7 million
Beneficiary Involvement 168 16.2 million 18 2.1 million
Adviser/Broker Involvement 9 0.25 million 21 8.1 million

Given this impressive work, several participating insurance Companies have expressed positive feedback with regards to the system, saying that their experience with the link to the DHA National Population Register has been very fascinating.

We learnt from ASTUTE-FSE that in one instance, an insurer was able to pick up that some death certificates submitted were fraudulent. Through verifying directly with Home Affairs the insurer was able to detect that these death claims were in fact for individuals that were still alive. Payment of fraudulent claims in excess of R 700 000 was therefore successfully stopped.

It emerged quite clear that through the Verification of Personal Detail system, insurers were able to save on investigative and forensic costs related to fraudulent claims.

Further evidence was provided in a study undertaken for two insurers that were considering participation in this verification prior to the system going live in 2014. The study showed potential savings of millions.

Our National Population Register is one of the biggest and highly developed in the world and is used by many for various services. The verification of claimants by the insurance industry is but one of the many examples.

Collaborative effort

In addition, our partnerships have assisted greatly the financial services industry in meeting the legislative requirements to obtain confirmation of identification of their clients.

There is consensus that we need the support of all sectors of the population to unleash a death-blow on identity fraud, and we need all of society to report fraudsters to help us prevent crime.

All should heed the call by various financial institutions for all to take care of their private information, like identity documents/Smart ID Cards, bank cards, bank account and pin numbers. The advent of cyber fraud is a real threat; we all must be alert all the time.

I was assured that the industry did much in its power to support the call for maximum vigilance, especially during the festive period, which ranks among the riskiest periods wherein all sorts of crimes are perpetrated by those thinking to cash-in on bonuses and hard-earned money of honest citizens and visitors to our country.

It’s when we work together, just as we’re demonstrating concretely through the DHA, SABRIC and ASTUTE-FSE Partnerships that we can move South Africa forward, ensuring citizens and all people in the country are and feel safe.

It is for these reasons that I dedicate so much time consulting with the major role-players in the private sector, in communities, within the public sector and in broader society. This is what our deliberate public outreach programme, across provinces and municipalities, is all about – empowering people, with the people, and through people-driven initiatives.

Home Affairs will continue playing a pivotal role in identity verification of citizens both for the public and private sector, albeit with challenges. The systems that we had inherited in the post-1994 period had not been as helpful as we had wished, especially when we consider the fundamental role that Home Affairs plays in keeping records of citizens, from the cradle to the grave. The complexities of these matters we are willing to share in another session, for better focus.

Importantly though, government departments and the private sector make extensive use of ID numbers without which identity verification would be rendered a nightmare. This is something the banks were aware of, thus the keen interest on their part to partner with us. We are satisfied that this partnership has evolved over the years from being only a fraud-preventing mechanism.

There is no one solution. Our partnership has offered a significant deterrent. But more innovative ideas and strategies will indeed get us far in this regard.

Be rest assured, we are on top of the game, in spite of exaggerated claims out there about crime in the country and how much we are doing as a nation to combat it. This is one of the strong sentiments to emerge in our meeting this morning.

We are agreed with SABRIC and ASTUTE-FSE that success in this regards has been phenomenal. I therefore thank most heartily the leadership of SABRIC and ASTUTE-FSE and all role-players for this collaboration. The benefits of fraud-identification will increase as more institutions come on board.

I thank you!

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