Topic: BusinessIndustry

Last updated: August 23, 2019


Insurance fraud is a major economic crisis facing the Insurance Industry all over the world. Depending on the policy coverage and offers, fraud still manifests in different ways in relation to the economic time. The validity of claims is not clearly stated out anywhere in the laws of Kenya. Fraud in the health sector is an immense problem and is responsible for losses of substantial amounts of money. Medical insurance policies or covers provide for payment of the costs that one incurs from sickness, injury as well as all other medical expenses covered by the policy contract signed by the policy holder. A report prepared by the Insurance Regulatory Authority (IRA) in 2015 states that medical insurance in Kenya has had a high loss ratio and this maybe the reason that it is not underwritten exclusively. Medical insurance fraud involves overcharging of medical services by a physician, unnecessary tests being carried out and impersonation among others. This kind of activities have affected medical insurance in a way that it leads to the increase in the cost of health care due to rising insurance costs, affects the rate of penetration of medical covers and has contributed to the poor performance of the insurance firms. However, some efforts to reduce insurance fraud have been put in place. These include the establishment of the Insurance Regulatory Authority (IRA) which was founded in 2006. This body later introduced the Insurance Fraud Investigation Unit (IFIU) due to the increasing insurance fraud which has also increased the cost of doing business, places businesses at risk and leading insurance companies to insolvencies. The main functions of the unit include to interview suspects, make arrests and charge suspects per the law, profile fraudsters, manage fraud intelligence data and advice on ways of mitigating fraud. The Association of Kenya Insurers (AKI) was also formed to build a connecting bond between the insurance companies in Kenya. This Association is the voice of all the member insurance companies when it comes to problems and challenges facing the insurance sector that need to be addressed. Statutory provisions under the Penal Code Cap 63 laws of Kenya have set out punishment for fraudulent activities such as forgery among others. This research delves more on highlighting the inadequacy of the law and stating recommendations and strategies that could be devised to reduce on the cases of fraud particularly medical insurance fraud.

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Generally, Insurance Fraud is one of the biggest challenges facing the insurance industry. Insurance Fraud is defined as criminal acts, provable beyond reasonable doubt that violates statutes by making the willful act of obtaining money or value from an insurer under false pretenses or material misrepresentations (Derrig & Krauss, 1994).
Medical insurance covers are one of the policies provided by General insurance service providers. The medical policy mainly provides for payment of the costs of medical care.

Fraud in health insurance and health care is an immense problem and is responsible for loss of big amounts of money. Fraud in the health care system includes the pocketing of fees by a service provider or overcharging of a health insurance benefit by a physician, concealment of medical history of the patient and fraudulent identity/impersonation, document theft fraud.

Medical insurance fraud has been increasingly prevalent in the medical class of business for a couple of years. This has continuously increased due a number of factors. One of the major ones being that service providers have been known for applying two tier pricing for their services. This works in a way that a patient who presents an insurance medical card is charged twice more than a patient who pays in cash.
The other factor is fraud can be also committed by the insured person who allows another individual who is not covered by the medical cover to access services using their credentials.

Identity theft or what is known as impersonation has also become so come in medical facilities of late. This happens where the health facility uses the identity of an insured patient and bill services that were not rendered to them using the patient’s information.
Frivolous services at the health centers. Some hospitals also engage in committing fraud by ordering frivolous tests to unsuspecting patients. Since many patients usually don’t question what the doctor orders, many take advantage to make extra money from such unnecessary tests.

As for document theft fraud in medical facilities, this involves theft of one’s medical records which could be used for black mail among other fraudulent ways. However is not so common in Kenya.


The Insurance companies make very huge loses of money in paying of fraudulent or overstated medical bills for insured persons. This has led to the increase in medical insurance premiums so as to reduce on the big loses of money.

Medical insurance fraud has led to the increase in the cost of health care due to the increased insurance costs resulting to the inability to afford medical covers by many Kenyans.

Due to frivolous services and two tier pricing, the insurers continue to bleed from this kind of medical fraud since they lack adequate data on medical card fraud for them to take action.

Medical fraud puts insured clients in a situation where they can exhaust their medical covers easily since they are over charged and given unnecessary medical tests.

For cases of impersonation, if caught one could be sentenced to imprisonment or payment of huge fines. This is where someone else uses an insured person’s information to access medical services without their consent.

To some extend this kind of fraud also tarnishes the image of insurance companies especially when they decline to pay false claims. Angry insured clients’ start to speak negatively about how insurance is bad.

To mention but a few the above effects of medical insurance fraud have really affected the Insurance Industry generally. Most of the biggest and well known insurance companies in Kenya all suffer from this dilemma thou at different scales.


The Insurance companies and Medical institutions have devised means on how to reduce healthcare fraud which include the following;
First and foremost, health facilities have encouraged all insured clients to register with the hospital administration with their full details so as to reduce on the problem of impersonation.

Health centers have also maintained databases with details for all their insured clients hence this has helped in reducing of fraudulent identity.

There has been a restriction of accessing client information by unauthorized employees both at the medical facilities and the insurance companies.

Medical bills have been audited through automated processes so as to determine their validity to equate the services offered.

Medical employers and insurance companies have continuously encouraged their employees to promote work ethics when serving their clients and carrying out their duties with due diligence.


With all the effort that the insurance industry has put in curbing medical insurance fraud and all other types of fraud in general, the Law has also come in to help curbing fraud through various ways. These include;
The formation of the Insurance Regulatory Authority (IRA) which is a statutory government Agency established under the Insurance Act (Amendment) 2006 CAP 487 laws of Kenya. This agency was formed to regulate, supervise and develop the insurance industry. It is governed by a board of directors which is vested with the fiduciary responsibility overseeing operations of the Authority and ensuring that they are consistent with provisions of the Insurance Act.

Introduction of the Insurance Fraud Investigative Unit (IFIU) which was established by the IRA because of insurance fraud increases the cost of doing business, places businesses at risk and is a leading cause of insurance company insolvencies. The major role of this unit is to investigate fraud matters in insurance, interview suspects, make arrests, charge suspects according to the law, profile fraudsters, manage fraud intelligence data and advise on ways to mitigate fraud cases.

Medical insurance fraud is not really defined in the laws of Kenya however the fraudulent activities that amount to healthcare fraud are. Some of these Fraud activities defined and handled in the Penal code are forgery (making false documents), document theft and impersonation.
Section345 of the Penal Code CAP 63 laws of Kenya defines forgery as the making of a false document with intent to defraud or to deceive.

Section 347 states that any person who makes a false document who under sub-section (d) signs a document (1) I the name of any person without his authority whether such name is or is not the same as that of the person signing.

Section 348 states that an intent to defraud is presumed to exist if it appears that at the time when the false document was made there was in existence a specific person ascertained or unascertained capable of being defrauded thereby and this presumption is not rebutted by proof that the offender took or intended to make measures to prevent such person from being defrauded in fact, nor by the fact that he had or thought he had a right to the thing to be obtained by the false document.
Section 349 states that the general punishment for forgery is three years. It elaborates that any person who forges any document is guilty of an offence which unless otherwise stated, is a felony and he is liable, unless owing to the circumstances of the forgery or the nature of thing forged some other punishment is provided, to imprisonment for three (3) years.

While section 351 states that any person who forges any judicial document is liable to imprisonment for seven (7) years.

Section 357 talk about making documents without authority and it states any person who with intent to defraud or to deceive (a) without lawful authority or excuse makes, signs or executes for or in the name or on account of another person ,whether by procuration or otherwise, any document or electronic record or writing or (b) knowingly utters any document or electronic record or writing so made , signed or executed by another person, is guilty of a felony and is liable to imprisonment for seven years.

Section 361 states that any person who, having the actual custody of any register or record kept by lawful authority, knowingly permits any entry which is any material particular into his knowledge false , to be made in the register or record, is guilty of a felony and is liable to imprisonment for seven (7) years.

The penal code under section 382 (1)defines personation as any person who, with intent to defraud any person , falsely represents himself to be some other person , living or dead , is guilty of a misdemeanor.

Section 382(2) states that if the representation is that the offender is a person entitled by will or operation of law to any specific property and he commits the offence to obtain such property or possession thereof, he is liable to imprisonment for seven years.

Section 384 states that any person who utters any document which has been issued by lawful authority to another person, whereby that person is certified to be a person possesses of any qualification recognized by law for any purpose, or to be the holder of any office , or to be entitled to exercise any profession , trade or business, or to be entitled to any right or privilege , or to enjoy any rank or status, and falsely represents himself to be the person named in the document, is guilty of an offence of the same kind and is liable to the same punishment as if he had forged the document.
Medical insurance fraud is not deeply defined in the laws of Kenya. The types of fraudulent activities that amount to healthcare fraud is what is defined in the Penal Code CAP 63 laws of Kenya. Articles from Section 235 to 386 explain more on issues relating to fraud.
The most common types of fraudulent activities involved in medical insurance fraud are two tier pricing (overstated medical bills), impersonation and document theft which involves theft of medical history of insured patients.

The law in Kenya addresses the issues on document theft and impersonation however it doesn’t address the issue of overstated medical bills especially in public health facilities. This is the most common kind of fraud that affects the Insurance Industry at large.

The law sets out general punishments for fraud in general under the Penal Code of Kenya. As stated under section 349, the punishment for forgery is imprisonment for three years if found guilty of the offence.
The law lays out imprisonment as the key punishment for fraudsters. It does not clearly state how the affected parties recover from any money loses made. This makes the law ineffective and inadequate because if they arrest the fraudster and after their imprisonment time they are set free how about the victims. The Civil courts deal with civil cases when it comes to payment of damages and compensation for any lose made but victims still have no elaboration on the option of compensation under the laws of Kenya.

In relation to my experience at Sanlam, most of the cases taken to court, when the fraudsters are found guilty and arrested, the company still has to pay the overstated health bills and compensation to their clients hence it has affected the company a lot since they end up paying so many claims of fraud hence them losing lots of money.

The law has made the insurance business a hard one to maintain since the law doesn’t cover them in terms of any loses made. There are no clear measures of the companies recovering from the loss of huge amounts of money made when settling the claims.

The law needs to clearly define each type of fraud deeply and elaborate the fraudulent activities that can be associated with it. It should also clearly set out punishments in the Penal Code depending on the intensity of the fraud activity and damage or loss caused.

The Penal Code sections on fraud need to be amended to cater for all connections surrounding fraud. The law should be set in a way that it covers the most common fraudulent activities that affect the insurance industry among other industries so as to curb the fraud problem at a fast rate.

Health Laws on how public health centers carry out their business should be amended n a way that they can be used to monitor their activities especially when it comes to payment of services so as to reduce o the two tier pricing on insured clients.

Under the Insurance Act CAP 487 provided for the establishment of the Insurance Regulatory Authority (IRA) should also establish laws that govern the formation of a national forensics department to work hand in hand with the Insurance Fraud investigative unit (IFIU) and Finance Reporting Centre (FRC) so as to oversee cases on medical billings and health care fraud.
A multiagency approach could also be tried. In this sense, several agencies could come together to work means and ways on how to best curb the issues of medical fraud and fraud in general. This could be done by having for example a National Policing Fraud Strategy.
The law should be revised so as to also state on punishment on bodies or institutions that get involved in matters of fraud. If the people or employees of a certain association or organization are found guilty of carrying out fraud, they should face the consequences to. The law needs to treat all people equally and fairly as when it comes to administration of justice as stated under article 47 laws of Kenya.

Medical insurance fraud is one of the disasters affecting the insurance industry at large. Not only at Sanlam, also have other well established and known insurance companies faced the same problem. Companies like ICEA lions, APA, Jubilee insurance, Britam among many others have also written reports addressing the same matter on how it’s affecting them and the means they have devised on curbing medical insurance fraud and fraud in general.

At Sanlam, in 2017, the company paid more than 99% of death claims, 85% of disability claims, 72% of several illness claims, 92% of the income protector claims and 95% of sickness claims. All these claims all under health care or under medical insurance covers.
These statistics elaborate on the load of money spent by insurance companies in settling health care claims. If this much is spent on paying the claims how much more would have to be spent on paying off fraudulent claims? The question at hand is about the inadequacy of the law in addressing matters of fraud specifically medical insurance fraud.

The law is inadequate when it comes to handling the matter of medical insurance fraud and it barely explains on what health care fraud is. It doesn’t define it and neither does it state any ways on how it can be reduced or regulated by law.

With the above recommendations, amendment of the penal code specifically on the sections that talk about matters of fraud would be the best first step to take so as to provide legal provision for the problem at hand then other means can be devised through the law on how to curb medical insurance fraud and reduce on the huge money losses made by Insurance Companies in Kenya.

The Insurance Act CAP 487, laws of Kenya
CAP 63, Penal Code. Insurance Fraud Survey by AKI.

Derrig ; Krauss, 1994.


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