NATURE OF FRAUD AND ITS EFFECTS IN THE MEDICAL INSURANCE SECTOR IN KENYA

Abstract

ABSTRACT Insurance fraud is a major challenge facing the insurance industry both in thedeveloping and developed world. This vice has no doubt existed wherever insurance policies areunderwritten and takes different forms depending on the economic time and coverages available.However, the validity of this claim has hardly been established empirically in Kenya. It is importantthat the insurance players in Kenya understand the nature and effects of insurance fraud and alsocome up with strategies to counter the same. The study objective was to investigate the nature offraud and its effects in the medical insurance sector in Kenya and also establish possible solutionsin countering the vice. The study adopted a descriptive research design where each of the twentyeight registered medical insurance providers and twenty Insurance companies underwritingmedical insurance in Kenya formed the sample frame of forty eight firms. A questionnaire was themain research instrument. The study findings revealed that majority of the firms sampled hadexperienced different levels of fraud in the recent past with the fraud form ranging from overstatedmedical bills, concealment of medical history of the patient, fraudulent identity / impersonation,document theft fraud as well as perpetration of the insurance premium fraud. The extent of fraudwas found to depend on the existence and extent of automation that the firms had adopted with highfraud levels being associated with low IT Usage and/or automation. The effects of fraud include:increase in the cost of medical insurance and tarnishing the image of the insurance industry.Solutions suggested in manageing the level of fraud include: subjecting medical bills to extensiveaudit to determine their validity as well as high levels of automation of the processes, making itmandatory for clients to produce their smart-cards in any medical facility before receiving services,and maintaining a database of all insured within the organizations’ network. Other strategiesinclude restriction of unauthorized employees in accessing client information, educating the staff touphold ethical practices and offering a better remuneration and friendlier work environment. Thisstudy contributes to a partial understanding of the reasons for medical covers being expensive andthe negative image of the insurance industry.