Ombudsman Warns Against Insurance Claims Inflation

October 28 - It may be very tempting to add a couple of zeroes to the value of the item for which are claiming in an insurance payout.

However, consumers be warned - the short term insurance ombudsman has given insurance groups full backing to penalize policyholders heavily if they are found cheating.

Should policyholders claim more than their actual loss, insurance groups have the right to reduce their claim by the amount that they exaggerated, as well as demand a penalty levy that is equal to the amount claimed.

However, policyholders will still be paid out the true value of the item - despite their attempts to defraud the insurance group - as "the bad portion of the apple should be cut out and the insurer should pay the true value of the claim."

There have been cases of insurance groups including a clause in their policies which states that a policyholder forfeits all benefits if they try to cheat the insurer.

The ombudsman, Brian Martin, speaking at the International Financial Ombudsman Conference in Cape Town, said that his office will take action against insurance groups that invoke such a clause.

The Conventional Penalties Act makes provisions to protect consumers in this case.

Naturally, should a person commit arson in order to claim a loss, for example, then the insurance group has full right to turn down the claim completely, despite the damage actually caused.

According to Martin "insurance requires good faith on both sides."

"It is not a game of cat and mouse or an exercise in bargaining such as would be found in a bazaar," he said.