Fraud rife in funeral policy business
If the latest determination by the FAIS Ombud doesn’t inspire the country’s life assurance companies to clean up shop then nothing will. FAIS Ombud Charles Pillai’s findings allude to massive instances of policy fraud, abuse of the government payments system (PERSAL) and a general reluctance in the industry to act quickly when allegations of abuse are brought to its attention.
Although we’ll share some details of the case in question, we’re more concerned with the Ombudsman’s finding that this event was not isolated. In 2006 the industry watchdog received a number of complaints about “unauthorised policies” including 33 against African Life, 48 against Channel Life, 20 against Liberty Life and 19 against Metropolitan Life. The Ombudsman believes these complaints generally arise from abuses of insurance company systems by unscrupulous agents. And when these irregularities are brought to the insurance companies’ attention, they “merely refund the premiums which were debited without authority.” It’s clear that much more has to be done to stamp out the illegal practices which give rise to these abuses. A good start would be for the insurers to adopt a ‘prevention rather than cure’ outlook.
The birth of an illegal insurance policy
The claimant’s affidavit in this determination is telling. Mrs Nonhlanhla Khawula, a widow and sole breadwinner to two teenage sons, states: “I have been paying for the policy I did not buy. I did not know the people covered. I didn’t find a letter or policy document for the policy I was paying for. I ended up cancelling it after 11 months of paying. I would like to get the money I paid (refund) for the policy I didn’t buy.” Respondents in the case included African Life Insurance, now trading as Sanlam Sky Solutions (First Respondent), Timir Financial Services t/a Southern Investment Corporation (Second Respondent) and Leonard Mqadi, a representative of the second respondent (Third Respondent).
Khawula purchased two policies from the Third Respondent after attending a meeting at her school in November 2004. The purchased policies included a burial plan for R93.50 per month and a retirement annuity for R156.00 per month. Both policies were sold with annual increases of 10% and would start on 1 February 2005. Everything went to plan in February, March and April of that year; but in May the claimant noticed an additional deduction in the amount of R198.50, also in favour of African Life.
After paying a visit to the African Life regional office Khawula learned that “a life policy with the principal life assured as ‘Mr and Mrs Khuzwayo’ and the beneficiary as one ‘Leonard Mqadi’” had been issued. Despite a number of further visits the claimant wasn’t able to get the policy premiums stopped, nor was she able to obtain a copy of the policy document. It was only after the claimant approached Legal Wise to intervene on her behalf that the monthly premium was stopped (in March 2006) and only after a complaint was lodged with the Ombudsman (in January 2007) that the paid premiums were refunded. A total of R1, 985.00 had been deducted over a ten month period from 1 May 2005.
Make sure the perpetrators are punished
Although her premiums had been refunded the claimant requested a further investigation. According to the Ombudsman Khawula’s request was “an exception to the normal manner in which victims of this type of conduct react.” Typically victims of this type of fraud left matters once their premium was refunded. Further investigation revealed that the Third Respondent was no longer in the employ of Timir Financial Services. He was, however, tracked down and asked to provide a sworn affidavit. In this affidavit Mqadi stated that he had sold two legal policies to the claimant. He made no mention of a third policy. The FAIS Ombud was not overly impressed by the contents of the affidavit.
Apart from ruling that the First Respondent compensate the claimant for interest on the amount of premiums taken, the Ombudsman also ordered that R350 be paid to the claimant (by the Second and Third Respondents) to compensate her for travelling expenses. But we’re more interested in the far reaching recommendations made regards government’s payment system (PERSAL) and the administration systems of insurance companies in general.
Missing application forms a concern
The Ombudsman was amazed that none of the respondents were able to produce a copy of the application form for the fraudulent proposal. “This is unacceptable as an application or proposal signed by a client goes to the root of the formation of a contract of insurance!” The Ombudsman wanted to know how a payment instruction could have been loaded without any consent from the client. In this regard the Ombudsman “recommends that all insurance companies establish a system whereby all necessary documentation is checked before a policy number is issued. There should also be a system whereby policy holders are informed of premium deductions from salaries and bank accounts. For example a simple message to the complainant in this matter would have alerted her to the unauthorized policy.” Surely this is already in place? Questions were also asked about the insurance company’s willingness to come to the claimant’s assistance when the fraud was first brought to its attention.
He also suggests “government should advise all their employees to scrutinize very carefully their pay slips or salary advices. In particular employees must be able to find an explanation for every deduction from their salary, irrespective of the amount involved. In this way employees will be able to prevent becoming victims of this fraudulent practice;
Editor’s thoughts:
It’s clear we still have a long way to go before all instances of fraud are stamped out. Are the life insurance companies doing enough to prevent fraudulent policies? Add your comments below, or send them to [email protected]
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