Ombud stats lay bare complex insurance sector

It was business as usual for two of South Africa’s financial services ombud schemes as they updated journalists on their 2023 statistics shortly after their assimilation into the country’s National Financial Ombud Scheme South Africa (NFOSA). The Ombudsman for Long-term Insurance (OLTI) and Ombudsman for Short-term Insurance (OSTI) were recently merged into NFOSA alongside the Ombudsman for Banking Services and Credit Ombud.

A two-stage merger

The OLTI and OSTI, as most FAnews readers already know, have been operating under a blanket Insurance Ombudsman title for some time. As outgoing Insurance Ombudsman, Judge Margie Victor explained, her short time as Ombud had been “filled with the excitement and challenges” of creating the new, amalgamated ombud scheme. In her comments to the Insurance Ombudsman 2023 Annual Report, the judge trumpeted the principles of equity and fairness that guided the various ombud schemes in the context of broader financial sector regulations and the country’s supreme law, the Constitution. 

Despite the two-stage merger, the insurance segment specialisation of each of the ombud schemes remains intact within the broader NFOSA structure. As such, the journalists assembled for the 2023 Annual Report virtual launch were treated to a familiar set of key statistics including average turnaround time per complaint, number of complaints received, and the sums recovered for consumers. Under the non-life insurance category, the OSTI noted just over 16 000 complaints in the year under review, of which 12 188 were registered. The OSTI closed 10 534 formal complaints over the 12 months under review, recovering over R102 million for consumers. 

The OLTI, meanwhile, reported just over R283 million in lump sum recoveries from 3 137 full finalised cases over the year. According to the OLTI, 26% of cases were resolved wholly or partially in favour of complainants with 1 580 transfers settled in favour of complainants and R727 838.00 in compensation paid across 169 cases. Per the report: “Whilst the total number of cases finalised decreased, the number of cases categorised as complicated increased; [this is] indicative of the increased level of complexity of the cases being dealt with and the persistence of complainants”. 

Insurers take note: resistance is futile

Some of the country’s life insurers seemed confident in pushing back against OLTI with the result that four final determinations had to be issued over the year. A final determination is made if an insurer challenges the correctness of a provisional ruling. The determination is then published, including the name of the insurer, per Rule 3.8 of the Policyholder Protection Rules: Long-term. Although these cases tend to be fairly complicated, it helps for all stakeholders to get a feel for the nature of complaints, and their eventual resolution. Here follows a brief reporting on two of the four life insurance matters. 

Case Report 54 centres on a claim submitted by an employee benefits consultant under a group risk policy between an insurer and her employer. Issues crept in due to disparities in the recording of the employee’s termination date and the actual termination date, leading to the insurer “declining the complainant’s income disability claim on the grounds that the medical evidence did not support disability as at the last day actively at work”. The insurer declined a second claim for a critical illness benefit on a similar basis. 

The provisional ruling, confirmed by way of a final ruling, held “there was considerable evidence showing that the complainant was incapable of performing her work at an acceptable standard [and that] the evidence proved on a balance of probabilities that the complainant was disabled as defined”. The OLTI ruled that the insurer “should pay the claim until the complainant was able to perform her own occupation [during the initial period, whereafter it] should pay the claim until the complainant was able to perform her own occupation or until she was able to perform another suitable occupation or until she no longer suffered a loss of income due to disability”. 

The OLTI also took exception to the insurer demanding that the complainant pay for medical evidence required by the insurer to review its own decision. More importantly, they instructed that the critical illness claim be paid, since the complainant was covered as at the date of the diagnosis. 

Life underwriting, not for the faint-hearted

Case Report 55 illustrates the complex nature of life underwriting. It dealt with a complainant who was diagnosed with cancer in 2014, underwent treatment, and went into full remission. The complainant became a member of another employer group scheme in September 2016, and in December 2020 was again diagnosed with breast cancer. The insurer claimed it was not liable because “the complainant’s claim arose in 2014 at which time the insurer was not on risk”. OLTI was having none of it, noting in its provisional ruling that “…the complainant did not claim in 2014, and the complainant’s claim was not based on the 2014 cancer event”. 

The usual rebuttal followed, with the insurer arguing that given the history, “it was never within our contemplation as insurer that the member would be entitled to claim for the exact same staged cancer, in the exact same organ that presented prior to commencement of the benefit…” Sounds fair, at the face of it. However, these cases have as many twists and turns as San Francisco’s famous Lombard Street. The final ruling held that the complainant was not claiming for an event that occurred in 2014, but for a December 2020 diagnosis made four years after the complainant joined the new group scheme. 

“There is no legal or insurance principle which prevents an insured from claiming for a recurrence of a condition,” noted the OLTI. “There are tiered insurance products in the market which specifically provide for multiple claims for the same condition if it progresses”. They further contended that had the insurer wanted to exclude claims of this nature, it had the opportunity to incorporate an exclusion in the policy to that effect. 

“The insurer has the onus of proving that the complainant does not have a claim on the basis that the risk had already materialised before the cover commenced; we held that the insurer had failed to discharge the onus of proof,” they wrote. The insurer accepted and paid the claim. 

Navigating pandemic and other challenges

“My year of being the OLTI and OSTI Ombudsman has led me to conclude that both schemes have fulfilled their mandate and their obligations to the Constitution to investigate complaints in an impartial way, giving each party the right to be heard not only once, but repeatedly and culminating finally in an appeal process,” concluded Judge Victor. She added that the ombud’s process, mindful of the rights of insurers and complainants, had met the myriad challenges presented during 2020-2023 with aplomb. 

As for the future, the outgoing Ombudsman singled out consumer education and the need to offer explainers on “contractual legalese” in the consumer’s mother tongue as areas that demanded attention. These issues seem more relevant in the telesales space, leaving face-to-face financial advisers ‘in the clear’ for once. 

Writer’s Thoughts:

The complex nature of life and non-life insurance covers make the occasional trip to an ombud office inevitable. Do advisers ever get drawn into Insurance Ombudsman matters, and if so, how do you approach same? Please comment below, interact with us on X at @fanews_online or email us your thoughts editor@fanews.co.za.