A busy year for the Long-Term Insurance Ombudsman

The Ombudsman for Long-Term Insurance (Ombudsman) exists to receive and adjudicate complaints against its long-term insurance members. Member companies are in the business of selling a variety of long-term insurance products to the end consumer.

Each year the Ombudsman releases a report to communicate the work done over that period. This annual statement provides valuable insight into the nature of long-term insurance complaints and the manner in which the Ombudsman rules on said complaints.

The Ombudsman had another busy year in 2006. A total of 9, 234 complaints were received- though only 5, 001 of these qualified as full cases. As many as 2, 711 complaints were viewed as 'out of scope' and cold not be dealt with. Just less than half of these complaints were referred to other regulatory offices. The Ombudsman finalised 5, 519 full cases during the year.

Good news for the consumer is that the percentage of cases generated by the four largest insurers is dwindling. These companies accounted for 1, 597 of the full cases received in 2006. This represents 31% of the total despite the big four insurers accounting for around 70% of the total market. It appears that smaller insurance companies are responsible for proportionally more of the reported complaints. This might reflect better internal processes for complaint resolution at the big insurers.

Prevention rather than cure

A number of cases brought to the Ombudsman relate specifically to exclusion clauses. Discussing this type of complaint, the Ombudsman included an example of a standard exclusion, which might read something like: "The insurer shall not be obliged to make any payment in respect of any condition or event arising directly from or traceable to any physical defect or infirmity of which the life insured was aware and which had its origin prior to the issue of the policy."

In the event that the insured claims against the policy, the insurer is well within its rights to refuse such claim should it have stemmed from "any physical defect or infirmity of which the life insured was aware..."

The Ombudsman voiced concerns that such clauses continue to result in 'casting around' for reasons not to pay when a claim is submitted. Complaints typically relate to incomplete or insufficient communication at the time of policy sale.

Problems of this nature are exacerbated in that they often occur in credit life policies which are sold telephonically. The Ombudsman refers cases of this type directly to the FAIS Ombud, but maintains that proper information and communication at point of sale will reduce complaints of this nature in the future. It is imperative to properly inform the life assured of both the existence of and the implication of exclusion clauses.

Interesting dread-disease cover developments

Another category of insurance which resulted in a number of complaints in 2006 is dread disease cover. This type of insurance has been around for some time- and is also marketed as critical illness cover, trauma benefit or living lifestyle benefit.

Policies are structured to cover a specific set of illnesses. Early generation products covered heart attack, stroke and cancer. However, new innovations driven largely by the competitive nature of the industry led to the creation of extended dread disease policies which added a number of additional illnesses to the list.

In 2006 the Ombudsman started receiving complaints from a number of insured who were covered under the so-called old generation dread disease policies. They maintained that the insurers should have advised them of the greater cover provided by the new generation products.

The Ombudsman has not made any decisions in favour of the insured in such cases. The view stems specifically from the fact that no legal obligation exists which would require insurers to keep their policyholders informed of new products.

Main factors leading to complaints

The main contributors to complaints submitted to the Ombudsman in 2006 included:

-Claims declined (policy terms or conditions not recognised or met) [1, 510]
-Poor communications/ documents or information not supplied/poor service [1, 257]
-Miss-selling [668]
-Dissatisfaction with policy performance and maturity values [581]
-Dissatisfaction with surrender or paid-up values [156]
-Claims declined (nondisclosure) [109]

Proper two-way communication at the time the policy is sold appears to be one of the measures required to lessen the number of complaints in the future.

Editor's thoughts:
The number of cases brought to the Ombudsman for Long-Term insurance increased by a mere 3% from 2005 to 2006. Do you think that this slow growth can be attributed to the harsher regulatory environment? Send your thoughts to [email protected]