A window to the world of the long-term insurance ombudsman
The Ombudsman for Long-Term Insurance (Ombudsman) is a voluntary scheme recognised in terms of the Financial Services Ombud Schemes (FSOS) Act 37 of 2004. As stated on their website (http://www.ombud.co.za/) the Ombudsman exists to “receive and consider complaints against subscribing members and to resolve such complaints through mediation, conciliation, recommendation or determination.” At a recent RGA Technical Seminar, held 18 October 2011, the Deputy Ombudsman Jennifer Preiss addressed an audience of insurance industry stakeholders on the Ombudsman’s role, function and jurisdiction.
The office of the Ombudsman is monitored by an independent 10 member council headed by a judge. Decisions are binding on the insurer but not the complainant. Preiss explained: “We make a provisional determination at a meeting of all the adjudicators after which the insurer has 30 days to respond… In the event a final determination is made the insurer can apply for leave to appeal, which will be heard by an outside judge.” A complainant is not bound by the determination and can take further legal steps if they are unhappy.
On equity, fairness and early resolution
The Ombudsman is not a court but has to make sure each of its cases is handled in a procedurally fair manner. It has to hear both sides of the case and ensure that facts relevant to each case are disclosed to both parties. It is a credit to the body that in the 26 years it has made decisions it has only been taken on review on the basis of procedural unfairness once. Legal concepts such as burden of proof are important too. “Just as in a civil case the burden of proof rests with the party claiming or making the assertion,” said Preiss. “The claimant has to prove the accident… And if the insurer relies on an exception or exclusion they have to prove that.” This is a crucial point as an insurer cannot, except under specific circumstances, expect the claimant to provide information on which they will rely to refute the claim!
Cases are typically decided on the balance of probabilities rather than the “beyond a reasonable doubt” premise applied in a formal court of law. After two versions of a story are considered the evidence is weighed and the Ombudsman will decide which version of events is more probable. 51% swings the scale! Principles of equity and fairness still form the foundation of the complaints resolution process in both the short and long-term insurance industries. The ongoing development of these principles is held in a serious light. “We will not make decisions on equity and fairness except in a meeting of all adjudicators and provided all are unanimously in favour,” said Preiss.
Where possible the Ombudsman steers away from formal determinations, preferring for the insurer and complainant to reach an amicable resolution rather than escalating a case. A recent development allows for the Ombudsman to ‘name and shame’ the insurer in the event a determined complaint resolution is required. There have been eight or nine such determinations published, and although many insurers were concerned over the possible fallout from this newfound transparency, there hasn’t been major public outcry or any negative effect as a result.
Ombudsman Statistics to Q3 2011
There were 7161 complaints submitted to the Ombudsman in the year to 30 September 2011. Not all of these complaints became full blow cases as many were outside the office’s jurisdiction. The office has finalised 3147 cases and a total exceeding R78 million has been recovered for respondents so far this year. A measure of the efficacy of the long-term insurance industry’s claims resolution process is that 42% of claims were resolved wholly or partially in favour of the complainants. The current percentage is viewed favourably but any slippage towards the 50% level would leave a black mark against the industry. An impartial observer would justifiably ask: “Why are these cases not resolved by the insurer before they come before the Ombudsman?”
The Ombudsman deals with cases in a number of ways. “We don’t make determinations in every case,” says Preiss. “Thus the resolved cases mentioned include those resolved by way of determination, settlement, by mediation or by the insurer “caving” in at the beginning of the process. Year to date the total number of declined claims stands at 58% versus just 26% in 2003. This shift is ascribed to an increased case load due to a change to the Policyholder Protection Rules, effective 1 January 2011, requiring insurers to provide policyholders with the Ombudsman’s details when declining claims. Another is the surge in complaints dealing with funeral cases (up from 15% in 2003 to 37% today), possibly due to greater financial awareness among lower LSMs and publicity around scams in this segment of the market.
Preiss observes that the mix of complaints received by the office have changed significantly too. Nowadays there are hardly any miss-selling complaints (these typically fall under the ambit of the FAIS Ombudsman in the advice space). Credit life complaints, which account for 11% of cases, have also reduced as less credit is extended and credit life insurers up their respective games. There is a downward trend in complaints about poor service too...
The trouble with non-disclosure
Policyholders who withhold critical information at policy inception remain a major problem for insurers. A constant 3% of the Ombudsman’s annual case load deals with issues of non-disclosure. In recent years these cases have become more complex and often stem from questionable or strange underwriting decisions. “We are seeing some very strange decisions at the underwriting stage,” observed Preiss, though she reminded the audience the Ombudsman viewed the industry through the keyhole provided by the cases that reached it.
She provided an example of a 71 year old male with diabetes who requested R17 million cover. The cover was declined. Six months later the same individual was back looking for a lesser amount of cover and was offered R4 million cover on the condition a personal medical assessment (PMA) was supplied. The client (and adviser) wanted the PMA condition waived and the underwriter, who approached five re-insurers for quotes, found one that would accept the risk. The insured passed on within 12 months at which stage the insurer’s investigator discovered that a PMA existed and that the client suffered from Cardiomyopathy (deterioration of the heart muscle). The claim ends up at the Ombudsman with the insurer screaming “refute for non-disclosure” and the claimant asking “what about the PMA waiver?”
“Pressure is being brought to bear on underwriters to accept business that they are in the first instance reluctant to accept – and then because of the pressure they do accept,” says Pearce. Her concern is that this trend will lead to a sharp spike in disclosure-related complaints in the future. Her fear is confirmed by global Ombudsmen bodies that say complaints are becoming more complex and complainants more persistent with time! The situation is exacerbated by complex products that are poorly drafted. “Insurers should take special care to make sure their policy wording and underwriting don’t let them down,” says Pearce.
Editor’s thoughts: South African financial services consumers are among the best protected in the world… And it seems they get a “fair shake” in the current Ombudsman system. Have you had any dealings with the Ombudsman for long-term insurance, and if so, were you satisfied with the outcome? Please add your comment below, or send it to [email protected]
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