Funeral policy complaints keep the long-term ombudsman busy

One of the similarities between the long and short-term insurance sectors is the myriad disputes arising out of claims rejections. The bulk of short term insurance disputes arise from rejected motor vehicle claims, whereas complaints about funeral policie

The volume and nature of the complaints and enquiries received through 2011 were similar to the previous year. A total of 9195 complaints were broken into sub-categories as follows: full cases (4295), out of scope (2805), mini-cases (1011), transferred to insurer (766) and referred for additional information (318). A mini-case is defined as a “simple enquiry that the insurer can easily handle at source” while out of scope cases refer to complaints for other ombudsman offices, complaints not connected to the life insurance industry or complaints “not taken up”. Most of the statistics presented in the annual report deal with the full cases as dealt with by the office’s team of adjudicators and assessors.

Complainants less successful in 2011

“The average W/P figure for all subscribing members, being the percentage of cases in which complaints were resolved wholly or partially in favour of the complainant, reduced from 46% in 2010 to 40% last year,” said Galgut. This statistic can be interpreted both positively and negatively. Consumers may feel aggrieved due to the perception that more complaints are being decided in favour of the insurer, but the decline could just as easily be explained by fairer internal complaints resolution processes. In other words – insurers are making attempts to resolve disputes internally rather than forcing consumers to the Ombudsman’s office. “The [decline to 40%] is very reassuring for us,” said Jennifer Preiss, Deputy Ombudsman. “When the World Bank visited our office three years ago, one of their concerns was that our W/P was too high. A lower ratio suggests that insurers, for the most part, are resolving claims the way they should.”

A total of 4254 cases were finalised in 2011, including 3462 standard cases, 684 complicated cases and 108 incompetent cases. The Ombudsman was impressed with the significant decline in incompetent cases, where subscribing members fail to respond to the office’s queries in a timely and efficient manner, from 141 in 2010 to just 108 cases last year. An impressive R104.25m (lump sum) was recovered for complainants with an additional R488 963 in compensation granted. Compensation of up to R30 000 per case can be awarded to compensate complainants for reasonable additional expenses incurred during the complaints process.

Two top causes of long-term insurance disputes

Claims declined (due to policy terms or conditions not recognised or met) resulted in 58% of long-term insurance disputes last year. A big spike in this category could be due to recent changes to the Policyholder Protection Rules, which require that insurers inform clients of their right to lodge a complaint with the Ombudsman upon claims rejection. The second major contributor, with 22% of the 2011 total, is broadly described as poor communication / documents or information not supplied / poor service.

Two other trends are worth mentioning. First, financial advisers – both independent and tied – should be commended for the steep decrease in miss-selling cases, down from 95 in 2010 to just 66 last year. Second, claims related to non-disclosure rocketed from 105 in the last period to 175 in 2011. It seems far greater attention is required at the underwriting and policy inception stage to ensure that policyholders disclose adequately!

Each year we lament the case duration reported by the Ombudsman, and 2011 is no different. Although 78% of all cases are finalised within six months there are still 5% (a sizeable number) that take more than a year to resolve. “The issue is that complaints are becoming more and more complex with the result cases take much longer to resolve,” observed Preiss. She said that conciliations and face-to-face meetings contributed to speedier case resolution as much more ground could be covered in this way, than by back-and-forth written correspondence. “It is worth noting that while the turnaround times have not substantially reduced, the cases themselves have higher activity levels than previously,” added Galgut. He commended his staff for their persistence and thanked insurers for their improved response times.

A micro-insurance shake-up looms

We were quite surprised to learn that the bulk of cases handled by the Ombudsman related to funeral and credit life policies. These two insurance categories accounted for 48% of all cases finalised by the office last year (versus 35% life insurance, 9% health insurance and 8% disability insurance cases). A more worrying statistic is that 23% of credit life complaints are in respect of  retrenchments. “Many complainants don’t understand what their policy benefits are,” noted Preiss. There is a requirement for call centre agents and brokers to explain these benefits more completely to avoid disappointment at claims stage.

The Ombudsman sited rate reviews, change in underwriter and premiums exceeding policy benefits as three major contributors to funeral policy complaints. Concerns were also raised around the “insurable interest” concept in both the funeral and credit life space. It is hoped these concerns will be addressed in part in the two regulatory interventions looming on the insurance sector horizon, namely the pending micro-insurance legislation and Treating Customers Fairly (TCF). Galgut hopes that TCF will create a situation where the suppliers of financial services products will be more alive to the needs and problems that consumers face – and encourage them to resolve the complaints that might be received from such consumers.

Editor’s thoughts: The fact that 48% of cases finalised by the Ombudsman for Long Term Insurance originate from funeral or credit life policies comes as a bit of a shock, particularly in light of the resistance by some larger product providers to put their sales staff through the FSB RE5 for representatives. Would you attribute the confusion among funeral and credit life policyholders to the distribution channel? Add your comment below, or send it to [email protected]

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