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Life Ombudsman expects a spike in income protection complaints through COVID19

19 May 2020 Gareth Stokes

Deputy Ombudsman for Long-term Insurance, Ms Jennifer Preiss, said that a prolonged national lockdown could lead to a surge in complaints from policyholders about their income protection policies. She was commenting during the release of the Ombudsman’s 2019 Annual Report, held in telephone, and attended by members of the media.

“We could see a rise in complaints from consumers who expect their income protection policies to pay out for loss of income during the lockdown period, despite not being disabled as a result of the COVID19 disease,” said Preiss. She also warned that the coronavirus pandemic and subsequent nationwide lockdown could cause a surge in complaints resulting from policy lapses due to policyholders’ inability to maintain their monthly premium payments. In his introductory remarks to the report launch, Judge Ron McLaren, Ombudsman for Long-term Insurance (OLTI), observed that the Office found itself in “unusual times that [called] for unusual measures”. 

R204 million clawback for complainants

The OLTI finalised 3 558 full cases during the year under review with 34,12% of these cases resolved wholly or partially in favour of complainants. Judge McLaren praised the Office for its achievements in the latest reporting period, including finalising 91% of complaints within six months and recovering more than R204  million on behalf of complainants. “If one accepts that there are 220 working days in a year, the office recovered more than R900 000 per day, relating to lump sum pay-outs,” he said. This amount does not include awards paid to complainants for income disability benefits, annuity payments, and reinstatement of policies. A further R874 286 was awarded to complainants as compensation for poor service by insurers. 

The Office was commended by its chairperson, Judge Leona Theron, for its “admirable and consistent results” going back five years, to 2015. But 2019 was not all plain sailing. A closer study of the report confirms that the OLTI issued nine determinations against insurers over the 2019 year. Preiss explained that a final determination was only necessary when either complainant or respondent refused to accept the Ombudsman’s preliminary determination. “In the event a final determination is made against an insurer we publish the determination, naming the insurer, but not naming the complainant,” she said. 

Insurers still frustrating the process

Judge McLaren seemed exasperated with the 2019 determination experience. “I hope that insurers learn from the case summaries published on our website and in the annual report,” he said. “Some common threads include the small amounts involved in these claims; the frequent absence of the application of legal principle; and the failure by insurers to accept that our determinations do not create binding precedents”. The Office prefers to avoid issuing determinations, as the process is time consuming and places a significant drain on available resources. Another concern is that the Ombudsman is still obliged to refer to its guiding principles of equity and fairness when issuing determinations. Insurers should, by now, have a working knowledge of these principles and refrain from brinkmanship in pushing cases all the way to the final determination stage. 

One of the 2019 determinations dealt with an insurer’s interpretation and application of the the legal principle of ‘in duplum’, an interesting discussion that is beyond the scope of this newsletter. The complaint centred on a R5 000 loan, taken out by the insured in 1999, against the security of the policy. “This complaint demonstrated that the unchecked accumulation of interest resulted therein that the complainant [was] buried under a mountain of debt,” writes the Ombudsman. “His loan debt of R5 319 had grown more than tenfold to a policy debt of R55 487”. In its evaluation of the facts the Ombudsman agreed that this accumulation of interest offended against the ‘in duplum’ rule. 

What does the future hold?

The proposed amalgamation of the OLTI with the Ombudsman for Short-term Insurance, announced in the 2018 annual report, still awaits regulatory approval. “We are currently operating with a shared services agreement, with Judge McLaren acting as Ombudsman for both long-term and short-term insurance complaints,” said Preiss. Any complaint against an insurer can still be initiated at either Ombudsman scheme; but there is also a common portal for complainants who are uncertain where to complain. The objective of the Ombudsman scheme remains to resolve complaints fairly for consumers who have a complaint against an insurer. Complaints about the advice given by a financial advisor or insurance broker should still be submitted to the FAIS Ombud. 

As for claims, the Ombudsman reported a notifiable, but not unexpected, decline in complaints during lockdown, down from 517 in April 2019 to just 312 in April 2020. There were, however, many enquiries from policyholders about premium payments and lodging of claims. Preiss said that official complaints would most likely begin flowing in as the country emerged from lockdown and consumers were better able to access means of communication. 

Writer’s thoughts:
Financial advisers and insurance brokers are not directly affected by complaints made to the Long-term or Short-term Insurance Ombudsman schemes. But there is plenty of anecdotal evidence to suggest that consumers are turning to the FAIS Ombud as their last chance for compensation when they are unhappy with an insurer’s performance. Have you been at the wrong end of a FAIS Ombud claim after it was declined by another Ombudsman? Please comment below, interact with us on Twitter at @fanews_online or email me us your thoughts [email protected].

Comments

Added by Gareth Stokes, 20 May 2020
To Ayanda. I am in total agreement with your comment re "Ombudsman" schemes. As a journalist I try to stick with "Ombudsman" except in the case of the "FAIS Ombud", which I report as their published title. Kind of ironic that gender neutrality may have informed the change.
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Added by Ayanda Khumalo, 20 May 2020
Every time one sees or hears the word "Ombud" one cringes and dies 1,000 deaths.
"Ombudsman" is a Scandinavian term that is genderless.
Apparently ignorant of this fact, someone at the old FSB (Now FSCA) invented the term "ombud" in a forlorn attempt to appear to be 'woke' and politically correct.
One wonders how long it will be before this error is corrected. At present, our "Ombud" is the only "ombud" present at international OLTI and OSTI meetings. He must sometimes feel rather lonely - and perhaps a little sheepish …(?)
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Added by Ayanda Khumalo, 20 May 2020
As an impartial and professional Alternative Dispute (not alternative Law) Resolution practitioner, the Ombudsman should take care not to appear to descend into the area.
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