The Life Offices' Association (LOA) announced on Friday that its members had paid nearly half of the R3 billion promised to policyholders. These value enhancements were made in terms of an agreement reached between the LOA, National Treasury and the major insurers in December 2006.
The agreement, known as the Statement of Intent, required that various life insurance giants enhance the value of retirement annuities and endowment policies that met specific criteria. Enhancements were applied to policies where values were reduced by more than 35% due to a reduction or cessation of premium between January 2001 and December 2006, and where the policy was still on the insurer's books.
The deadline for the repayment was May 2007 and LOA chairperson, Lize Lambrechts, admitted that there were still enhancements that had to be completed: "While the implementation was largely completed by the end of May two of our members are currently completing manual enhancements on a very small number of policies, which could not be completed electronically with the rest of the batch. These policies currently represent less than 1% of the total policies enhanced."
A fine with a staggering impact
It is difficult to overlook the impact of this 'fine'. The enhancement process has already benefited some 500, 000 retirement annuities and endowment policies. Nearly R1.5 billion has been applied to bettering the final value of policies to the benefit of numerous policyholders and there is more to come.
Lambrechts was quick to point out that the bill for the policy enhancements was being footed by the life insurance company shareholders and not by other policyholders. This would be appropriate, given that shareholders of the insurance giants have long been the benefactors of the harsh termination and early surrender practices in the industry.
Going forward, the industry will use the remaining R1.5 billion to enhance the values of retirement annuities which were lapsed, or where early retirement was taken between January 2001 and December 2006. Retirement annuity fund members who take early retirement will receive at least 70% of fund value, and surrendered endowments will be increased to at least 60% of fund value.
Is this admission really a consumer boon?
The life industry believes the payment of this 'penalty' will restore consumer confidence in the industry. However, we have to ask whether an industry that is hardly flinching at handing back R3 billion to policyholders is being punished enough for their past 'misconduct'.
Why has the industry decided to compensate policyholders over such a narrow time period? In doing so, they have effectively closed the book on numerous transgressions perpetrated in the past. And if R3 billion represents a fraction of the damages suffered by policyholders over a six-year window, how much more has the industry fleeced from investors using similar practices in previous years?
Still a long way to go
The R3 billion set aside for value enhancements to certain policies is a giant step and should be applauded. However, the industry has a long way to go before they can claim that consumers have been adequately compensated for previous wrongdoings.
We believe the fine levied is no more than a slap on the wrist when compared to the impact of life insurance industry practices on the values of terminated and surrendered policies. Take a close look at how the industry operates today. Has the industry really stopped all practices which negatively affect policyholders? Has the industry set aside its hunger for profit at the expense of policyholders and intermediaries? Has the industry stopped using questionable practices in calculating surrender and termination values? Does the industry allow free transfer of retirement annuities from one company to another?
If the answer to any of these questions is "no", then we have to assume the penalty was too light and that the regulators have failed in their quest for more comprehensive consumer protection.
Editor's thoughts:
The major life insurers have effectively paid 50% of their fine for bad behaviour. Given recent developments in the life industry the question begs: have life insurers learnt from the mistakes of the past, or is the R1.5 billion repaid to policyholders a mere slap on the wrist? Send your comments to gareth@fanews.co.za
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