LOA announces new Board for 2008

The Life Offices’ Association (LOA) at its Annual General Meeting today appointed Desmond Smith as its new chairman for 2008. Smith, also the chairman of RGA Reinsurance Company of South Africa, takes over from Lizè Lambrechts, CEO of Sanlam Personal Finance.

Paul Hanratty, MD of Old Mutual South Africa, was elected as deputy LOA chairman for the next year.

Announcing the new Board for 2008, Gerhard Joubert, CEO of the LOA, says the LOA also adopted a number of new initiatives at its AGM, aimed at achieving greater disclosure within the life industry to help consumers make more informed decisions going forward.

The new practices have all been included in the LOA Code of Conduct. While some aspects of the Code serve as guidelines only, others require strict adherence from member companies.

Managing Expectations

Joubert says as from next year LOA member life companies will be expected to provide annual benefit statements to policyholders invested in long-term savings policies such as endowments and Retirement Annuity (RA) fund policies with the aim of keeping clients informed of the performance of their underlying investment portfolios.

“Unhappy policyholders are usually the result of expectations that are not met. By communicating with policyholders on a more regular basis life companies can manage these expectations thereby closing the value gap of what policyholders expect to get out and what they actually receive.”

He says life companies will be guided by the best practice guidelines contained in the LOA’s new Code on Benefit Expectation Management.

The Code also states that member life companies need to communicate on an annual basis with those policyholders where the premiums of their risk policy are guaranteed for a limited term and where premium reviews are dependent on investment performance or claims experience.

“On-going communication should help ensure that policyholders are less likely to be unpleasantly surprised when a risk premium increases as this would have been communicated to them on an on-going basis.”

Improved disclosure

Joubert says the LOA Board also approved significant changes to the LOA’s Code on Policy Quotations (CPQ) aimed at improving disclosure regarding the reviewability of premiums and costs.

He says until now South African life companies have not imposed premium increases on their policyholders.

“But since this may change going forward, it is important to strengthen the industry’s self regulation on the disclosure of when and how reviewable risk premiums can be changed.”

He says policyholders and intermediaries often do not realize that guarantees may apply to premiums for a limited period and that life insurance companies are entitled to increase risk cover premiums at the end of the guarantee period.

The CPQ has therefore been amended to ensure that LOA member companies improve disclose to policyholders regarding the circumstances under which premiums could increase and also the likely levels of future increases.

These changes to the CPQ are in addition to the amendment which allows for the removal of projected maturity values from quotations and policy documents next year.

Disclosing costs

In line with the CPQ, member life offices of the LOA provide consumers with a Reduction in Yield (RIY) figure, which summarises all their actual charges in one figure.

The RIY must be clearly indicated on all quotations for new savings and investment policies.

Joubert says while it has been a requirement that the RIY must include the impact of performance fees, more detailed disclosure requirements for performance fees have now been added to the CPQ with the aim of standardizing the disclosure of performance fees within the RIY.

Going forward, disclosure of performance fees needs to be accompanied by the following information:

• The level of the performance fee included in the RIY, and the benchmark for each fund at which it was determined.
• That the actual RIY could be higher or lower depending on the performance of the fund (and the related performance fee levied).
• The minimum and maximum (if capped) performance fee (for each fund). If the performance fee is uncapped this must be clearly stated.

“The LOA views this additional disclosure requirement as an interim solution since the life industry and the unit trust industry are currently looking at ways of standardizing and simplifying the RIY and the Total Expense Ratio (TER) used for unit trust funds to make them less confusing.”

The new LOA Board members for 2008 are:

Desmond Smith (chairman)
Chairman: RGA Reinsurance Company (SA)

Paul Hanratty (deputy chairman)
MD: Old Mutual (SA)

Mike Jackson
CEO: Professional Provident Society (PPS)

Lizè Lambrechts
CEO: Sanlam Personal Finance

Willie Lategan
MD: ABSA Life

Gert Wessels
MD: Assupol Life

Herschel Mayers
CEO: Discovery Life

Nic Kohler
MD: Hollard Life

Bruce Hemphill
CEO: Liberty Life

EB Nieuwoudt
MD: Momentum

Dr Bruce Hodkinson
MD: Swiss Re Life & Health (SA)

Wilhelm van Zyl
CEO: Metropolitan Life Employee Benefits