What is behind a group risk policy condition?

Terms and conditions are not embedded in group risk insurance policies to catch out the policyholders, but are there to manage and control the risk, and therefore the premium cost. They also protect the insurer from anti-selection and fraud.

This is according to Jay Naidoo, a member of the executive and product development team at Momentum Collective Benefits. He says, "In entering into an insurance contract, the client needs to disclose as much information as possible to ensure that the insurer is in a position to rate the risks appropriately. If there are material risks that are not disclosed, the insurance company could argue that these risks do not form part of the policy."

All risk insurance policies, such as disability and dread disease, have terms and conditions that guide their modus operandi. The policy has pages and pages of 'techno-legal' conditions but not everyone knows what they really mean.

"As with any legal contract, the terms and conditions are there to provide a framework for the provision of benefits and to clarify the responsibilities of each party to the contract," explains Naidoo. "In addition they provide a basis for the resolution of disputes."

Different insurers tend to have similar terms and conditions, although they may be worded differently. This is important in the insurance industry as it ensures consistency and transparency in the policies and is therefore beneficial to the broker, the employer and their employees.

In an effort to explain the reasons behind some of the terms and conditions seen in risk policies, Naidoo lists three commonly asked questions and gives the reasons behind the condition.

1) Why do insurers offer only six months of cover when members are working outside Southern Africa?

"The easiest way to understand the conditions of group contracts is to go back to the pricing basis," explains Naidoo.

When an insurer is asked to provide a quotation for risk benefits, they generally consider the nature of business and the expected spread of occupations, the geographical area of the business and the salary as an indicator of the socio-economic level.

When the member is working outside Southern Africa, the insurer will not have included the member's new circumstances into the pricing. "There are three issues of concern to the insurer," says Naidoo. "Firstly, the member is most probably not performing the duties of the occupation that was taken into account in the rating. Secondly, the member is living in an area that was not taken into account and here one can look at housing, transport, security, and access to medical care, etcetera. Finally, the member is most probably living without their family, which introduces additional risks similar to those of single lives."

The figure of six months was chosen as a period sufficient to provide cover to those people who temporarily travel abroad either for business or leisure

Naidoo explains however, that on provision of more detail, the insurer should be willing to extend the period outside Southern Africa provided that the destination and the purpose of the individual's extended stay does not pose additional risks to the local insurance policy.

2) Why do insurers have a twelve-month temporary absence condition and not more?

"Temporary absence refers to a period where the member is not in active service with the employer but neither have they resigned," says Naidoo. "Initially the temporary absence period was set at twenty four months to allow for military service. When this changed to twelve months, Momentum Collective Benefits and most other insurance companies decided to reduce this period as well. In the initial period of twelve consecutive months, insurers do not view this as an additional risk, but thereafter the same arguments that we have just discussed, will apply."

3) Why do insurers only cover the Southern Africa countries?

According to Naidoo, most insurers have chosen to cover the countries in Southern Africa, being South Africa, Namibia, Botswana and Lesotho, as they are members of the Southern African Development Community (SADC) countries. They tend to share similar economic and lifestyle characteristics and they are fairly dependent on South African business, with the result that members may have to travel to these countries for business purposes. This cover ensures that that clients have 'seamless' insurance, free from the hassle of having to seek approved cover for regular travel to SADC countries.

Naidoo urges brokers to remember to request prolonged cover from the insurer either when their clients are working beyond the borders of Southern Africa for longer than six months or when their clients are temporarily absent for longer than twelve months. On request and with the provision of the correct details, most insurers will gladly consider extending the period, but obviously the benefits will be payable in South Africa, in rands.