Gap insurance gets the go-ahead
More than a year has passed since we reported on a High Court ruling which prohibited the sale and marketing of so-called ‘gap’ insurance products. The original ruling followed a court petition by the Council for Medical Schemes (CMS) against Guardrisk’s AdmedGap product. The CMS felt insurance companies offering such products were contravening the Medical Schemes Act.
A couple of days ago the Supreme Court put an end to the madness and gave Guardrisk (a subsidiary of Alexander Forbes) the go-ahead to provide its niche insurance offering to South African consumers.
Providing cover where medical funds can’t do the job
‘Gap’ or top-up insurance was designed to cover the shortfall which many medical aid members experience when incurring medical expenses. The reality is that the portion of medical bills not covered by medical aid schemes has increased significantly in recent years. Inadequate cover could spell financial ruin for a family in the event of a long period of hospitalisation or other medical crisis.
Herman Schoeman, managing director of Guardrisk said the main argument brought by the Council for Medical Schemes against the AdmedGap product was that it would encourage people from taking cheaper options on their medical schemes. He says the court ruling confirms this was not a valid complaint: “Guardrisk’s gap cover insurance in no way threatens, competes with or compromises medical schemes. In fact, since you need to be a member of a medical aid to buy the Admed gap cover, it actually encourages the purchase of medical aid.”
The product is extremely popular and it emerged during court proceedings that as many as 55 000 medical scheme members were additionally covered by Guardrisk’s AdmedGap cover.
A welcome decision
Schoeman welcomed the Supreme Court decision. “This ruling provides peace of mind for our clients who can continue to rest assured that they remain covered for the shortfall between doctors’ in-hospital charges and medical aid rates,” he said. He warned other insurers that the ruling related specifically to Guardrisk and its product range. The ruling “should not, in any way, be construed as a general industry standard and individual insurers will have to examine their own products to measure their validity.”
“Though we still need to examine the detail of the Supreme Court of Appeal’s ruling, we are pleased that the court has brought clarity to the debate and has found a way to allow Guardrisk’s Admed products to continue complementing traditional medical aid schemes products, ensuring that South African families do not become financial victims of the shortfall between medical aid cover and the real costs of doctors’ in-hospital treatment,” concluded Schoeman.
Will we see new entrants?
With medical aid schemes under pressures due to rising medical costs and increasing regulation we expect the difference between what they pay for medical emergencies and what these emergencies cost medical aid members to continue to widen. There will definitely be a market for insurance products that assist medical aid members in covering this shortfall. Will other insurers enter the market in the coming months? We will have to wait and see.
Editor’s thoughts:
It has taken more than a year to resolve the legal wrangle between Guardrisk and the CMS. Now that it is legal again, would you consider purchasing or selling ‘gap’ insurance products? Add your comments below, or send them to [email protected]
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