New Policyholder Protection Rules Action List

The amended Policyholder Protection Rules (long-term and short-term) published on 17 December 2010 come into force on 1 January 2011 and there is a lot for insurers to do.

The short-term rules only apply to personal lines policies where the policyholder is a natural person insuring personally and not their businesses.

Current policies
Any time limit in an existing policy for instituting legal action must be extended by the 90 day period given to the policyholder to make representations regarding the rejection or dispute of a claim or the quantum of a claim.

Existing policies
Any policy entered into from 1 January 2011 may not include the 90 day period given to policyholders to make representations regarding a rejected or disputed claim in any time limit for the institution of legal action.

Every policy from 1 January 2011 must allow a period of not less than six months after that 90 day period for the institution of legal action.

Thus, every policy with greater limitations must be amended. This can be done by an endorsement as follows (depending on the wording of the rest of the policy):

“Despite anything else in this policy:

1. Any time limitation provision for the institution of legal action provided for in this policy is extended by the period of 90 days allowed for the policyholder to make representations to the insurer in respect of any decision to reject or dispute a claim or the quantum of a claim for a benefit under the policy within a period of 90 days after the date of receipt of the notice of rejection or dispute.

2. The policyholder has 6 months [CHANGE ACCORDING TO POLICY LIMITATION PERIOD] after expiry of that 90 day period for the institution of legal action.”

Claims rejection from 1 January 2011
Insurers have to make up their minds about a claim within a reasonable time after receipt of the claim. What is a reasonable time depends on the circumstances especially how soon the documents required to consider the claim are received by the insurer and when the claims investigations are complete (the investigations must be done within a reasonable time).

The decision to accept or reject or dispute the claim must be notified to the policyholder within 10 days of taking the decision.

The written notice must inform the policyholder of the reasons for the decision. That does not prevent the insurer from relying on other reasons which come to light subsequently.

The notice of rejection must give the policyholder not less than 90 days “of receipt of the notice” to make representations regarding the decision to reject or dispute the claim. Because the period runs “after the date of receipt of the notice”, the insurer will have to make sure that the notice is received by the policyholder so that they know when the 90 days begins to run. Policies should now invariably have an address for delivery of notices appointed by the policyholder.

The policyholder must be informed of their right to lodge a complaint with the appropriate ombud under the Financial Services Ombud Scheme Act, 2004 with information about the relevant provisions of the FAIS Act regarding the lodging of a complaint in plain understandable language. Presumably the words used by the ombud itself are sufficient. Using the “How to Complain” information on the FAIS ombud’s website, the following sort of thing should be said:

In order to complain you must lodge a complaint with the appropriate ombud; if

1. The complaint is against us as your insurer you must lodge a complaint with the Ombud for Short-Term Insurance. The procedure for lodging a complaint may be found on the website for the ombud for Short-Term Insurance (www.osti.co.za/logde a complaint) or may be obtained from the Ombud (telephone 011 726 89000; fax 011 726 5501 or email [email protected]; physical address JCC House, 2nd Floor, 27 Owl Street, Johannesburg, 2092. [Long-term insurers must substitute details of the Ombudsman for Long-Term Insurance]

2. If you have a complaint against the intermediary (e.g. a broker or underwriting manager) you must lodge a complaint with the FAIS ombud. You must lodge a complaints registration form that may be downloaded from the FAIS ombud’s website (www.faisombud.co.za/how to complain) or obtained from the FAIS ombud (telephone 012 4709080; fax 012 3483447 or email [email protected]; physical address Eastwood Office Park, Baobab House, Ground Floor, Corner Lynnwood Road & Jacobson Drive, Lynnwood Ridge, 0081).

You must read the form carefully, gather the necessary information, complete the form, sign the form and return the form to the appropriate ombud’s office including supporting documents (for instance, correspondence, policy documents, application forms and contact details).”

Any time limitation clause in the policy for institution legal action and the implications of the provision must be drawn to the attention of the policyholder in an easily understandable manner. For instance:

“Our policy requires you to institute legal action within 12 months [CHANGE ACCORDING TO POLICY] after receiving this notice plus the 90 day period referred to above. If you do not institute legal proceedings within that time you will no longer be entitled to claim the benefit under the policy. If we persist in our rejection or dispute of your claim after you have made representations, you should consult a lawyer who must institute the action for you within that time limit to avoid you losing your right to claim.”

If there is no time limitation provision in the policy you need to draw the policyholder’s attention to the prescription period under the Prescription Act 1969 and the implications of not suing, in an easily understood manner. For instance:

“If you do not institute legal proceedings against us within 3 years after the end of the 90 day period referred to above (or any longer period you may be entitled to because of a disability (for example being a minor under the age of 18 years or unconscious) you will lose the right to claim any benefit under the policy. Therefore if we persist in our rejection or dispute of your claim after you have made representations, you should consult a lawyer who must institute the action for you within that time limit to avoid you losing your right to claim.”

Where the letter of rejection or dispute is written by a person other than the insurer itself (a broker or underwriting manager for instance), the notice must include the name and contact details of the insured and a statement that any recourse or enquiries must be sent directly to that insurer. This is a pity because it takes claims handling out of the hands of a claims administrator or underwriting manager especially appointed to handle claims. Something like the following is recommended:

“This claim has been rejected or disputed [or the quantum is disputed] on behalf of your insurer [insert full name and contact details of insurer] and any recourse steps you want to take to challenge the rejection or dispute and any enquiries must be directed directly to that insurer. We recommend that you send us a copy of any documents sent to the insurer.”

If the policyholder makes representations within the 90 day period, the insurer must within 45 days of receipt of the representation send a written notice to the policyholder of its final decision whether to accept, reject or dispute the claim or quantum of the claim for benefits. This 45 day period does not suspend the limitation period. The notice given by the insurer within the 45 day period must:

1. Inform the policyholder of the reasons for the decision.

2. Include the facts that informed the decision. This means that a summary of the factual basis for the rejection or dispute must be given. We recommend that this be done plainly and as briefly as possible without leaving out any material facts giving rise to the rejection.