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Category Life Insurance

Compassion asked for as Ombud takes insurer to task

22 April 2014 Jonathan Faurie
Jonathan Faurie, FAnews Journalist

Jonathan Faurie, FAnews Journalist

When an individual takes out a funeral plan, there is a stipulation within the policy wording that says that if the product provider is not notified of the death within a six month period following the death, it will be within its rights to deem the claim as invalid.

We all know the emotions which are associated with a funeral, especially if it is a close family member. While thinking about funeral and life policies should be significant considerations in the weeks and months following a death, it is often not the case as families come to terms with the loss.

There was a reason I was late

This happened at Safrican. The deceased, who was insured under an individual funeral plan, issued by Safrican, passed away on 26 January 2011.

The claim was submitted by his father, the beneficiary, on 15 November 2012. The primary reason provided for the late notification was that the beneficiary was unaware of the existence of the policy and only discovered it when he sorted out some files that belonged to both himself and the deceased.

He also stated that his son had lived with them up to a year prior to his death, and used the beneficiary's postal address. As far as he knew no mail was ever received from the insurer, including at the time after death when the premiums had ceased due to the premium payer passing away.

In addition, the beneficiary had lost both his son and his brother within the same period. The beneficiary stated that this had prevented him from dealing with his affairs such as the sorting out of documents.

The claim was submitted within three days of the discovery of the policy but still 16 months after the expiry of the six months waiting period. Safrican submitted a letter from its administrator, in which the administrator declined the claim on the basis that the claim was lodged outside the prescribed period.

The matter was then taken to the Office of the Long-Term Ombudsman who asked Safrican to reconsider its ruling on the matter.

Rational thinking rules the day

The Ombud reasoned that it was within its rights to ask Safrican to reconsider the claim because of a few reasons. Firstly, Safrican didn't state that it would have been prejudiced if it paid out the claim at this late stage. Secondly, the policy was ten years old and was up to date up to the time of the death of the principle policyholder.

However, if this office was precluded from exercising its equity jurisdiction on the basis that the insurer's repudiation of a claim was in accordance with the provisions of the policy, the office would be precluded from exercising equity in just about every case.

Bearing in mind information from all parties, this office exercised its equity jurisdiction in favour of the complainant and issued a provisional determination. Safrican objected to this and a final determination was necessary.

No joy with the final roll of the dice

Despite objecting to the provisional determination and taking it on appeal, the Ombud still ruled in favour of the complainant.

Their reasoning was that they would be significantly prejudiced if it is asked to make the payment of the claim, as it will be difficult for the insurer to assess the validity of the claim, investigate the circumstances that led to the death verify the documents and vet credentials.

Further, the policy was in arrears and had been inactive and the complainant knew of the existence of the policy and even if he could not find the policy documents he should have notified the administrators of the death. Therefore, Safrican felt it was well within the terms and conditions of the policy to reject the claim.

But again the Ombud ruled in favour of the complainant. In this case, the policyholder died of asthma, which is deemed a natural cause. The Ombud further pointed out that the policy's only exclusions are a crime-related cause of death and suicide. No details were given by Safrican as to the further investigations it would have undertaken in this case. This process would have been followed regardless if the claim was submitted during the prescribed time frame.

With regards to the second concern raised by Safrican, the policy went into arrears after the deceased passed away as he was the premium payer. According to the beneficiary, his late son used his address as he had moved to an informal settlement. If the administrator had sent letters to the deceased warning him that the premiums were not being received, the deceased's father would have received the letters at his home, and he would probably have noted that they came from the insurer or administrator, prompting him into action.

Finally, the Ombud ruled that if the beneficiary had known about the policy, he would have acted within the prescribed time frame as the financial burden of his sons burial was incurred by him at a significant cost. The fact that the beneficiary lost both his son and his brother within a short space of time also contributed to the late submission.

Is there space for an intermediated player?

Two of the major challenges with this case were the level of education regarding the financial services industry and the lack of communication between the insurer and the beneficiary.

Traditionally, funeral plans are sold direct. But is there not a space for an intermediated player in this case. What was sorely lacking in this case was an adviser who would have formed the vital link between the product provider and the beneficiary. If an adviser had been present, the claim would have been lodged in time and all the relevant information regarding the cause of death and the status regarding payment on the policy would have been given to the insurer by the adviser.

The problem with this would be profitability. Would it be profitable for advisers to operate in this market? On the outset, it wouldn't as these policies are traditionally sold to lower income earning households, so there would be no room to earn commission or an on-going fee.

However, there is a growing middle class who are second or third generation workers coming from these households. They have grown up with these types of policies and will continue to purchase them as a mean of financial protection. There is also a growing number of middle to higher income earners who are also starting to purchase these policies.

The goal of the Financial Services Board (FSB) is to offer financial services products to the greatest sector of the population possible. This includes lower income earners. The problem with direct insurers is that once the policy is purchased, there is very little guidance on the policy given to the policyholder or possible beneficiaries. This can only be given by advisers.

Editors Thoughts:
There needs to be a way in which advisers can operate within this market while still earning some form of income. This is the challenge that the FSB finds itself in. If you want to sell products to lower income earners, they need guidance at claims stage. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

Comments

Added by Ayanda, 23 Apr 2014
The rule of law is systematically being eroded in South Africa and replaced by the rule of man. That is, rule by the discretionary intervention of a single character enforcing his own views, or those of a clique, on others, Established contract and common law are now simply ignored.
Why should insurers bother to write insurance contracts at all when they are being re-written for them ex post facto by persons who no longer act as dispassionate arbiters but as as deeply biased consumer activists playing at Robin Hood?
So called 'equity' may only be applied under established South African jurisprudence where there is a complete absence of clarity in the contract, in the law or in the case law. Not sommer just as you please, O Boet!
The cost of international reinsuarnce is about to skyrocket as the international community discovers that South African insurance contracts are no longer worth the paper they are written on. Reinsures will no longer know what risk they are being asked to underwrite. Simply reading the issued policy contracts no longer reveals the risks insured. Like for the insurers themselves, it becomes a casino-style 'crap-shoot' for them, wholly dependent on the mood, inclination and predelictions of whomsoever wears the mantle of authority for the time being. Precedent too, means nothing.
My advice to Safrican is this: if you want to serve justice, the rule of law, consumers, the industry and yourselves for the future, take this case the whole way - and may God save us from those who clearly understand so little of the law, how over hundreds of years it came to be what it is, and why it is so very unwise to tamper with it in a desire to produce some new form of the equity, equity that is already well catered for in our established precedent and jurisprudence.

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