We received a number of comments from readers in response to our recent newsletter on the 2007 Exclusions Grid and thought it appropriate to share some of these comments with you. The Exclusions Grid panel discussion is an opportunity for financial intermediaries to questions some of South Africa’s major life insurance companies on general exclusions contained in death and disability policy wordings. A copy of the Exclusions Grid is available here.
We start with the usual bugbears – consistency, simplicity and clarity. Chris Breytenbach repeated the call to life companies for industry wide consistency in applying terminology. “Some form of standardization in terms of benefits and the naming of benefits or conditions should really be considered,” he said.
And Francois Nienaber wrote “I believe that there is a need for insurance companies to further qualify the exclusions on the policy documents and application forms to avoid clients from reading between the lines; and [the communication of] false expectations by brokers because they do not know the implications.” There is a real need for the exclusions to be presented unambiguously in the policy wordings. This should ensure that upon reading the wording, the adviser and client are left with no doubt as to what conditions result in the exclusion. As one of the panel discussion attendees pointed out: “I would not ever want to be in the position of fighting with a large life company to determine whether the exclusion is valid or not valid.”
Advisors are the ones at risk
Another major problem raised at the exclusion grid panel discussion was that “the information that is being supplied to intermediaries and brokers does not include all the exclusion information…” In today’s regulated environment, the FAIS Ombud inevitably rules that where advice was incomplete, “if there are losses incurred, the broker has to pay the losses.” The product provider’s failure to communicate full lists of excluded risks heightens this risk.
At the end of the day, says Anton Swanepoel, “advisors are the ones who are at risk here and product suppliers have a legal duty to provide to advisors whatever information advisors have to disclose under FAIS.” Readers might enjoy reading the article carried in the FSB Bulletin last year.
What concerns Swanepoel most is that product suppliers are not doing enough to assist advisers in complying with the FAIS Act. He therefore “shares the concerns of the advisers at the forum simply because the duties advisors face under sections 3 and 7 of the General Code of Conduct are extremely onerous. Product suppliers will have to come to the party if we hope to enhance the level of service to clients and the level of professionalism in the industry.”
Intention is worth nothing in the legal world
The insurance companies represented at the exclusions grid panel discussion were Liberty, Old Mutual and Altrisk. During the discussion, the Old Mutual representative suggested: “Our intention is to pay the claim. So we are not trying to avoid paying the claim… But like my colleagues said, we are not going to simply take away exclusions to have a shorter list of exclusions…” He also mentioned that the volumes of ex gratia payments had skewed claims statistics on the application of exclusion clauses. “All the companies are not going to not pay a claim where its obvious that is should be paid,” he said.
This position angered a number of the attendees, with the feeling summed up by the gentleman who asked: “How the hell can we answer on intention? We can’t, we can only answer on writing.” The feeling is that insurance companies should make provision for unlikely events (currently covered by ambiguous exclusion wording) in the premium charged.
The insurance companies’ reliance on ex gratia payments was also questioned: “I seriously wouldn’t like my family to have to rely on an ex gratia payment. If you are going to pay an ex gratia claim take out the exclusion clause and put it in writing what you are going to pay for. We cannot rely on companies making ex gratia payments on claims where the ‘insured’ is not there to fight the battle.”
Financial adviser versus administrative assistant
And the final word from a FAnews Online reader: “The IFA’s have merely become admin centres for the product providers & SARS, yet they carry all the responsibility of the compliance legislation and FAIS based on advice given. Yet the industry is bent on cutting commission. I wonder how many of my colleagues will be in this industry by 2010?”
Editor’s thoughts:
Financial advisers carry the risk of partial or incomplete financial advice to their clients. Problems are bound to occur where product information supplied by the product supplier is incomplete. In your experience, are life companies prepared to qualify policy wordings at the time of policy sale? Comment online or send your thoughts to gareth@fanews.co.za
Comments
Added by Nick, 30 Nov 2007