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Category Life Insurance

Intention is zero tenths of the law

27 November 2007 Gareth Stokes

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
I don't see it happening. They even make it so difficult to complain. You can not get to them at all. You are told jack. I am the bereaved and i have been pushed from pillar to post with all the documents they want with the claim. Some are just addedd as we go along. Why can't they tell us before we open their policies what is needed for claim. If they told me all those things I would not have opened a life insurance. They promise u that your family will be taken care of, that i a damn lie. Your family will get the money when they decide so and you will be six feet under and no where to defend your family. We are on our own with this one.
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Added by Rod, 27 Nov 2007
Why should they make changes? Its easier for them to look for an excuse not to pay and let the broker carry the can. And the FSB seems quite happy to turn a blind eye again!!!
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Added by JS, 27 Nov 2007
Onder geen omstandighede word dit deur die Versekeraars gedoen nie.Die Makelaar is deurentyd uitgelewer.Sodra daar n eis ontstaan dan raak die Versekeraars oorhaastig om vas te stel of daar nie erens n uitsluiting is wat dalk kan meebring dat die eis geweier word.n Verskoning wat ek op n vergadering met n Versekeraar gehoor het is dat die produk verkeerd deur die Makelaar verkoop is.Onthou die Markverwante polisse wat deur n Groot Versekeraar in sy advertensies mee gespogk is dat tot 20%plus oor n vyf/tien jaar termyn verdien kan word.Die verkope het floreer.Toe die Mark in duie stort toe is dit die Makelaars wat dit verkeerd bemark het.
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Added by JM, 27 Nov 2007
THE FAT CATS MAKE THE MONEY AND MAKE THE RULES WE CARRY THE CAN OF sh,,,,,,,. WE SHOULD STOP WRITING FOR THEM. ONE MONTH NOTHING FOR A/ GREEN NEXT MONTH NOTHING FOR COMPANY BLUE .. PINK BLACK ..ETC. THEY HAVE ALWAYS TREATED US AS sHI AND LOW LIFES
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