Category Life Insurance

Please explain and they did

27 February 2006 Angelo Coppola

We received an email from an irate reader who basically called into question the statement of intent signed by the major players in the life industry.

We put the assertions to the major players concerned and, surprise, surprise we got two responses. One went some way to address his concerns while another didnt. Guess which one we publish here.

Jooste Steynberg, at Momentum Product Development had the following to say.

Note there has been some editing and hopefully we have maintained the essence of the response.

Question: The assurers are going to use the 65%/70% excuse for values when surrendering or paid-ups and WHO is going to police them on it? What is going to happen to growth on underlying funds? Is that going to be scrapped each time a policy gets paid up and the 65/70% value introduced, even if the policy value has exceeded that amount by far?

Answer:  Momentum is committed to always pay out the higher value of the contract's fund value less contractually defined penalties and the 65%/70% minimum fund value after alteration as suggested by the Statement of Intent.

It is our contractual and moral obligation to keep to our agreement or contract that we entered into with our client and adhering to regulations imposed on the industry. The contract conditions and regulatory guidelines will be monitored through the internal controls and governance mechanisms of the business.

Question: How is the recalculation on existing policies to be done? Including/excluding growth on underlying funds? If included then clients should be much better off then 65/70%. If not then growth on the underlying funds supports this so-called agreement again who is going to police it? Is fund growth going to apply or chucked out of the window?

Answer:  The Statement of Intent specifies that the life companies should calculate the adjustment in fund value that is needed to ensure the 65%/70% minimum on the date of the alteration.

It specifies further that the life companies need to increase this adjustment with the performance of the fund invested in from the date of the alteration to the date of correction with a minimum of 0% and a maximum of 10% per annum.

The recalculation will be monitored through the internal controls and governance mechanisms of Momentum.

We had cases where clients were severely punished for reducing premiums what measures have been built in to ensure corrections on those portions that were penalized will be instituted and again the issue of underlying funds growth comes up.

The Statement of Intent covers premium cessations which is defined as surrenders, transfers of RA's, lapses, term reductions and premium reductions. Momentum will correct policies with reduced premiums as agreed to in the Statement of Intent.

Question: Why discriminate between policy holders who have surrendered [they get no refunds] and those who have just paid up? Is that constitutional?

Answer: Again the surrenders pay for the agreement. The Statement of Intent makes provision for lapsed RA's, i.e. not on the life company's books, to be adjusted on an application basis.

They will be adjusted as per the provisions of the Statement of Intent. Only lapsed or surrendered endowments do not qualify for the adjustments provided for.

The agreement reached between National Treasury and the life insurance industry followed the completion of a thorough process involving experts from both Treasury and the industry.

The final solution balances the interests of all the stakeholders, providing a large degree of restoration for policyholders, encouraging savings, incentivising people to remain policyholders, but without introducing systemic risk in the life insurance industry.

Question: A thought about commissions when I sell my house, I the seller pay the commission If assurers sell a product why should the client [the purchaser] pay the commissionsurely the seller has to pay it?

Answer:  When an owner of a house wants to sell his house, he appoints an agent or intermediary to sell his house on his behalf and in return pays the agent commission.

In the life insurance industry, the policyholder appoints the agent or intermediary to advise him and to perform certain administrative tasks. In return, the policyholder pays the agent commission. The important thing is that all parties are aware of what payments are made for which services provided.


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