Record life claims confirm value of financial advice

South African life insurers will have paid-out an estimated R25 billion in pandemic-related claims by the time the country emerges from the third wave of Covid-19 infections. This staggering number, which is over and above the expected non-pandemic claims for the 2020 and 2021 years, highlights the economic and social contribution made by the insurance industry during crisis. It also draws attention to the valuable role played by financial advisers in ensuring that their clients have needs-appropriate life insurance cover in place. George Kolbe, Head of Life Insurance Marketing at Momentum, illustrated the value added by a single insurer by noting that Momentum had paid almost R60 billion in claims to its life insureds since inception, some 18 years ago.

145% surge in respiratory deaths

In 2020, Momentum Life Insurance paid R5.5bn on its individual life portfolio, including R4.2 billion in death claims; R605 million in critical illness claims; R486 million in disability claims; and R198.8 million in income protection claims. Total claims paid were 19% higher than that for the 2019 year. 

The bulk of this increase can be attributed to Covid-19, with deaths resulting from respiratory complications, under which Covid-19 is characterised, rising by a dramatic 145% year-on-year. The R370 million paid out for 217 Covid-19 death claims in 2020 means that respiratory deaths now occupy third position in cause of death by value of claims paid, at 19%. The top two reasons for 2020 death claims remain cardiovascular disease at 28% followed by cancer with 25% of claims. It is, however, increasingly likely that respiratory deaths will top the chart in 2021, given that Momentum has already paid R1.4 billion for 842 Covid-19 deaths up to end-July. 

Jenny Ingram, Head of Product Development at Momentum Retail Life, confirmed that Covid-19 had a huge impact on the insurer’s 2020 statistics, with worse expected for the current year. “The good news is that our product design and philosophies around claims and underwriting have withstood the challenges presented by pandemic … we have not had to change our rules,” said Ingram. 

An assessment of death claims versus critical illness claims proves telling insofar human behaviour during crisis. While mortality claims were higher, and retrenchment claims surged by 300%, morbidity-linked critical illness claims were down year-on-year for the first time in the insurer’s history. “People did not go for their usual consultations during lockdown,” explained Ingram. And that is why both life and medical insurers are concerned about the indirect impact of pandemic on their future claims experiences. 

Record claims illustrate value of advice

Kolbe spent some time during his presentation focusing on high value claims to illustrate the significant contribution that financial advisers and the financial planning profession make in protecting individual and business consumers from disaster. “We share information about high value claims because it tells a powerful story about the great job our financial advisers are doing in ensuring their clients’ financial futures,” he said. The largest life cover claim settled during 2020 was for R70 million, for a Covid-19 death that occurred just three months after the deceased went on cover… Large claims in other cover categories included R19.6 million for a disability claim due to major depression with cognitive impairment; R5.7 million for a critical illness claim due to a cardiovascular event; and R3.7 million for an income protection claim. 

Ingram mentioned that the number of claims exceeding R10 million had doubled in 2020 compared to 2019, topping R1 billion in total value. “This goes to show that it does not matter how wealthy you are, death happens to everyone and can happen at any time,” she said. High value claims make for great headlines; but journalises were reminded that many of the R10 million plus pay-outs included provisions for policyholders’ busines interests. According to Kolbe, these high value covers are put in place to look after the families of the deceased as well as to sustain their businesses following death or disability. 

An area that life insurers often gloss over is that of claim repudiation. Kudos to Kolbe for dealing with this issue within the first 10 minutes of his talk, revealing that 7% of total claims, by value, had been rejected in 2020. “We stake our reputation on paying claims and delivering on our promise to clients; but the process must be managed responsibly,” he said. “There are some claims that do not qualify for a pay-out which are lumped together and reported as repudiations”. For 2020, 6.32% of total claims were repudiated due to the claim not meeting policy definitions; 0.47% due to policy exclusions; 0.14% due to non-disclosure; and 0.1% due to suicide. 

Getting to the meat of repudiation statistics

Repudiation statistics cannot be commented on in isolation as it is easy to jump to inaccurate conclusions. For example, a repudiation for not meeting policy definitions could be due to an insured submitting a claim too early in a course of treatment… Other issues crop up when the insured attempts to claim for a condition that was never on cover in the first place. As far as suicides go, Momentum reported a surprising 39% decrease in suicides year-on-year 2019 to 2020. This was due to a higher than expected suicide death claim experience in 2019 coupled with a decrease in the number of suicides during the most severe lockdown levels in 2020. 

Dr Reinhardt Erasmus, Medical Adviser to Momentum Retail was on hand to present a case study that showed “the absolute value and life-altering potential that financial planning can have in a client’s financial wellbeing”. The study covered the highs and lows of battling a dread disease and highlighted the value of holistic financial planning in ensuring that clients have a needs-appropriate portfolio of life insurance covers that pay out for a wide range of events. The conclusion: An appropriate basket of covers will prove to be a Godsend when policyholders suffer death or critical illness and / or disability events. 

Writer’s thoughts:
The 2020 Momentum claims statistics gave clear insights into the actual cost incurred by insurers during the Covid-19 pandemic. Momentum said it paid out R370 million during the first wave, with the second and third waves costing R1.4 billion to July 2021. Given the sheer magnitude of pay-outs, are you still confident in the life insurance industry’s ability to meet your client’s death, disability, income protection and severe illness claims as they arise? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts editor@fanews.co.za