Side-stepping the non-disclosure landmine
Nothing better illustrates the impact of life insurance on the domestic economy than a snapshot of the claim pay-out history of one of South Africa’s big five life insurers. Case in point, Liberty’s Lifestyle Protector solution has paid out more than R46 billion to insureds and their families over the past 20-years.
Delivering on your promise
In a recent media roundtable presentation, this writer learned that the insurer had paid out R33.2 billion in death claims to some 20 000 surviving families; more than R7.1 billion to 14 000 clients following the diagnosis of a critical illness; and more than R5.6 billion to 9 000 clients for loss of income. “Life insurers sell a promise to their clients … clients pay their premium, and we will pay their claim; and that is exactly what this solution has done over the past two decades,” said David Jewell, Managing Executive for Retail Solutions, at Liberty. At present, there are around 400 000 families covered under the solution with a total in-force sum assured of about ZAR1.5 trillion.
The roundtable discussion considered best practices across disciplines in the life insurance policy space, including advice, claims and underwriting. More specifically, it sought to investigate the advice or underwriting errors that might lead to a claim being rejected. Jewell noted that a claims repudiation was “really awful” for all stakeholders, as beneficiaries or claimants did not receive an expected benefit; financial advisers often faced unfair criticism for advice shortcomings at policy onboarding; and as a life insurer, repudiating a claim “was the last thing that the insurer wanted to do”. It turns out that many of the problems that creep in at claim stage can be avoided through sensible, thorough underwriting discipline.
Now for a life insurance theory refresher…
Underwriting refers to the consideration given to an application for insurance to determine whether the policy applied for should be issued or not, and if issued, at what premium. It is carried out at the policy inception stage and is aimed at getting the life insured to disclose any information that will influence their risk profile, including current and past health conditions; occupation and duties of occupation; and hobbies, travel and pastime activities, to name a few.
You know the drill, dear reader. All things being equal, a person who has high blood pressure and a history of heart attack or stroke in the family presents a higher risk to a life insurer than a person who is in excellent health. The underwriting process is the start of the relationship between an insurer and insured. “The quality of the disclosures that we get up front enable us to risk assess and set terms for the policy; the disclosure has a big bearing on whether or not we pay a claim or end up repudiating it,” Jewell explained, passing the baton to Lisa Gibbon, Divisional Head for Onboarding at Liberty to further the discussion.
It is up to a life insurer’s actuarial team to determine an adequate premium rate for a standard life, based on an acceptable mix of risk factors. The underwriting process considers the risks that a potential client presents to the insurer before determining whether or not a client can be accepted at the standard life premium rate, or whether a premium adjustment or cover exclusion is necessary to onboard that individual. “If we have all of the information, we can assess the risk accurately … but things can go wrong where a client does not think that something is important to disclose to us, or gets advice that they need not disclose it,” Gibbon said.
Complete and honest disclosure
Failing to make a complete and honest disclosure could lead to an insured’s future claim being repudiated because, had the insurer had all the information at the underwriting stage, it may have reached a different decision about accepting the risk. The best way for potential clients to avoid tripping up over the non-disclosure obstacle is to give the insurer as much medical / occupation information as possible and allow the insurer to decide what is relevant and what not. “It is the adviser’s duty to make sure consumers are educated on why disclosure is critical,” said Kobus Kleyn CFP®, who was invited to the event to offer an advice perspective. He pointed out that a life insurance policy was the consequence of great financial advice.
Disclosures affect cover and pricing and, at claims stage, determine whether an insurer can live up to its promise. As such, advisers must educate their clients about the underwriting process and ensure that they understand what they need to disclose to the insurer, and why. Clients should share as much of their medical history as possible with the insurer, even if they cannot remember exact dates and / or details; an awareness of an event allows for further investigation if the insurer deems it necessary.
The media roundtable spent some time on the non-disclosure topic, despite only 0.3% of Liberty’s 2023 claims being repudiated for this reason. Your clients, and their families, are more likely to suffer a repudiation due to a condition not being covered; the claim not meeting the policy criteria; an exclusion on the policy; or a policy being inactive, due to premiums not being paid. Liberty also shared some interesting statistics re life insurance underwriting and claim pay-outs. They observed that around half of new life insurance applications qualified for a policy at standard terms while the other half were underwritten with a premium loading and / or the exclusion of certain events, or not at all.
“About 8-9% of applicants get declined, which means we are unable to take on the risk and unable to offer cover,” Jewell said. At claims stage, it turns out that one-in-four claims requires contract validation, a process the insurer describes as ‘the process by which we perform a series of checks that determine whether the insured’s contract is valid or not’. This process flags ‘early duration’ claims; discovers pre-existing conditions; and picks up any material non-disclosures, among other issues.
Plain sailing through the claim stage
Assuming your client made full and honest disclosures during underwriting, and has kept the insurer informed of subsequent changes that may impact the risk, the claim stage should be ‘plain sailing’. Kleyn swears by the Liberty tele-underwriting team as the best way to check all boxes at the client underwriting stage. As for death claims, he advocates for allowing the insureds’ family time to mourn; treating the bereaved with empathy; and clear communication between adviser and insured with regards the documents required to start the claim process.
“If you want to expedite the claim you need to follow the process that is clearly set out by the insurer on its documents and / or web platform,” Kleyn said, before reminding his advice peers about the pitfalls of death claims on an insurance policy versus a retirement annuity. “Per the Long-term Insurance Act, if your clients ex-wife is still listed as a beneficiary on a life insurance policy, it will pay out to your ex-wife … on a retirement annuity, section 47C of the Pension Funds Act allows for disbursements at the trustees’ discretion,” he said.
Financial advisers who follow the insurer’s processes, and who submit claims electronically, can assist in getting their clients’ claims paid quickly. In Kobus’ experience, an immediate expenses benefit claim paid after just 13-office-hours, and a ZAR10.8 million death claim was settled after two weeks. The 90-minute conversation was stacked with useful content, making it impossible to share all the advice, claim and underwriting gems it contained. To wrap up, you might consider the following common-sense approach to advising your clients on their death, disability and severe illness benefits, as shared by Kleyn.
A total waste of monthly insurance premium
He reminded the audience that certain advisers had, in the past, contributed to the material non-disclosure problem by trying to ensure that their clients’ policy applications were accepted. This was an absurd approach to financial advice giving with inevitable, negative consequences. “There is no use in your clients paying ZAR1 000,00 per month in premium, over 20-years, and then finding that the claim is not going to be paid due to material non-disclosure,” Kleyn concluded.
Writer’s thoughts:
If the Liberty media roundtable discussion holds true, then we can conclude that all is going swimmingly in SA life insurance underwriting, and that material non-disclosure is largely in check. Do you agree; and are you overall happy with the underwriting decisions that your life insurance partners make? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts editor@fanews.co.za.
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