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Category Life Insurance

The long road to consistent exclusion practices

21 November 2007 Gareth Stokes

The National Financial Planners (NFP) hosted the fourth annual Exclusions Grid panel discussion in Johannesburg yesterday. The Exclusions Grid 2007 provides a summary of the death and disability benefit exclusions applied by some of South Africa’s major life insurance companies. Companies and products included in the grid are Momentum Myriad, Discovery Life, Old Mutual Green Light, Sanlam Matrix, Liberty Life Lifestyle Protector, Altrisk, 1 Life Direct and Metropolitan Odyssey.

The Exclusions Grid creates a foundation to discuss general exclusions with the long-term goal of removing unnecessary exclusions and moving toward a standard approach from insurers across the industry. The panel discussion offered various financial intermediaries the opportunity to put questions to representatives from the life industry regarding the general exclusions on life insurance policies. NFP welcomed the panel which was made up of Altrisk, Liberty Life and Old Mutual – and noted disappointment that more of the companies had not been prepared to participate in the open debate.

Definitive lists of little use

One of the issues raised during proceedings was around the “Participation in hazardous pursuits and/or risky activities” exclusion on disability benefits. Each of the insurance companies carried this general exclusion, with minor differences. The majority of the companies excluded the activity if practiced on a regular basis with the option to cover the risk at an adjusted premium. Sanlam Matrix and 1 Life Direct exclude hazardous pursuits altogether.

What troubles financial advisers on this issue is that apart from Sanlam Matrix, none of the companies polled are able to provide an exhaustive list of the activities considered hazardous or risky. The standard response in this regard is “There is a definitive list, but this is not exhaustive.” NFP points out that “In the instance where no list is provided or the company determines at their discretion what they deem to be a ‘hazardous pursuit’ then the decision is purely speculative.” This places additional pressure on the financial adviser who will have to obtain frequent updates from the insurer in order to supply ‘fit and proper’ advice to his client.

For the record, Sanlam Matrix publishes the following activities in its exhaustive definitive list: Rock climbing, mountaineering, hang-gliding, micro-lighting, acrobatic flying, paragliding, parasailing, parachuting (whether sky-surfing or sky-diving), speed contests of any kind, professional contact sports, and diving (including cave or commercial diving). FAnews Online is quite sure there are a few dangerous activities not included in this list; but must assume Sanlam has done their homework in compiling it.

Elimination of ambiguous wording

Another concern raised by the NFP is over the use of ambiguous and unclear wording in exclusions. Practical examples can be found in the general exclusions: “Violation of a criminal law, consumption of alcohol and inhalation of fumes.” Where consumption of alcohol is concerned, different insurers use the word “excessive”, “under the influence” or “above the legal limit” to categorise levels of consumption that would trigger the exclusion. These loose definitions could easily lead to problems at claims stage... The term “excessive” is open to interpretation and varies from person to person – while the term “under the influence” hardly goes to qualifying the amount of alcohol involved. The NFP believes the consumption of alcohol exclusion should refer to “above the legal limit” only.

They also feel that the inhalation of fumes exclusion should include the disclaimer “intentional” and that the violation of criminal law should be preceded by the words “deliberate” or “wilful”.

Some way to go

There were some positives from the discussions. The NFP thanked the insurers for their efforts in reducing the number of standard exclusions over the past four years. And advisers were thrilled with Altrisk’s decision to recognise prior insurance in determining the two year suicide exclusion period. But the consensus seems that insurance companies have a long way to go before all the concerns raised at the function are addressed.

Financial intermediaries are burdened with the financial liability associated with giving financial advice – and as such clear, consistent and recorded policy exclusions must be a priority. The status quo, where insurers use a catch-all exclusion to block the majority of claims and then haggle with the insured to settle ex-gratia, cannot prevail.

Editor’s thoughts:
Financial advisers attending the panel discussion on Grid Exclusions raised concerns about the attitude of insurers to some of the general exclusions. Insurers countered that while policy wording appeared harsh they had discretion to interpret wordings on a case by case basis. The result of a sympathetic consideration would be an ex-gratia payment or similar settlement. The argument was that financial advisers had to sell and communicate the policy based on policy wording (and the legal impact of such words) and nothing else. Is there a need for insurance companies to further qualify the exclusions in the policy document? Submit your comment online, or by email to gareth@fanews.co.za  The Exclusion Grid can be downloaded here (PDF file 428KB).

Comments

Added by Herman, 22 Nov 2007
Hi, I unfortunately did not receive an invite this year or perhaps missed it. Kindly let me have a copy of the grid. Regards Herman
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Added by Mariaan, 22 Nov 2007
I would also like to have a copy of the grid please.
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Added by Francois Nienaber, 22 Nov 2007
I believe that there is a need for insurance companies to further qualify the exclusions on the policy documents & application forms to avoid clients from reading in-between the lines and false pretences by brokers because they do not know the implications. The above should clear a lot of problems on claims.
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Added by Gillian, 22 Nov 2007
Please make a copy of the grid available.
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Added by Chris Breytenbach, 22 Nov 2007
I agree with Gillian and Mariaan - a copy of the grid would help in compiling all the required information that is required in an FNA.
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Added by Chris Breytenbach, 22 Nov 2007
Another area of equal concern is the various benefits available on each company's trauma / health products. I know of one company that provides this type of cover on 4 different levels. What confuses me the most about these products is the medical terminology used to describe the benefits by the companies. I am not a doctor and I doubt whether there are any qualified doctors presently practising as brokers. I have not come accross one doctor who is really clued up with the Insurance industry jargon but brokers are now expected to be clued-up with medical jargon. Some form of standardization in terms of benefits and the naming of benefits or conditions should really be considered as well.
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