Suicide is playing Russian roulette with the life industry

The World Health Organisation reports that the annual suicide rate has increased globally by around 45% over the past 50 years. The insurance industry has not escaped the impact of this concerning trend and may even be unaware of its full extent.

Insurers are not liable to pay for acts self-inflicted, since the insured event should be an unforeseen one. The suicide exclusion clause is a compromise made by the insurance industry, aiming to pay valid claims while suppressing as far as possible the anti-selective risk of individuals taking out life insurance policies only to bring about the insured event themselves.

The long road of proof

In order for a formal verdict of suicide to be arrived at, there has to be agreement between a number of parties, namely medical practitioners, coroners and criminal investigators. The intent of the deceased at time of death, and the method or circumstances causing the individual’s death are two factors which are often taken into account to establish whether the cause of death was suicide.

Depression, which can be underwritten, has been shown by some studies to be present in over 90% of people committing suicide. However, it is most often the intent at time of death which dictates the official cause of death and which is not always easy to prove, especially if the deceased did not leave a suicide note.

The mirror of reality

Here are some examples of distorted realities. An individual consumed a large quantity of rat poison and subsequently died. The Ombudsman declared that the insured may not have known that it was rat poison and the insurer had to honour its claim obligation.

Sometimes the method itself sheds light on the intent. Such was the case when an individual jumped in front of a moving car and was instantly killed. The Ombudsman ruled that the act was irrational and the official cause was recorded as a suicide.

Beware of the two year loophole

A common trait seen in insurers’ books is the claims spike following the expiry of the two year suicide exclusion clause. This spike has been seen globally, not just in South Africa, and is a clear indication of anti-selection.

It would appear that these claimants have actively waited for their insurance policy to become suicide neutral before committing suicide. The standard suicide exclusion period of 24 months may thus not be sufficient, or the deterrent previously believed to be. A longer exclusion clause can be argued to give more time to the insured to reconsider his or her intentions, but would also penalise the beneficiaries left behind by not paying out on suicide claims that would previously have been paid.

There is also evidence that suicide claimants may be staging claims to appear valid during the exclusion period. An Australian study has shown that around 15% of suicidal people surveyed had contemplated taking their own lives by means of a traffic accident, and as many as 8% had actually attempted it. Their reasons were simply to avoid the stigma of suicide and to ensure their family received the insurance payout.

A big jump

An analysis of claims on two insurers’ books has shown a clear pattern of accidental claims dropping after the exclusion period and suicide claims immediately increasing. While this does not prove that suicides are being concealed as accidents, it certainly adds weight to the argument and could mean that suicides contribute between 10% and 20% of total claim amounts. This is a big jump from the current 3% to 8% being reported.

It may also shed light on how the market might react should insurers lengthen the suicide exclusion period. Claimants may find alternative ways to hide their true intentions and receive life insurance payouts. It is certainly a challenging situation.