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Life insurers prepare for 2008

16 November 2007 Gareth Stokes

The Life Offices’ Association (LOA) recently circulated a media release in which their board composition for 2008 was announced. The release included a number of comments from chief executive Gerhard Joubert on LOA member’s interaction with policyholders

FAnews Online takes this opportunity to congratulate the new LOA chairman and board on their appointments – and wishes them luck in dealing with the many challenges faced by the long-term insurance industry in 2008.

Managing policy holder expectations

Among these challenges is a keener focus on managing policyholder expectation. The key weapon in this fight will be communication, primarily through the annual benefit statements that endowment and RA policy holders will receive from next year. “Unhappy policyholders are usually the result of expectations that are not met. By communicating with policyholders on a more regular basis life companies can manage these expectations, thereby closing the value gap of what policyholders expect to get out and what they actually receive,” says Joubert.

In this regard, life companies will have to apply the best practice guidelines contained in the LOA’s new Code on Benefit Expectation Management. “On-going communication should help ensure that policyholders are less likely to be unpleasantly surprised when a risk premium increases as this would have been communicated to them on an on-going basis,” says Joubert.

A focus on transparent costs

Costs and cost disclosure remain an issue too. Joubert believes recent changes to the LOA’s Code on Policy Quotations (CPQ) will improve the situation substantially. These changes are important in light of the possibility that life companies imposing premium increases on their policyholders in the future. Joubert notes “it is important to strengthen the industry’s self regulation on the disclosure of when and how reviewable risk premiums can be changed.”

The industry continues to move toward more efficient cost disclosure on long-term insurance products too. Despite recent developments on the Reduction in Yield (RIY) figure, LOA chief executive, Gerhard Joubert says: “The LOA views this additional disclosure requirement as an interim solution since the life industry and the unit trust industry are currently looking at ways of standardizing and simplifying the RIY and the Total Expense Ratio (TER) used for unit trust funds to make them less confusing.”

The latest LOA press release confirms that the RIY is meant to provide consumers with a summary of “all their actual charges in one figure.” The RIY has to be “clearly indicated on all quotations for new savings and investment policies.” There were concerns that performance fees were not consistently dealt with in calculating the RIY figure. This prompted the LOA to call for more detailed disclosure and a standardisation of the treatment of performance fees included in RIY figures in future. In addition, the LOA wants its members to make the following disclosure of performance fees with RIY:

- The level of the performance fee included in the RIY, and the benchmark for each fund at which it was determined

- That the actual RIY could be higher or lower depending on the performance of the fund (and the related performance fee levied)

- The minimum and maximum (if capped) performance fee (for each fund). If the performance fee is uncapped this must be clearly stated.

Although the additional transparency is welcomed, these statements simply confirm that there is no single ratio which can be used to compare life company product quotations. What life insurers are effectively saying is the following: “Here is an RIY which may or may not be the final RIY on the product concerned.”

2008 LOA Board Members

We are sure the LOA will continue to work toward fuller and more transparent cost disclosures in the coming year. To this end the organisation has already confirmed its 2008 board members.

Desmond Smith (Chairman: RGA Reinsurance Company SA) takes over from Lizè Lambrechts (CEO of Sanlam Personal Finance) as chairman of the board. The other board members include:

Paul Hanratty (deputy chairman)
MD: Old Mutual (SA)

Mike Jackson
CEO: Professional Provident Society (PPS)

Lizè Lambrechts
CEO: Sanlam Personal Finance

Willie Lategan

Gert Wessels
MD: Assupol Life

Herschel Mayers
CEO: Discovery Life

Nic Kohler
MD: Hollard Life

Bruce Hemphill
CEO: Liberty Life

EB Nieuwoudt
MD: Momentum

Dr Bruce Hodkinson
MD: Swiss Re Life & Health (SA)

Wilhelm van Zyl
CEO: Metropolitan Life Employee Benefits

It is an impressive list of top management from a cross section of the country’s largest long-term insurers.

Editor’s thoughts:

The LOA board will have plenty to keep itself busy in 2008. One of the industry focuses will be to guide the life industry through government’s proposed national social security system. It is imperative that the ultimate solution does not decimate the country’s existing private retirement industry. What other core issues should the LOA focus on in 2008? Send your comments to – or simply submit them online by completing the submission box below.

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