A giant victory for insurance product transparency

Gareth Stokes, FAnews Online Editor

South Africa is among the best in the world when it comes to insurance product innovation. This ability is as much a blessing as a curse. As product providers strive to offer the best possible mix of cover (for insurance consumers) and return (for shareho

According to Peter Dempsey, deputy chief executive of the Association for Savings and Investment South Africa (ASISA), the decision was taken because “the absence of standard industry disclosures and definitions has made it difficult for consumers to compare these products and understand when claims will be paid by the insurer.”

An end to disability and dread disease confusion

In their 2008 Annual Report the Office of the Ombudsman for Long-term Insurance reveals that clearer communication of policy terms (including details around exclusions and event triggers) would go a long way reducing the number of complaints the office receives. Will the critical illness grid inspire insurers to come completely clean on their respective product offerings? Dempsey dispels this possibility. He says that “the nature of critical illness insurance products makes it impossible to simplify them completely.” But standardised disclosures are a major step in the right direction and should make it easier for consumers to select critical illness products going forward.

“Surely that requires simpler definitions,” we hear you cry! That’s certainly what FAnews Online thought when they read the introductory paragraphs of the ‘standardisation’ press release. But as we read further we soon got that “one step forward, two steps back” feeling. Dempsey notes “that standardised definitions do not necessarily mean simpler definitions.” And he believes more detailed definitions (and probable more complex) will “lead to greater consistency in the decisions taken by insurers on whether to pay a benefit or not.” That’s great for insurers – but what about the guys working at the coal face? We can only hope, given Dempsey’s warning, that it’s not too difficult for the layperson to wrap their minds around the ‘new’ definitions.

Given that the “disclosure grid and the definitions were derived by members of the Standardised Critical Illness Definitions Project (Scidep) Committee (set up by the former Life Offices’ Association)” this may prove a hope too far.

Critical illness grid in force from 1 September 2009

From 1 September 2009 life companies will have to provide the ASISA critical illness disclosure grid when selling critical illness products. Using this grid the consumer should be able to clearly determine what percentage of his cover will be paid in the event of one of the four major medical conditions: heart attack, cancer, stroke or coronary artery by-pass graft. Levels of cover will depend on the severity of the event. So – for example – if the insured were to suffer a heart attack the first step would be to determine the severity level of the attack. We assume this determination will have to be taken by the medical profession in line with the insurers’ medical guidelines. Once the insured knows whether his heart attack is ‘Level 1’ or ‘Level 4’ he will be able to use the grid to reveal the percentage of cover paid by his insurer. This percentage varies between 0% and 100% and is specific to each insurer.

The insurer retains its position of power at payout stage. According to ASISA their standardised definitions will override the contractual definitions when a payout is likely to occur. But “where a zero benefit is indicated, the client will have to meet the company’s definition and not the ASISA definition.” This procedure will apply to all critical illness product sold after 1 September this year.

A case where collusion benefits consumers

Many readers will be wondering why ASISA (and its insurance members) had to approach the FSB and Competitions Commission before implementing the critical illness grid. The reason is that collusion on product price or product definition runs foul of the country’s tough competition laws. Various industries have run foul of the regulators for processes which aim to simplify their businesses. We refer to standard tariffs in the medical aid industry and policy templates in the short-term insurance space as example.

We expect these industries will follow the insurance providers’ lead in coming months – because there are times when ‘collusion’ can work in the consumer’s best interest.

Editor’s thoughts: The ASISA critical illness grid creates a standard by which all life insurers assess a particular medical condition and removes the possibility of a similar event being treated differently by different product providers. But consumers must still pay attention to other product features specific to the insurer they choose. Do you think the critical illness grid will make it easier to ‘sell’ critical illness products? Add your comments below, or send them to gareth@fanews.co.za