Complaints shed light on long term insurance trends
The Ombudsman for Long Term Insurance 2011 Annual Report reveals that 4254 insurance complaints were finalised during the latest 12 months. Over that period the scheme recovered an impressive R104 million on behalf of policyholders and awarded an addition
The three determinations made last year involve issues that were not clear cut. One case centred on a rejection based on pre-existing medical conditions, while another dealt with an insured’s request for periodic increases in the monthly disability benefits payable under an income protection policy. Each of these cases was determined against the insurer. (Full details of these determinations are available on the office’s website at http://www.ombud.co.za/). The third case was not published due to the scheme’s Rule 3.8 which prohibits publication if the identity of the complainant is likely to be exposed. The member companies (insurers) in the three determined cases were Clientele Life, Liberty Holdings and Momentum Holdings.
Non-life complaints dominate
One of the alarming statistics from the 2011 Annual Report is the number of non-life complaints reaching the Ombudsman’s office. A staggering 37% of complaints relate to funeral policies with 11% arising from credit life policies and 9% from health insurance products. Galgut ascribed the spike in funeral policy complaints to the growth in sales of such policies as well as an increased awareness of the complaints resolution process. He singled out three common causes of dissatisfaction with funeral policies.
First in line is the rate review process and consequential premium increase. “Complainants received notices of premium increases which were very high, in one case resulting in increases of 100%,” observes the Ombudsman. Such increases typically occur in group schemes as insurers attempt to compensate for poor claims experiences. Unfortunately the Ombudsman’s hands are tied in these cases because the increases are actuarially motivated... The question the Ombudsman might ask is whether the insurance providers are pricing the covers accurately at policy inception, or going in low to secure new business!
A second cause of funeral policy complaints is the change of policy underwriter. Galgut notes that certain funeral group schemes change underwriters “alarmingly frequently”. Such frequent changes create uncertainty and confusion among policyholders who often struggle to identify the responsible insurer at claims stage (assuming the scheme or scheme administrator fail to pay it). Policyholders are also at risk in the event the scheme is uninsured during the window period immediately after a change in underwriter.
Paying more than the policy is worth
The third contributing factor to funeral policy complaints involves the insured’s perceived overpayment for cover. “In 2011 the office received a number of complaints where the total amount of premiums paid amounted to considerably more than the sum assured,” says Galgut. This situation is not uncommon in the funeral policy space due to the low sums insured. However, it creates problems for both old and low income policyholders. “The dilemma for the complainant is that if he / she should stop paying premiums the life insured is without cover as the policies only have risk cover with no paid-up value and no premium loan facility,” he says. South Africa is not alone in this regard and the issue was raised by the Insurance Mediator (Ombudsman) in France as far back as 2007. One suggestion, which proved unpopular among French insurers, was that insurers cease asking for premiums as soon as the amount paid by the insured exceeded the amount of the sum assured. Locally the Ombudsman will raise this concern with insurers in an attempt to find a lasting solution.
A worrying statistic to emerge from the 2011 Annual Report is the increase in nondisclosure cases. Industry stakeholders should be concerned about the Ombudsman’s observation that poor underwriting standards lie at the heart of many of these complaints. “The perception is that underwriters in some cases overlook very obvious issues which should have been investigated,” observes Galgut. “In discussions with employees at re-insurers our perception that there appear to be more instances of poor underwriting was confirmed!” Poor underwriting decisions have severe implications for both insurer and insured, as evidenced by the following case studies.
The consequences of poor underwriting decisions
A policyholder submitted a medical report which disclosed that he had suffered a motor vehicle accident. His injuries, disclosed in the policy proposal, included a collapsed lung, bruised liver and paralysis from the waist down. According to the report: “The insurer made no further enquiries and issued a policy at standard rates providing life, capital disability, income disability and dread disease cover.”
In a second example an applicant for life cover disclosed that she suffered from major depression and asthma, and that she had received treatment for these conditions. She also disclosed that she had attempted suicide by taking an overdose of medication. A note from her medical practitioner declared that she had received counselling and that her prognosis was good. Again, the insurer issued the policy at standard rates with no exclusions.
“Whether policies are accepted without the necessary investigation and on better than expected terms because of the competitive market, because of less experienced underwriters, or because of business decisions, it does raise concerns not least because it is only at claim stage that complaints about non-disclosure arrive at the office,” concludes the Ombudsman.
Editor’s thoughts: It is dangerous to draw conclusions from the facts released in the Long Term Ombudsman Annual Report. However, based on the facts presented, we could conclude that the bulk of complaints entertained by the Ombudsman originate from non-broker distribution channels. Would you agree that the latest claims statistics paint independent financial advisors in a good light? Please add your comment below, or send it to gareth@fanews.co.za
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