The report highlighted several interesting trends in the difficult year under review.
Credit life complaints
Given the impact of COVID-19 and the lockdown on employment and the economy, it is not surprising that there was an increase in complaints about retrenchment and loss of income benefits. These are events that are mostly covered by credit life policies. The office dealt with some new and difficult issues generated by claims being declined and the resulting complaints. One such issue is whether an insurer is obliged to pay a claim for benefits related to an inability to earn an income when an insured receives Temporary Employee/Employer Relief Scheme/ TERS payments. The office has not finally determined on this aspect.
Non-payment of premiums and lapsing
Many policyholders could not afford to pay premiums either as a result of loss of employment or income and this led to lapsed policies. According to the Association for Savings and Investment South Africa (ASISA) some 10.2 million long-term insurance risk policies lapsed in 2020.
Although some insurers provided premium relief of one kind or another, this was not universal, and the relief packages were not all equally generous.
Insurers, some more so than others, struggled with service delivery during remote working conditions. Consumers, and even the Ombud’s office, often had difficulty in contacting and communicating with insurers. This led to complaints, particularly when claimants were desperate to have claims paid, e.g. under funeral policies. The delays that were caused not only by insurers but also by some complainants, who had challenges with communication during the lockdowns, impacted on the Ombud’s turnaround times. 52% of COVID-19-related complaints were about declined claims.
Premium reviews on Universal Life policies
The Ombud has written about the problem with Universal Life policies in several previous Annual Reports. This trend has continued and complaints are increasing as more reviews take place.
It was also dealt with in the Ombud’s newsletter, Ombuzz No. 44. The topic was highlighted by the media and by two actuaries in a paper delivered at the Actuarial Society conference in 2020. The Ombud again raised the problem with the Financial Sector Conduct Authority and ASISA and this time also with the National Treasury. As a result, further investigations into this issue will carry on. It is particularly problematic when elderly policyholders who are on pension are faced with high premium increases of up to a 100% or more. The policyholders have paid premiums for many years, sometimes amounting to even more than the sum insured. The reviews leave the policyholders with the difficult option of high premium increases or substantial reductions in cover. It is not a matter which can easily be resolved on an individual complaint basis, it requires an industry-wide solution if there is to be recourse for policyholders.*
The office of the Ombud is receiving an increasing number of complaints where policyholders or beneficiaries were not aware or did not understand that the policy offered restricted cover, in that it only provided accidental cover. These policies are generally sold by means of direct marketing, without advice**. Consumers buying life policies assume that they will be covered, whether the insured event is as a result of accidental or natural causes. If the sales process is not conducted in such a way that it is explained in easy-to-understand terms that the policy only provides accidental cover, and what that means, it can lead to disappointed expectations at claim stage.
There are also policies where the cover starts out for accidental and natural causes, but then reduces to only accidental cover because the life insured does not comply with the insurer’s medical protocol or criteria.
*Don’t hold your breath. In 2002, after a similar problem was identified in the retirement provision field, the so-called “Statement of intent” was signed, token penalties paid, and an undertaking was signed to address the issue. This was eventually taken up in the RDR proposals, but at best policyholders can hope that it will be phased out over ten years, towards 2030. That would be 28 years after the problem was finally admitted by the life offices. O, just in case you wondered where it started. Long before this, when Barend du Plessis was still Minister of Finance (does anyone remember him?). He blamed the problem on adviser commission and promptly outlawed it. And since then, clients and advisers carried the cost of early terminations, while not a cent earned by product providers by means of assets under management was lost.
**Substantial allowances were made in terms of fit and proper requirements to those marketing without giving advice. I expect this problem to increase year by year until such time as the authorities level the playing field.