Material non-disclosure could result in hige fines for insurers

Material non-disclosure could result in huge fines for insurers

Insurers should put processes in place to ensure that funeral policyholders are alerted when their dependants turn 21 and no longer qualify for child-dependant status, the Office of the FAIS Ombud says.

It also said it would bring to the FSCA’s attention instances where premiums were being collected on policies where child dependants were over the age of 21, because premiums were being charged for a benefit that will never be provided.

This comes as the ombud persuaded an insurer to pay out a funeral claim to a woman whose son was over the age of 21 and not a dependent full-time student when he died.

The FAIS Ombud said that, in a number of matters it has investigated, policyholders were informed when they took out the policy that child-dependant status ceases at age 21, unless the dependant is a full-time student. The child must either be noted as an extended family member on the policy or be provided for in a separate policy.

However, it said no attempt is made to notify the client of this change in material conditions, except for “a cursory mention in the annual renewal letter, which is a standard template not specifically directed to any client”.

As a result, the policy continues as normal once the child dependant has reached 21, unless the client remembers and requests an amendment to the policy. The problem only arises when a claim is submitted.

“In an era when insuretech is a buzz word in the industry and FSPs are continuously looking to make the most of technology and innovation, it is hard to imagine why FSPs who provide such policies are not able to employ technology to raise alerts when such thresholds are reached, so that the client can be contacted and provided with suitable advice to ensure that they remain appropriately insured,” the ombud’s office said.

“It would appear that the focus on technology is more towards creating more innovative products and streamlining distribution channels and claims processes, all designed to facilitate the sale of products and services, as opposed to addressing concerns experienced by existing clients.”

The ombud’s office drew attention to:

  • TCF Outcome 3, which states that customers must be provided with clear information and kept appropriately informed before, during and after the point of sale.
  • Section 11 of the General Code of Conduct, which requires an FSP to effectively employ resources, procedures and appropriate technological systems at all times that can reasonably be expected to eliminate, as far as reasonably possible, the risk to clients.

The complaint

In the case in question, the complainant’s funeral policy provided for a benefit of R10 000 in respect of her eldest son. He passed away in March 2021. The claim was rejected, as the deceased had been older than 21 and had not been a dependent student.

The complainant approached the ombud. She claimed that she had not been informed in the five years since the inception of the policy that dependants who reach the age of 21 are no longer covered, unless they are full-time students under the age of 26.

In its response to the ombud office’s enquiry, the FSP stated that the deceased no longer qualified as a dependent child at the time of his death.

It said the complainant was provided with an annual statement, which explains the requirements for a child to be considered a dependent child. It also states that as soon as the child is nearing the age of 21, the policyholder should contact the financial adviser to arrange for a new policy.

‘Informal approach’

The office said although it “has concerns” in respect of the General Code of Conduct (sections 2 and 11), it decided to approach the matter in a more informal manner. It asked the respondent to consider the circumstances of the matter and why it would not be possible for such an institution to have systems in place to mitigate the occurrence of such matters.

In response, the respondent confirmed that its Discretionary Committee had agreed to consider the claim on the basis that the adult child was covered under an extended funeral plan at the time of reaching age 21. As a result, the death value would be equal to an extended family member cover amount, less any premiums that should have been paid at the date of death.

The reconstruction of the policy saw that the death benefit would have been R10 000, with a monthly premium of R108. At claim stage, the respondent would therefore have received R972 in premium payments (R108.00 x 9 months, from 1 July 2020 to 1 March 2021). The total amount payable was therefore R9 028 (R10 000 cover less R972 assumed premium payments).

The complainant accepted the offer.

The ombud’s office said: “We encourage all FSPs who provide assistance business to look at how their processes and procedures can be enhanced to appropriately advise clients of such milestones, and where not possible, to look at such matters objectively and consider a resolution that is in keeping with the provisions of the General Code and the principles of Treating Customers Fairly.”

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