Momentum saga is the ‘leadership blunder of the year’, Outa says
The Treasury's Ismael Momoniat has referred the matter to the Financial Sector Conduct Authority for investigation
Wayne Duvenage, CEO of the Organisation Undoing Tax Abuse (Outa), lashed out at Momentum on Wednesday, calling its U-turn to pay a widow R2.4m after initially refusing the life pay-out, a "farce".
At the same time, deputy director general of the Treasury Ismael Momoniat berated life assurers, saying that to collect premiums “without checking that clients qualified for their products” they do not treat customers fairly or in good faith.
Momoniat told Money on Tuesday afternoon, mere hours before Momentum’s capitulation, that he would refer the matter to the Financial Sector Conduct Authority to investigate. The new market conduct regulator set up under the “Twin Peaks” model was created to especially deal with “poor market practices in the financial sector”.
However, Jeanette Marais, CEO of Momentum Investments and deputy CEO of MMI Holdings, told Money that she had been in contact with the regulator over the matter and was not aware of any investigation.
Momoniat argued that “to reject the claim 100% suggests there is no proportionality”, and took issue with Nathan Ganas’s private details being discussed in the media, saying it was unethical and wrong to disregard client confidentiality.
Marais said what Ganas’s widow had already put in the public domain was discussed in public and Momentum was not able to disclose more but would send to the regulator any documents it requested.
Buckling under public pressure, Momentum said on Tuesday evening that it was in the business of paying claims and had “therefore taken the criticism to heart”.
South Africans rallied behind the widow of Ganas, who died after being shot by hijackers, after Momentum initially declined to pay out the R2.4m for alleged nondisclosure of high blood sugar when the deceased signed the life policy contract in 2014.
On Tuesday night, the insurer subsequently said it would pay the money to the widow as it had created a new product specifically to deal with deaths from violent crime.
“We have created a solution that will pay an amount equal to the death benefit (limited to a maximum of R3m) in the case of violent crime, regardless of previous medical history.”
Momentum, however, said the importance of full and honest disclosure at application stage could not be overemphasised.
In its earlier reasoning for nonpayment, Momentum said that the “reality is that insurance has a strict requirement for full disclosure as a fundamental principle. Had this information been known at the point of application we would not have entered into the contract.”
The office of the ombud for long-term insurance agreed with Momentum on the “common misconception that nondisclosed medical conditions must be linked to the claim event for the insurer to be able to repudiate the policy”.
“That is not so," the office wrote in an e-mailed response to Money.
“When a person applies for a policy and he/she is asked questions about health, etc, the insurer relies on the answers to assess the risk. If wrong information is provided, in legal terminology, it is a pre-contractual misrepresentation,” the office said. The office declined to comment on the specifics of the Ganas case, saying it was under appeal at the office.
Outa’s Duvenage said that while he in no way condoned nondisclosure, “big companies are riding too heavily on the fine print and far too often they lack the application of rational reasoning and a link to the consequences of the claim”.
“Momentum stands to lose more in consumer support than it will if it doesn’t apologise, pay the claim and express that this issue has helped them to take an introspective look at their processes and ethical conduct when it comes to consumer rights,” he said just before Momentum’s U-turn.
On hearing about Momentum's decision to create a new product to cover deaths caused by violent crime, Duvenage said "this was probably the public relations and leadership blunder of the year".
"Trying to hide behind this as an amendment to all policies, when this was expected anyway, is a farce."
But Marais said Momentum had a duty to policyholders who would bear the cost of an assurer entertaining claims for policies entered into in bad faith. She said more education was required on the importance of disclosure in insurance.
She said fewer than 30 policyholders had cancelled their policies and the sentiment from clients was different to that expressed on Twitter.
Duvenage was not the only influential civil society voice to take part in the backlash. Earlier in the week, former public protector Thuli Madonsela tweeted in response to Momentum’s explanation: “This answer is perfectly legal. The question is, is it just and ethical? @Momentum_za must answer this question for itself in line with its commitment to doing business with integrity #IntegrityMatters.”
EFF leader Julius Malema said in his response that someone should “warn Momentum”. His deputy, Floyd Shivambu, tweeted that "black consumers feed white economic arrogance”.
Meanwhile, the Association for Savings and Investment SA (Asisa) recently released figures showing that 99.3% of all life policy claims were paid out in 2017.
Asisa said that R14.4bn was paid out in 2017, and the deputy chair of the life and board risk committee Hennie de Villiers said in a statement that "life insurers have a solid track record of paying benefits and delivering on their long-term promises to policyholders".
The primary reason for refusal to pay out benefits, De Villiers said then, was lack of disclosure — the same reason Momentum gave and for which it is currently facing a PR nightmare.
According to De Villiers, nondisclosure accounted for just more than 50% of all claims rejected last year, down slightly from 55.3% in 2016.