Life assurers’ understanding of treating customers fairly gains Momentum
There can no longer be any doubt that the practice accepted by life assurers is perceived by the public as one that is unfair to consumers and this needs to be addressed
Nothing Momentum did this week was good enough for its critics, even backtracking onits decision not to pay thewidow of hijacking victimNathan Ganas the R2.4m lifeclaim.
No one wanted to hear informed legalopinions or expert commentary about howlife assurance works and the consequencesof not being completely honest when takingout a policy. Instead, the company was subjected to avariety of insults from ordinary and prominent South Africans.
The financial services regulator, theFinancial Sector Conduct Authority, throughits divisional executive for regulatory policy,Caroline da Silva, admitted that though th eassurer did nothing wrong, it would neverwin public approval.
Perhaps seeing Denise Ganas as a victimfor a second time when the claim was declined after she lost her husband to a violent crime hit a raw nerve in our country.
Or perhaps it had something to do with life assurers not covering themselves in glory inthe past — charging high fees, offering opaque and unsuitable products, penalising people who could not afford to continue their premiums, making secret profits through bulking, and so on.
Some will argue that public shaming and threats to move policies forced the company ’s hand. It decided to pay the widow a benefit equivalent to the claim from shareholders’ money rather than the policy book.
But we have shamed companies before for bad practices without such rapid change.
It seems the introduction of treating customers fairly is paying off. The regulator and Momentum acknowledged that the public view— that the policy was unfair —needed to be addressed; either the public needs to understand how products work or products must work the way they expect.
However, products must work with rules,or we may face even greater unfairness.
Your life-cover benefits and premiums are based on the risk youpose to your assurer, andyour risk is assessed on your honesty about that risk. If you aren’t honest,you enter into a contract inbad faith.
The practice then is that the assurer can recalculate your premiums based on the actual risk and pay the benefit less the higher premiums. Or, if the actual risk was so bad the company would have declined to issue cover, it can declare the contract null and void and pay you back your premiums.
In the Ganas case, Momentum declared the contract null and void, as Nathan Ganas allegedly failed to disclose high blood-sugar levels at the time of application.
On review, the long-term insurance ombud, with a mandate to make decisionsthat don’t just abide by the law but are fair toconsumers, agreed with Momentum.
The insurer and ombud are privy to medical records that the public are not.
Momentum deputy CEO Jeanette Maraissays Momentum declines to issue lifepolicies to about five or six applicants every week when the underwriters think a claim is too likely for untreated conditions.
If these applicants get treatment and bring their conditions under control, they can then begiven cover, she says.
The Ganas case will result in issues such as what ’s fair on application forms, what you declare, what tests you should have and when life assurers should cover you, being subject to even more scrutiny.But the lesson we shouldn’t miss is that policyholders should be honest in disclosing medical problems, otherwise life assurance will become costly or life assurers will require we test for every illness imaginable.
Marais said to test for every conceivable condition would be too expensive and would make the industry unworkable.
It is hard for us to understand how complicated life policies work and the Ganas case shows the industry has much to do to help us understand.