THE FINANCIAL Sector Conduct Authority (FSCA) has said it was concerned about the high premium increases that were being implemented by insurers on funeral policies, and said the hikes must not be “unfair”.
The regulator said although it recognised the impact of the Covid19 pandemic on mortality rates and funeral policy claims, it expected insurers to ensure fair outcomes for policyholders.
Insurers such as Old Mutual, Liberty and Momentum Metropolitan have raised their provisions by billions of rands against unprecedented Covid-19-related mortality and disability claims, which were hammering their earnings.
“Insurers must ensure that in line with rule 1.2 of the Policyholder Protection Rules (PPRs) issued under section 62 of the Long Term Insurance Act, 52 of 1998 (LTIA), they act with due skill, care and diligence when increasing premiums. It is the view of the FSCA that premiums must be priced correctly at the inception of the policy so that any increases which may be implemented would still result in fair outcomes for policyholders, with the policy continuing to perform as expected.”
The FSCA, led by commissioner Unathi Kamlana, said it had noted that some of the recent premium increases may relate to the historic books of the businesses, which were under-priced from the inception of the policies.
The FSCA said its view was that if policies were not priced correctly at inception of the policy, and exorbitant increases were thereafter implemented because of the impact of Covid-19 or underwriting losses, this would result in unfair outcomes for policyholders.
The FSCA said it has received complaints that some insurers were increasing premiums more than once for the same policy within 12 months, even though the terms and conditions allowed for increases only on the anniversary of the policy.
This fell foul of the requirements of rule 15(1) of the PPRs, which stated: “A premium payable under a policy may only be reviewed if the policy provides for a review and states the frequency at which and the circumstances in which a review will take place.”
The FSCA said it expected insurers that intended to increase premiums on existing policies to consider the existing requirements and to follow the appropriate processes.
Insurers must be able to demonstrate that they were complying with the provisions of the LTIA, particularly the PPRs, and were treating their customers fairly.
Earlier this month, the Office of the Ombudsman for Long-term Insurance (Olti) said it had received more complaints in the “lapsing” category this year than last year, as policyholders struggled to pay premiums under what it described as “very difficult economic circumstances”.
The deputy ombudsman for Longterm Insurance, Denise Gabriels, said the office had received a record number of complaints this year – a 48 percent increase in the first half of this year compared to the same period last year. It said staff had been under pressure to keep up with the increased workflow under difficult conditions.
The Olti said it had recovered R77.9 million on behalf of complainants in this period.
Gabriels said the increased deaths during the second wave of Covid-19 led to the rise in complaints relating to funeral claims.
Gabriels said some funeral insurers had experienced a substantial increase in claims during the December/January holiday period when staff members were on leave. This resulted in instances of poor claims handling and delays, which, in turn, resulted in complaints to the Olti.
According to new analysis by the UCT Liberty Institute of Strategic Marketing, households were facing significant financial strain as Covid-19 heaped pressure on consumers.
The institute’s analysis suggested that perhaps the biggest impact has been felt by those in poorly paid jobs. By March, there were nearly 1.15 million fewer people earning an income from jobs that paid less than R3 500 a month.
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