Material non-disclosure, funeral policies and compensation for poor service were key themes in the latest annual report by the Ombudsman for Long-term Insurance (OLTI).
The office, which had recovered R185.8 million for complainants, said it had received a record number of complaints last year, but no expected uptick after the Nathan Ganas case.
Judge Ron McClaren, the OLTI, notes: “It is not always clear what the drivers are for complaints to the office. Although we receive complaints throughout the year, there are certain months when the numbers are higher.
“Not surprisingly, after the annual report release and the corresponding publicity we usually see an increase, which occurred in May 2018. After the publicity surrounding the Ganas/Momentum case in November 2018, we expected to see a spike in complaints, but the numbers stayed the same as in October. As can be expected, December usually has the lowest number of complaints in the year. However, complaint numbers and trends remain difficult to predict.”
Keeping them busy
Deputy ombudsman Jennifer Preiss says her office has noted a steady increase in complaints about funeral policies.
In 2016, 35% of their complaints related to funeral cover; in 2017, that had increased to 37%; and last year, it comprised 41%. “People complain very quickly about funeral cover,” she explains. “It’s because with death, they’re desperate for the money, they need a pay-out to bury their family. Very soon after we receive it, the insurer will pay out. That has also pushed up the number (of complaints).”
She says improved efficiencies in the office has meant that they deal with cases better, with tighter financial management and not as much duplication.
Although 91% of cases are resolved within six months, the OLTI’s transfer system means they give insurers the opportunity to resolve cases themselves – and 66% of complaints they receive haven’t come via the insurer, so they send the cases back to the insurer, which is then given six weeks to resolve it.
Cases have become increasingly complicated too, with a few taking more than a year to resolve.
“Ten years ago, we wouldn’t have lever-arch files full of documents. Now we do. We send out documents for legal and actuarial opinions. Complainants have become more persistent. In our office we do a provisional determination, if parties don’t accept that, it goes for adjudication. It’s startling how many more final determinations we have to make. In 2008, it was 0.8%. In 2018, we had 12% more, meaning in about 400 cases a different adjudicator or adjudicators meeting had to take place.”
Poor service payouts
Preiss says the OLTI also orders compensation for poor service, irrespective of outcome, but it’s not often. “We can award compensation of up to R50 000. Last year, we awarded a fair amount, not individually but for the inconvenience, transport costs and distress. But you can’t put a monetary value to all payouts.”
The report also notes that there is an increasing awareness on the part of complainants to ask for compensation for poor service, although such requests are not usually articulated so explicitly.
“It is encouraging that some insurers offer to pay compensation of their own accord or that they readily agree to a suggestion by the office that consideration should be given to the making of an offer to pay compensation.”
Lapse rates has gone up have also gone up, reflecting tough times. Preiss says lapsing has been a problem in the life insurance industry for years. “People misunderstand that risk policies are not investments – there’s no return on investment of any kind. And yet, in the lapsing category, in 34% of the cases we got some relief.”
The Ganas Matter
In the Ganas matter, Momentum came under severe public pressure after rejecting Denise Ganas’s claim on her husband Nathan’s death policy.
The insurer had argued that Nathan had failed to disclose high blood sugar levels at the application stage in 2014 - even though his death in a hijacking in 2017 was unrelated to diabetes.
The R2.4 million policy became a public relations disaster for the insurer, with policyholders threatening to cancel and high-profile figures weighing in on the matter, forcing Momentum to cave in and pay out the Ganas family. It also announced the creation of a “solution” to 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, and awarding four other families of murder victims after conducting an audit.
The ombudsman stands by that ruling about non-disclosure - but called for legislative change: “We conclude that the legislature should reconsider the current non-disclosure legislation,” Judge McLaren says. And while the office sympathised with the Ganas family, it said it applied the law to the facts in its final determination. “We also applied our equity/fairness jurisdiction in considering whether the insurer would have issued a policy, had it known all the facts.”
The office of the ombudsman also says it believes it correctly applied the law, in that an insurer is entitled to repudiate a claim on the grounds of non-disclosure, because it was misled about the nature or extent of the risk and therefore the conclusion of the contract. “An applicant for a life insurance policy must give all material information in the application form.”
But, in the exercise of its equity jurisdiction, the office says it’s a “strong proponent of the view that, in the event of a non-fraudulent misrepresentation, the policy should be ‘reconstructed’ to what it would have been if there had not been a non-disclosure”, which is known as the “Didcott principle”.
However, it has called for changes to the current non-disclosure legislation. “If it is of the view that an insurer can only escape liability on the ground of a non-disclosure if there is a causal connection between the non-disclosure and the insured event, it is a matter for the legislature to deal with. Until that happens, this office applies the law as it stands, with due regard to our equity jurisdiction, which enjoins us ‘to have due regard to considerations of equity’ and to ensure that subscribing members act with fairness and with due regard to both the letter and the spirit of the contract between the parties.”
THE REPORT IN BRIEF
The Ombudsman for Long-term Insurance received 11 768 written requests for help in 2018 – an increase of 1 000 on the previous year. Of these, 5 978 were chargeable complaints that fell within the office’s jurisdiction.
Funeral benefits dominated the complaints, at 41% (a 4% increase on 2017).
Life insurance complaints were down 3% on the previous year, at 30%.
Disability complaints increased from 11% to 12% in 2018.
Complaints about health policies were down from 10% in 2017 to 8% last year.
Complaints about credit life insurance remained the same over both years, at 9%.
Setting a new benchmark for the office, 91% of complaints were finalised within six months.
31.5% full cases were resolved partially or wholly in favour of complainants.
Life insurers were slapped with fines totalling R632 737, for 160 complainants.