There was nothing dramatic in the Ombudsman for Long-term Insurance’s annual report for 2017, released this week. Besides heartfelt homages to two beloved staff members the office lost in the past financial year, the ombudsman, Judge Ron McLaren, said 2017/18 was characterised by slow and steady improvement.
“We managed to close 3 371 full cases (3 324 in 2016) of the 4 336 we considered during the year, despite the challenges with adjudicative staff numbers due to illness and death. It required a concerted effort on our part to maintain our performance standards,” Judge McLaren said.
His office recovered more than R190 million for complainants, saw a slight increase in chargeable complaints from 5 284 to 5 435, finalised 85% of complaints within six months and resolved 29% wholly or partially in favour of complainants – in line with international standards.
The office received a slightly higher number of written requests for assistance (10 768 compared with 9 871 in 2016), and case fees increased by only 1.5% in 2017 – 6.75% lower than the estimated fees for the year.
Most of the complaints (47.67%) were about claims denied by insurers, followed by poor service.
Judge McLaren noted: “Statistics, while (offering) important insights to the year in review, only tell half the story, and sometimes the detail and attention given in each case is worth talking about.”
Deputy ombudsman Jennifer Preiss told Personal Finance that funeral policy complaints have risen over the past few years.
“A lot of these policies are not sold through an intermediary, who is able to intervene in a complaint between an insurer and consumer, so problems crop up. There are also very many policies out there and so many people in the chain – the funeral parlour, administrator and the insurer/intermediary – that things can go wrong in many areas.”
Preiss says some funeral insurers promise that they’ll pay out within 24 or 48 hours, but that doesn’t happen in practice. “They don’t highlight that payment only takes place once you’ve submitted all the information that they require. This causes a lot of complaints.”
She also noted a trend in outright non-disclosure, which the office doesn’t believe is always deliberate on the part of consumers.
“We think it’s just negligence. People forget, or didn’t sit down to think about the questions carefully, especially if they’re older and can’t think of every medical event in their lives,” she says.
Preiss says many policies are bought over the phone, which can give rise to non-disclosure, because consumers are under pressure to finish the call.
“Insurers have improved their scripts, but there are still shortcomings. Sometimes intermediaries lead consumers into non-disclosure too. The way in which questions are phrased doesn’t help the applicant to give the information. It’s not a big category for us, but it is going up, and we’re seeing an increase in repudiations.”
South African law places a duty of disclosure on an insured person, and insurers are within their rights to repudiate claims that reveal a material misrepresentation.
“We are noticing a trend that the non-disclosure category is slowly increasing over time, from 3% in 2011 to 5.74% in 2017. This could be due to various factors, such as more direct business sold, more automated underwriting, the effect of churning, pressure on insurers to out-list new policies very quickly, and, possibly, an increase in the dishonest completion of application forms,” Judge McLaren noted.
In line with the office’s commitment to the principles of Treating Customers Fairly, it applies the “Didcott principle”. “The insurer is asked if they would still have sold the policy to the customer had they known certain facts at application stage and, if so, to reconstruct the policy. It’s based on our fairness jurisdiction,” Preiss says.
One poorly handled case was singled out by the office as the year’s most curious: that of Metropolitan Life versus bereaved adoptive parents. The complaint related to a 16-year-old who died of unnatural causes in 2014. His adoptive parents had a funeral policy in place for him. But Metropolitan Life, instead of settling the R10 000 bill, challenged the validity of the youth’s customary law adoption. It did not accept the complainant’s position as his legal parent, but the ombud believed the adoption was, in fact, legal.
The office embarked on a lengthy investigation into the complaint, before ruling that the child had been legally adopted.
Metropolitan was granted the right to appeal but withdrew its application, paid out the complainant double the value of the policy, plus compensation.
“The benefit wasn’t big. We were surprised it went so far and that they were prepared to appeal, and we have so few appeals,” Preiss says.
“We also couldn’t understand their position relating to customary adoption cases, as it’s not common and therefore not precedent-setting. And this was for a funeral benefit. If the parents had taken care of a child, then surely they can take out a policy to pay for that?”
The ombudsman office is trying to encourage the use of less formal complaints-resolution processes, through mediation and alternative dispute resolution, because those often have better outcomes.