Last week the Association for Savings and Investment South Africa (Asisa) released the statistics for long term insurance claims made during 2017. Life insurers paid out R469 billion to beneficiaries and policyholders during the year. This was contrasted against R1.13 billion worth of claims that were found to be irregular and therefore repudiated.
The statistics did not show the number of claims that were paid out, but a total of 5 026 were declined. This included 2 111 death claims and 775 disability claims.
The tables below show the reasons for insurers repudiating these claims:
|Death claims rejected|
|Cases||Rand value||Cases||Rand value|
|Total claims rejected||2 111||R564.2 million||444||R275.2 million|
|Misrepresentation/material non-disclosure||316||R253.3 million||335||R228.4 million|
|Fraudulent documentation||1 784||R307.8 million||44||R34.7 million|
|Syndicate involvement||1||R2 million||19||R8.1 million|
|Advisor/broker involvement||3||R204 232||31||R213 696|
|Disability claims rejected|
|Cases||Rand value||Cases||Rand value|
|Total claims rejected||775||R516.5 million||621||R578.8 million|
|Misrepresentation/material non-disclosure||757||R486.8 million||617||R577.6 million|
|Fraudulent documentation||17||R29.5 million||4||R1.1 million|
|Syndicate involvement||1||R267 645||0||0|
There are a number of interesting points to these statistics.
The first is that, by these figures, life insurers paid out 99.75% of the value of all claims made. Unfortunately we don’t know what percentage of the number of claims was paid out as Asisa did not provide that figure, but it can’t be that different.
Given this statistic, it’s astonishing that this industry has such an image problem. Particularly following the Momentum-Ganas case, the public perception of life insurers is that they are far more eager to find reasons to not pay claims than to honour them.
It has been said before, but it bears repeating: life insurers ought to do some introspection about why this perception exists, particularly if the reality is so different. Is it because too many rejections have been made on grounds that are perceived to be unfair or unreasonable, and logically could have been picked up much earlier?
It is very difficult for anyone who has been paying premiums for years to accept that an insurer repudiated a claim based on information that they could have known from the time the contract was taken out. If insurers are able to pick up this information when a claim is made, it means they must also have been able to do so when the policy was issued.
Innovative solutions need to be devised to make sure that this happens without increasing the cost or effort required by the applicant. It is the only reasonable way in which trust can be restored between insurers and their clients.
The ombud’s involvement
It is also interesting to compare these numbers against those provided by the long term insurance ombudsman. In 2017, the ombud received 1 807 complaints related to declined policies. This number was similar in 2016.
While it is true that some cases from 2016 would have only made it to the ombud in 2017, one can draw rough conclusions by comparing these numbers to the total number of claims that insurers rejected. In 2017, that was 5 026.
This means that around 35% of all declined claims end up in front of the ombud. Of those, around a quarter are resolved either partially or fully in favour of the client.
There are two ways to look at this. The first is that the number of claims that the ombud decides in favour of complainants is a fraction of a fraction. Looked it at from that perspective, it does reflect well on the industry.
However, one could also take the stance that more than a third of people who have their claims rejected feel aggrieved. There are probably more who don’t even approach the ombud either because they don’t know that they can, or see no prospect of success.
It’s difficult to judge if that is a reasonable number, or one that the industry should be satisfied with. It’s worth noting that of the 13 large insurers who faced more than 150 individual complaints lodged with the ombud, only one had more than 85% of those cases decided in their favour. That is Sanlam. That would at least suggest that the others have room for improvement.
This has to be considered in the context of the Momentum-Ganas case, which has focused a great deal of scrutiny on the insurance industry. Some feel that this has not necessarily been reasonable, and that it insurers have been unfairly judged.
However, any industry is responsible for its own image. As one industry insider told Moneyweb this week: “The best form of control is self-control.”
In a business run by actuaries and number crunchers, it is often forgotten that decisions are having an impact on real people’s lives and livelihoods. That will always mean that the numbers don’t always come up with the best decision.
That is essentially the lesson from the Momentum-Ganas case. Insurers can’t ignore the human element. Their reputations depend on it.