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Life insurers have to take control of their reputations

Why do they have such an image problem when the statistics are so much in their favour?

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
  2017 2016
  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

Source: Asisa

Disability claims rejected
  2017 2016
  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
Advisor/broker involvement 0 0 0 0

Source: Asisa

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.

Public perception

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.

Read: The Momentum lesson: Following the law is not enough

Read: Whose responsibility is it to ensure full disclosure?

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.

Self-control

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.

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Excellent article Patrick. At last some truth about the industry. Here are some more facts that indicate that both the short term and life industry enjoy an EXCELLENT reputation in South Africa:
1. Over the past half century Both have grown faster than inflation
2. Over the past half century Both have grown faster than GDP
3. Over the past half century Both have grown faster than the population growth

These are NOT the statistics of an industry that has anything like “an image problem”. These are the stats of an industry with a reputation equal to and better than the best industry you could possibly find to quote.
As you point out, the astonishingly good stats of the two independent insurance Ombudsmen (they are not “ombuds”, there is only one of those in the industry) reinforce the fact that the industry can do very little more to improve its image by way of treating customers “fairly”.
Perhaps this fixation with a generalised “poor reputation” is more one of press (and regulator) perception than public belief? Are the disaffected bickering and twittering classes a true guide to reality?
Ek vra maar net!

Spoken like a true insurance broker.So would you then say the in Momentum/Ganas matter the fact that G failed to ” disclose” previous blood sugar problems/diabetes aka pre existing medical condition in insurance jargon, and was then killed in a hijacking incident, falls under which category:
a. Misrepresentation or
b. MATERIAL non disclosure or
c.All of the above. or
d.None of the above.

Ek se maar net.

The answer is “C”.
What you have to understand is that it isn’t a simple case of “failed to disclose.”
He LIED when he answered specific questions on the application form. That is a big difference. If he had told the truth, the policy would not have been issued at that particular time.
Momentum would have called for further medical information. They would then have discovered his dishonesty and the question no-one wants to answer is …
If, at application stage, the insurer finds out you lied about your medical history ? Do they lay a charge of fraud/ attempted fraud ?

“The best form of control is self-control.” If only the client had exercised self-control, this situation would never have arisen.

I can’t agree that this is a good article; it’s another in a series of clickbait journalism by MoneyWeb on this topic that is long on unsubstantiated conclusions and short on facts, which just isn’t good enough for a quality financial paper. Where is the evidence that the industry as a whole has a major image and reputation problem? One cannot draw sweeping conclusions and drive policy recommendations from one or more salacious anecdotes. The headline is a broadcast from the Ministry of the Bleeding Obvious – what company or industry doesn’t need to manage its reputation judiciously, especially in the age of social media?!

There is lots of talk of “innovative technologies” to help insurers divine the circumstances of insurance proposers – without increasing costs. What sort of technologies might one employ? This is nonsense – enhanced screening costs money. And it is impossible to screen for all conditions. We are in South Africa in 2018, not in a Star Trek movie.

@Ayanda

The stats you quote have got zilch to do with producing a “good public reputation”.

The drug and cigarette smuggling trades probably have even better financial stats. Does this give them a better reputation in the public eye? Not!

A quick Google search identifies the financial industry as having the WORST reputation (and this is the universal worldwide situation!).

“… reinforce the fact that the industry can do very little more to improve its image by way of treating customers “fairly”.

You really think after the Momentum debacle, the industry has nothing it can do to improve?

Let me help you and your blinkered pals to move to a better, fairer, position:

1. Since your industry ALREADY has the proven ability to efficiently conduct a proper due diligence of a prospective client at the mere touch of a computer button, make this the FIRST step to accepting a client.

This provides the client and the insurer with the Certainty of a contract that can be relied on to deliver when the time comes.

Be clear about what the initial client form is for. It’s just to give the agent, client and insurer an initial “first-cut” view of the risk-profile of the client and what it could cost him, and what potential benefits could be provided for that indicative cost.

That’s all the initial form does-give the client an idea of whether it’s worthwhile proceeding further.

As far as the insurer is concerned, the form carries no contractual weight.

That comes from the next step, where if both parties want to proceed further with the proposal, the insurer then conducts a deep dive investigation of the medical history of the client, and then on that basis draws up the final contract with the client.

2. The point to note is that the industry is ALREADY at the stage where they do not need the collaboration of the client (at all!) in order to establish a complete, reliable medical history.

Even if they do have a fully honest client backed up by a reliable broker, the insurer still will not trust either of them, and will STILL conduct its own investigation at claim-stage.

And if that is the reality (and it is), then the common sense change the industry has to make, is to automatically do this procedure at client-acceptance stage.

There has been no rational explanation yet why this cannot be done. It certainly cannot be costs because they are currently doing this anyway (just waiting until claim stage for doing the deep-dive).

3. The next thing the insurer can be upfront about, is that they will only disqualify a contract on the the basis of directly relevant, causal facts.

So if your car was involved in an accident, the fact that the licence may be out of date had no bearing on the accident, and cannot be used as an excuse to weasel out of paying.

4. There is absolutely no need for brokers to be involved in vetting clients on behalf of the insurers. The insurers have the systems to do this efficiently all themselves.

Brokers only add a further layer of cost and complexity. And in the final event, the current situation is that the insurance houses views only themselves (insurers) as the final and sole arbiter in this matter, and bypasses the brokers and conduct their own investigation anyway.

A well-thought out and efficient system does not require the help of interlocutors to facilitate its operations. When this becomes necessary, then the system design has failed and must be fixed at the root.

These are simple, obvious things to implement. Immediately!

If an ethical and REAL leader like Raymond Ackerman had been the CEO of Momentum, this is EXACTLY what he would have done. And chop-chop too!

It is an absolute disgrace that neither the industry nor that limp-wristed poseur, the FSB, has not stepped in and provided real leadership when it’s most needed.

Jonoxo, please try to get your head around this. If the client tells the truth, there won’t be a problem. But this client lied and that caused the problem. Why do you keep skirting around the most critical point in this whole debate ?

“(just waiting until claim stage for doing the deep-dive).”
People in the industry tell me they only “deep dive” on early claims. The norm seems to be claims where the policy has been in force for less than 5 years.

“So if your car was involved in an accident, the fact that the licence may be out of date had no bearing on the accident, and cannot be used as an excuse to weasel out of paying.” Do you not understand that the car is being driven illegally ? It should not have been on the road. Once again you support the wrong doer.
Shame on you.

You left out the lapse profits insurers make without truely meeting the needs of the vast majority of its clients. As much as 70% of funeral cover clients and as much as 50% of life insurance clients lapse their policies with a significant asset share being built up. It something a first world insurance system in a developing country struggles with it does not meet the needs and circumstances of the vast majority of clients.

For the period during which their policies were paid up and in good standing, those lapsed customers enjoyed the protection for which they paid. If their circumstances changed and they no longer needed, wanted, or could afford the cover, they were and are free to walk away and keep their premium money without enjoying the protection of the lapsed policies. The fact that they didn’t die and claim whilst covered doesn’t speak of rampant profiteering by insurers as your comment might suggest. Why is this some sort of pernicious industry practice? Would it be better for clients to be locked in for the life of the policy and Ben pursues for unpaid premia? Or for insurers to decline to insure anybody unless they were 100% sure they would pay their premium over the entire life of the policy? Insurance companies are businesses, not charities.

It takes hard work to build a good reputation and one incident to severely damage it.

For example a recent fire at a residential complex in Sandton left 15 owners high and dry when the insurance company repudiated the claim. They tried to make the complex responsible for lack of fire fighting capacity and infrastructure provided by city of Johannesburg.

After 20 years of taking premiums they put these people through a lot of trauma. After long delays they ended up accepting the claim and re-building could start.

A lot of insurance products fail to restore the insured to the same position they were in before the insured incident took place.

Maybe you should have a look at how policies are sold, unscrupulous sales men, sorry.”financial advisors’, are one of the main reasons the insurance industry has such a bad name.unaffordable policies which should not have been pressure sold are the main reason for policy lapse. No partial refund either. Screwing the client takes many forms.

Hmmm, Patrick (or is it Ryk?)…
Why is my comment being held in a seemingly deliberate limbo?

Seems that the opinions of the actual consumers of this industry are being suppressed?

How does this align with TCF and a fair neutral media?

Strong Hint: it doesn’t!

Well, if this isn’t incontrovertible evidence of a vast conspiracy involving the financial industry, MoneyWeb, the ombudsmen and aliens from another planet to deprive the world of your wisdom, then I don’t know what is!

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