When Momentum declined to pay out Nathan Ganas’s life insurance policy, it wasn’t being malicious. It wasn’t even being greedy. It was following the law.
It also wasn’t the first life insurer to refuse a claim on the grounds of a non-disclosure that had nothing to do with the cause of death. There are a number of people in the industry who have acknowledged that their underwriting may well have come to the same conclusion.
Legally, their argument is sound. Ganas had a condition that would have precluded him from being insured in the first place. He should not have qualified for life cover, and therefore the claim should not have been paid out.
The reason really is to protect everyone else that Momentum has insured. They are all in the same risk pool that has to be carefully managed. If large numbers of people are not paying premiums that match their level of risk, the sustainability of the pool as a whole could be jeopardised.
The regulator says…
Why then, was there such an outcry? And why has the Financial Sector Conduct Authority (FSCA, formerly the FSB) noted that Momentum’s decision to change its mind and pay out the Ganas claim “reflects the spirit of discussions between the FSCA and Momentum”?
This is quite a statement for the regulator to make. It makes it clear that it is no longer satisfactory for financial services companies to show that they are following the law. They have to show that they are acting with fairness and in the best interests of their customers.
Consider that a life insurer could be accepting premiums from a client for decades only to refuse the claim at the time of death on the basis of a non-disclosure. There’s an asymmetry there that needs to be addressed.
Surely it is fair to ask what the company was doing during all of that time to make sure that it was accepting those premiums in good faith? Shouldn’t it take responsibility for ensuring that it is going to deliver value for money?
Bear in mind that, in the event of a death-benefit claim, the client has no way of testing the efficacy of the policy before they need it. It’s not like a microwave oven that you can take back to the store if it doesn’t work. You only know if you’re going to get what you’ve been paying for when it’s too late to do anything about it.
The client’s responsibility
It’s true that there is a reciprocal relationship in play. The insurer can argue that the client needs to act in good faith too. If you take out a policy, it’s your responsibility to be honest when giving your medical history.
However, consider the variables in play. Firstly, you are relying on your memory. Can an insurer genuinely expect you to remember all of the things you may or may not have been diagnosed with, particularly if you do not receive ongoing treatment?
You might also not know what is significant and what isn’t. It’s fine to say disclose absolutely everything, but there’s only so much room on the form.
Terminology can also be an issue. Do you suffer from paraesthesia, for example? You do if you have pins and needles, but would you necessarily know that?
What about the role of the broker who helped you take out the policy? There is anecdotal evidence of brokers disregarding parts of a client’s medical history when filling out the medical history to ensure that policies are not rejected.
While the standards of financial advice are improving, there is no question that there are still brokers whose primary interest is in getting the policy through so that they can earn the commission. It’s wasted time for them if the insurer rejects an application.
It is even possible that a doctor may have made a diagnosis that you were never informed about. You can’t disclose information you never had, but the insurer could reject your claim because of it.
Solving the problem
Given all that can go wrong, can insurers then still in good conscience place all the responsibility on the client? That is a question that the industry now has to face with a great deal more introspection.
In the short term, this may require some kind of trade-off. Insurers need to protect their risk, and that may mean that they will ask for more thorough medical tests upfront from everybody taking out a new policy. That’s not ideal either, however, as it would almost certainly reduce the uptake of these products because of the extra effort involved.
The ultimate solution, however, is hopefully far simpler. Personal electronic medical records would be ideal, in that a client’s entire medical history would be available from the start. There would be no disclosure requirement, and insurers could make more accurate risk assessments.
That, however, may still be some way off in South Africa. What may be more realistic in the next few years is using artificial intelligence to both collect medical information and assess client risk in other ways when the policy is taken out. The technology is developing so fast that it will surely be able to deliver accurate assessments before too long.
It is now obvious that waiting until the claims stage to underwrite a life policy is inherently problematic for the reasons the Ganas case has highlighted. Insurers have to move beyond that. Those that do it first, and do it successfully, may just give themselves a big competitive advantage.