The Financial Sector Conduct Authority (FSCA) on Wednesday expressed concerned over the high premium increases implemented by insurers on funeral policies.
While the financial watchdog says it recognises the impact of Covid-19 on mortality rates and funeral policy claims, it reminded insurers of their obligations pertaining to premium increases, noting that it still expects insurers to ensure fair outcomes for policyholders.
“Insurers must ensure that in line with Rule 1.2 of the Policyholder Protection Rules (PPRs) issued under Section 62 of the Long-term Insurance Act, 52 of 1998 (LTIA), they act with due skill, care and diligence when increasing premiums,” the FSCA said in a statement.
“It is the view of the FSCA that premiums must be priced correctly at the inception of the policy so that any increases which may be implemented would still result in fair outcomes for policyholders, with the policy continuing to perform as expected.”
The regulator adds that it has received complaints that some insurers are increasing premiums more than once for the same policy within a 12-month period, even though the terms and conditions allow only for increases on the anniversary of the policy.
“This falls foul of the requirements of Rule 15(1) of the PPRs which states [that] a premium payable under a policy may only be reviewed if the policy provides for a review, and [also] states the frequency at which and the circumstances in which a review will take place,” the FSCA pointed out.
According to Rule 1.4(e) of the PPRs under Fair Treatment of Policyholders, “an insurer must have appropriate policies and procedures in place to achieve the fair treatment of policyholders. The fair treatment of policyholders encompasses achieving at least the following outcomes: policyholders are provided with products that perform as insurers or their representatives have led them to expect, and the associated service is both of an acceptable standard and what they have been led to expect”.
The FSCA says that premiums set by insurers must be actuarially sound and in line with Section 46 (1)(a) of the LTIA which stipulates that: “A long-term insurer shall not enter into any particular kind of long-term policy unless the statutory actuary is satisfied that the premiums, benefits and other values thereof are actuarially sound”.
The watchdog has also noted that some of the recent premium increases may be related to historic books of the businesses which were under-priced since the inception of the policies.
It is therefore the view of the FSCA that “if policies were not priced correctly at inception of the policy and exorbitant increases are thereafter implemented due to the impact of Covid-19 or underwriting losses, this would result in unfair outcomes for policyholders”.
The FSCA added that it expects insurers who intend to increase policy premiums on existing policies to consider the existing requirements and to follow appropriate processes. Moreover, insurers must be able to demonstrate that they are complying with the provisions of the LTIA, particularly the PPRs and treating their customers fairly.
Palesa Mofokeng is a Moneyweb intern.