Since life insurers operate within the financial sector, they are considered an essential service during the 21-day lockdown. This means South Africans can still apply for, and be given, life insurance, disability insurance and dread disease cover.
However, in order to receive significant amounts of cover, clients are usually asked to go through some level of medical assessment. At a minimum, this requires a blood test for HIV and cotinine (which indicates whether the person is a smoker). Sometimes a full medical by a doctor is requested.
Under normal circumstances, the blood for the HIV and cotinine tests would be taken by travelling nurses who visit applicants at home or their place of work. With the country in lockdown, however, this service should stop.
On Monday the Financial Sector Conduct Authority (FSCA) issued a stern rebuke to insurers who have not done so, and instead designated their travelling nurses as “essential services”.
“This not only exposes these nurses and customers unnecessarily but detracts from the ability of laboratories to focus efforts on the pandemic,” the FSCA noted.
“Given the burden on our laboratories for the testing of Covid-19, it is of paramount importance that no additional stress is placed on the medical fraternity.”
The regulator stated that it views this in a “very serious light”. Kedibone Dikokwe, divisional executive for conduct of business at the FSCA told Moneyweb that while this behaviour is limited to only a few insurers, the regulator wishes to send a strong message to any firm who may be thinking about doing it.
“Insurers are reminded to limit essential services to those necessary to support the functioning of the financial system and maintaining a stable financial environment,” the regulator said. “The FSCA warns that any person who continues to engage in non-essential services will be subjected to appropriate regulatory action.”
The Association for Savings and Investment South Africa (Asisa), the industry body for the insurance and asset management sectors, supports the FSCA’s statement.
Hennie de Villiers, deputy chair of the Asisa life and risk board committee, notes that: “while medical testing is an important part of the insurance process used to assist the insurer to accurately assess and price for the risk, Asisa indicated to insurance members last week that the collection and testing of blood samples as well as medical assessments for insurance purposes should not be conducted during the lockdown period”.
This should not, however, mean that nobody will be able to take out a new policy.
“Each insurer needs to determine, in terms of its business continuity plan and the regulations published by the government, how it conducts its business during the lockdown period,” said Dikokwe.
As De Villiers pointed out, insurers should ensure that there are still options available to consumers.
The first of those is “limited underwriting” or “simplified underwriting” risk cover.
“These products typically do not require medical examinations, but may still require blood tests to test, for instance, for HIV and cotinine,” says De Villiers. “Many of these products will provide cover subject to these tests being performed within a period of a few months, depending on the insurer.”
These types of policies are, however, generally only given for smaller amounts and are more expensive than fully underwritten cover, since the risk to the insurer is higher. So fully underwritten cover should still be available.
As De Villiers points out, fully underwritten policies usually only require medical examinations and blood tests if the amount insured is above a certain level. These assessments may also be required depending on the answers the applicant gives to the medical questionnaire. Companies could, therefore, still award this cover in some cases or under certain conditions, even without these tests being done.
“Some life insurers may accept applications for fully underwritten risk cover during this time, based on the responses by the applicant to the medical questions, but with additional clauses in the contracts allowing them to conduct medical tests when medical facilities become available again,” De Villiers points out. “These contracts are likely to contain clauses that will allow the insurer to change the terms of the contract once they are in a position to conduct medical tests. This could include higher premiums, exclusions or a complete withdrawal of cover.”
Life insurers are also likely to do particularly thorough checks on any early claims that are made on policies where medical assessments have been delayed.
The approach may, however, differ from company to company, so financial advisors should make sure that they understand who is offering what. This will allow them to correctly advise their clients.
In the absence of being able to conduct these medical assessments, clients should also be absolutely honest in answering the medical questionnaires required for any policy.
“I would advise consumers applying for risk cover to err on the side of caution,” says De Villiers. “If you are not sure whether information could be considered as material by the life insurer, rather disclose it. Present the life insurer with as much information as you possibly can to assist them to accurately assess the risk as part of the underwriting process.”