Matters of Interest for Long-Term Insurance
Given the impact of COVID-19 and the lockdown on employment and the economy, it is not surprising that there was an increase in complaints about retrenchment and loss of income benefits. These are events that are mostly covered by credit life policies – see page 19 of this Annual Report. We have been and are dealing with some new and difficult issues generated by claims being declined and the resulting complaints. One such issue is whether an insurer is obliged to pay a claim for benefits related to an inability to earn an income when an insured receives Temporary Employee/Employer Relief Scheme/TERS payments. The office has not finally determined on this aspect. The following is an example of the relevant policy condition.
“Unable to Earn an Income” is defined as: Unable or Inability to Earn an Income means you are incapable of earning an income from any occupation, work, job or business for any reason other than Disability.
Many policyholders could not afford to pay premiums either as a result of loss of employment or income and this led to lapsed policies*. Although some insurers provided premium relief of one kind or another, this was not universal, and the relief packages were not all equally generous. It is unfortunate when a risk policy lapses but even more so during a pandemic when cover is so crucial.
* Association for Savings and Investment South Africa (“ASISA’’) indicated in a press release that 10.2 million long-term insurance risk policies lapsed in 2020.
Insurers, some more so than others, struggled with service delivery during remote working conditions. Consumers, and even this office, often had difficulty in contacting and communicating with insurers. This led to complaints, particularly when claimants were desperate to have claims paid, e.g. under funeral policies. The delays that were caused not only by insurers but also by some of our complainants, who had challenges with communication during the lockdowns, impacted on our turnaround times.
We have written about the problem with Universal Life policies in several previous Annual Reports. In the 2019 Annual Report on page 25 we mentioned the problem of premium reviews which led to complaints. This trend has continued and complaints are increasing as more reviews take place.
We issued a newsletter, Ombuzz No. 44, dealing with the problem. The topic was highlighted by the media and by two actuaries in a paper delivered at the Actuarial Society conference in 2020. We again raised the problem with the Financial Sector Conduct Authority and ASISA and this time also with the National Treasury. As a result further investigations into this issue will carry on. It is particularly problematic when elderly policyholders who are on pension are faced with high premium increases of up to a 100% or more. The policyholders have paid premiums for many years, sometimes amounting to even more than the sum insured. The reviews leave the policyholders with the difficult option of high premium increases or substantial reductions in cover. It is not a matter which can easily be resolved on an individual complaint basis, it requires an industry-wide solution if there is to be recourse for policyholders.
We are receiving an increasing number of complaints where policyholders or beneficiaries were not aware or did not understand that the policy that was bought offered restricted cover, in that it only provided accidental cover. These policies are generally sold by means of direct marketing, without advice. Consumers buying life policies assume that they will be covered, whether the insured event is as a result of accidental or natural causes. If the sales process is not conducted in such a way that it is explained in easy-to-understand terms that the policy only provides accidental cover, and what that means, it can lead to disappointed expectations at claim stage.
There are also policies where the cover starts out for accidental and natural causes, but then reduces to only accidental cover because the life insured does not comply with the insurer’s medical protocol or criteria.
We have posted on social media to caution policyholders to make sure what cover is provided by reading their policies.
In one complaint about a declined claim the beneficiary argued that death due to the COVID-19 virus is accidental. In the policy, accident was defined as:
‘’an uncertain future event which is caused solely and directly by violent, accidental, physical and visible means and independently of any other cause’’.
She argued that the virus was not expected, so it was uncertain; contracting it was accidental; and the death it caused was violent because the deceased was unable to breathe.
We pointed out the following:
‘’Every element of the definition must be satisfied.
You are correct that the COVID-19 virus was unexpected and it causes a terrible death when somebody dies of not being able to breathe. We accept that contracting the virus was unexpected and we accept that your late husband did not intentionally contract the virus. These are two of the elements of an accident but not the only two.
I point out that it is the contracting of the virus, i.e. the cause of death, which must also be violent and accidental and external and physical and visible. The effect of the COVID-19 virus on the patient’s body is not the determining factor.
To use an obvious example, a car crash is an accidental event because the event itself is uncertain, violent, accidental, external, physical and visible, not only the damage caused to a person’s body or the death caused by the accident.
I also could not find any South African or English case law which supports the view that death as a result of contracting a disease (such as the COVID-19 virus) is an accident for insurance purposes. The legal text books that I consulted also do not provide support for such a position. The conclusion I draw from these text books is that contracting a disease is generally not regarded to be an accident.”
There is no automatic right of appeal against a final determination, but any party to a complaint may apply to the Ombudsman for leave to appeal in terms of Rule 6. During 2020 there were 29 applications for leave to appeal by complainants. Rule 6.3 provides as follows:
“Such leave to appeal shall be granted:
6.3.1 if the determination is against a subscribing member and involves an amount in excess of R250 000 or such other sum as the Council may from time to time determine; or
6.3.2 if the Ombudsman is of the opinion that the determination as such or the particular issue in dispute is of considerable public or industry interest; or
6.3.3 if the Ombudsman is of the opinion that the aggrieved complainant or subscribing member has a reasonable prospect of success in an appeal before a designated Appeal Tribunal.”
No application fell within the ambit of Rule 6.3.2 and 27 were dismissed for failure to satisfy the requirement in Rule 6.3.3 of a reasonable prospect of success in the proposed appeal. One application was granted and thereafter the insurer paid the claim. The other application was granted, but leave to appeal was subsequently withdrawn for the reasons set out as follows in a letter to the complainant:
“It is clear that, since I granted leave to appeal to you on 27 August 2020, information was supplied which indicates that paragraph 18 of my letter, dated 27 August 2020, is incorrect and that the deceased received medical treatment in the 12 months before the policy started. This information means that there is no reasonable prospect of success in an appeal against the final determination.
In terms of our Rule 1.2.2 I must follow ‘informal, fair and cost-effective procedures’. I am satisfied that the prosecution of an appeal against the final determination, dated 17 August 2020, will be a wasteful exercise in futility which will offend against Rule 1.2.2.”
The complainant received income disability benefits and complained to the office about the frequency with which Sanlam Life Insurance Limited (“the insurer” or “Sanlam”) required medical reports from her, which she found distressing.
The insurer relied on the following policy provision to justify its requests for medical reports:
“After we have started making the income payments, we may from time to time ask for proof that the life insured is still disabled, and still has a loss of income. We may require the life insured to be medically examined for this purpose. We will cover the cost of such a medical reassessment only after the life insured has been disabled for at least one month.”
The matter was discussed at a meeting of the adjudicators in the office and the meeting agreed with the view expressed in a provisional ruling that the insurer is “entitled to obtain, at the very least, one report from each of Ms D’s treating specialists annually”. The finding of the meeting was expressed as follows:
“Having taken all the factors presented to us, the meeting was of the view that an annual review is reasonable. More frequent reports would not be reasonable in Ms D’s circumstances.”
The insurer challenged this finding and referred extensively to the available medical reports before summing up its submissions as follows in support of a six-monthly review of the complainant’s claim:
“We accept and acknowledge her burden of disease that she is currently unable to work hence we accept the validity of the income protector benefit claim for the next 6 months, following her last specialist’s report.
We require follow-up reports as part of her routine medical management as outlined by her treating team. And by requesting these reports, we must respectfully point out that this is already part of her routine medical management so it isn’t unnecessary hardship, or unreasonable requirements on our part.
There is still the principle of review and verifying optimal treatment, MMI and the prognosis.”
In the final determination the following was said in response to the insurer’s submissions, including its reference to “maximum medical improvement (MMI)”:
“The policy does not have a requirement for either MMI, as we have stated above, nor for optimal treatment, which is mentioned by Sanlam. In any event, this office has explained on previous occasions that it will not support a requirement of optimal treatment. The requirement is for reasonable treatment.”
The final determination reviewed the relevant reports which reflect the various medical conditions from which the complainant suffered, including the following prognosis:
“It is important to note that the neuropathy is a progressive and ongoing condition for which there is currently no cure.“
The concluding paragraphs of the final determination read as follows:
“Given the range of treatments Ms D has tried and the fact that she cannot recover from this condition, the probability that she would be able to return to work within a 6-month period is remote. In addition to the neuropathy, she suffers from bipolar disorder with major depression which is impacted by the painfulness of her neuropathy.
In the latest report by Dr W she confirms this. The assessment of the complainant’s impairment shows a marked (significant) impact on all areas of functioning….
The recommendation for an assessment by an Occupational Therapist is noted, however, in our view it is not indicated in the present circumstances in the light of the evidence in the rest of the report and the complainant’s other medical conditions. As Dr W points out, the prognosis is guarded in the short term and long term.
The change in medication, e.g. eliminating the two pain controlling medications by Dr T, is unlikely to enhance the complainant’s ability to return to work in the short term.
The final determination is that Sanlam can request medical reports on an annual basis, but not more frequently than that. Requesting more frequent medical reports has an impact on the complainant’s mental state and is likely to impede her recovery rather than improve her situation. If the medical evidence at the annual assessment indicates that there is an improvement in the complainant’s pain control and mental condition, the frequency of requests for medical evidence can be reconsidered.”
In the complaint against Liberty Group Limited (“the insurer” or “Liberty”) the office applied Rule 3.2.5, in terms of which we may, regardless of whether a complaint is otherwise upheld or dismissed, award compensation for “poor service”. Such an award may be made up to an amount not exceeding R50 000.00 “for material inconvenience or distress or for financial loss suffered by a complainant as a result of error, omission or maladministration (including manifestly unacceptable or incompetent service) on the part of the subscribing member”.
After the complaint about poor service had been considered by an ad hoc Compensation Committee, the following provisional ruling was made on 18 March 2020 in relation to the insurer’s offer of R2 500.00 compensation:
“Ms W declined the compensation.
The R2 500 compensation is in our view far short of what should be paid in this matter. At a time when Ms W was stressed and ill Liberty’s poor handling of her claim and complaint added to her distress. The often nonsensical and contradictory answers that Liberty gave to questions and requests added to Ms W’s frustration. Right from the start, when Liberty refused to give her the OT report, Liberty has been unhelpful in the handling of her claim and the complaint.
The meeting was of the view that compensation of R15 000 should be paid to Ms W.”
The insurer responded as follows to the provisional ruling:
“We acknowledge that the claim and complaint for Ms W was poorly handled. This was an oversight on our part, therefore, we sincerely apologise for the inconvenience caused.
We advise your office that we cannot adhere to your office’s request to pay Ms W the amount of R15 000 as compensation. However, we are willing to pay Ms W an amount of R10 000 as compensation. We have attached the offer letter to be signed by Ms W, and we will proceed with payment once we receive the signed letter.”
The complainant furnished extensive personal reasons for rejecting the insurer’s increased offer of compensation.
Following the consideration of the matter at a meeting of the adjudicators in the office, a final determination was made in the following terms:
“6.1 When the matter was discussed at the adjudicator meeting the following points arose:
◆ The provisional determination set out the sequence of events and reasons taken into account in arriving at a decision that R15 000 compensation was due. In response, Liberty offered no reason why it stated ‘… we cannot adhere to your office’s request to pay Ms W the amount of R15 000 as compensation.’ Without any reasoning as to why R15 000 was inappropriate or why Liberty could not adhere to the payment the meeting was accordingly not placed in a position to consider Liberty’s stance. Liberty had also not responded to Ms W’s further submissions as to why she could not accept their offer. The lack of reasons by Liberty for its non-adherence to the provisional determination is further evidence of the perfunctory handling of this complaint.
◆ The adjudicator meeting then went on to consider whether it was of the view that the R15 000 award was inappropriate. No grounds were found for altering the provisional determination. We have in the past explained the reason for Rule 3.2.5 which deals with compensation and how the office applies the rule. There is no formula for determining the amount of compensation but it is also not simply an arbitrary exercise to decide on an amount. The award is affected by many factors, including the extent of the poor handling of the claim and complaint, the extent of the inconvenience and distress caused, the extended period over which this occurred, and, that this occurred at a time when Liberty was aware of the fact that Ms W was ill and under stress.
6.2 The inevitable conclusion is that Liberty was not complying with the Treating Customers Fairly Rules, in particular the following:
‘(a) policyholders can be confident that they are dealing with an insurer where the fair treatment of policyholders is central to the insurer’s culture;
(e) 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; and
(f) policyholders do not face unreasonable post-sale barriers to … submit a claim….’
6.3 The provisional determination that R15 000 compensation must be paid to Ms W is confirmed. This is a final determination.”
See also the article, “Compensation for poor service”, on page 20 of the 2018 Annual Report.
In this complaint AIG Life South Africa Limited (“the insurer” or “AIG”) relied on the following policy provisions:
◆ “No benefit will be payable if an insured event is as a result of, by, for or from diabetes.”
◆ “The claim form and all supporting documentation as may be requested will be supplied at your own expense, and must be received by us within 180 days.”
The insurer challenged the correctness of the provisional ruling in favour of the complainant and submitted as follows:
“Our policy wording is clear around the onus of proof and the claims conditions refer to an insured providing all documentation at the insured’s cost. In this instance the insured is a known Diabetic who was treated for cellulitis – we identify medically the causal link between diabetes and cellulitis….
As previously stated, we have not formally rejected the claim. Once the insured disputes our decision to reject based on the basis of an Exclusion (Diabetes), as our TCF guidelines, we hold back on the rejection and provide the insured/claimant with an opportunity to provide us with supporting clinical evidence in support of their dispute that, their admission was due to other conditions that are non-related to Diabetes.
Regrettably, the claim will remain closed until such time that required documents are submitted to enable us to conclude a medical review on the claim.”
After the matter had been considered at a meeting of the adjudicators in the office a final determination was made, the concluding paragraphs of which read as follows:
“11. The evidence therefore shows that the complainant was admitted and hospitalised for Cellulitis and, as such, that her claim falls within the scope of insurance. The insurer has not alleged at any stage that the complainant’s claim does not fall within the scope of insurance.
12. If AIG wishes to rely on the Diabetes exclusion, it has to obtain the evidence necessary to prove that the hospitalisation was ‘as a result of, by, for or from’ Diabetes. It cannot ask the complainant to provide that evidence.
13. It appears that AIG may be labouring under the following misconceptions:
◆ That the clause in the policy under Claim Conditions means that the insured has to provide any documents the insurer requests. The clause only covers the claimant’s duty to prove the claim and the documents to support the claims, which she has done.
◆ That clause cannot and does not shift the onus. The onus of proving that it can rely on the exclusion rests on the insurer. See South Cape Corporation (Pty) Ltd v Engineering Services (Pty) Ltd 1977 (3) SA 534 (A) at page 548. If the insurer makes out a prima facie case that it can rely on the exclusion only then does the claimant have the burden of adducing evidence in rebuttal. That has not happened as yet in this case. The evidence we have received does not equate to a prima facie case that AIG can rely on the exclusion.
◆ AIG appears to view the Diabetes Exclusion as having a wider ambit than what it states. Diabetes must be the direct cause of the hospitalisation in order for the clause to become operative. The fact that Diabetes is a condition from which the claimant suffers is not sufficient. Even if it is accepted that a claimant is more susceptible to Cellulitis because of Diabetes, that will not entitle AIG to rely on the exclusion if the hospitalisation was not as a result of, by, for or from Diabetes.
14. The fact that the complainant is a ‘known Diabetic who was treated for Cellulitis’ is not sufficient to discharge that onus. AIG has not made out a prima facie case that the complainant was hospitalised as a result of, by, for or from Diabetes. The documentation reflects that she was hospitalised as a result of, by or for Cellulitis. The fact that she has an underlying condition of Diabetes does not bring her within the exclusion clause.
15. The meeting was satisfied that AIG cannot expect the complainant to provide the medical information it requested. It must obtain the information itself. Given the delays that the complainant has experienced in this matter, AIG has 30 days to obtain the information and make its claim decision known, or, it must pay the claim. This is a final determination.”
In this complaint, Santam Structured Life Limited (“the insurer” or “SSL”) disputed its liability for the payment of the policy benefit, following the death of one of the insured lives. In doing so, the insurer relied on a “pre-existing medical condition” exclusion (“the exclusion”) in the application form; the policy schedule and the so-called Master Agreement.
The complainant averred that the exclusion was not explained to her at application stage. The insurer submitted that the policy was sold on a “non-advice” basis by a person who uses a script to provide information, but not advice.
The matter was discussed at a meeting of the adjudicators in the office and the principal findings in the provisional ruling were the following:
◆ Having considered the application form and the script, the meeting was of the view that the policy may be seen as and assumed to be a funeral policy.
◆ On such assumption, it was found that the application of a pre-existing exclusion clause for the duration of the policy term, was unusual.
◆ The meeting held that in such circumstances, SSL’s reliance on the policyholder familiarising himself/herself with the provisions of the policy, was not reasonable.
The provisional ruling concluded thus:
“For the reasons set out above and considering the complainant’s contention in point 8 above, the meeting was of the view that there had not been a meeting of the minds at application stage and as such no consensus regarding the terms of the policy, had been reached. The meeting unanimously agreed that the contract was to be considered as void and that all premiums contributed, were to be refunded.”
The insurer challenged the correctness of the provisional ruling and submitted that:
◆ Any refund of premium should be limited to the “premium relating to the particular life assured who had a pre-existing condition because the insurer will have been on risk for every other life assured”.
◆ “There is further not a lack of consensus in regard to all lives insured.”
◆ “The insured does not contend that she would not have taken out the policy for the other lives who remained insured. This is not a basis for considering the contract void which would mean the other insured parties would have had free cover.”
Following the consideration of the matter at a further meeting of the adjudicators a final determination held thus:
“20. The complainant, by the completion of one composite application form, applied for one policy, covering multiple lives.
24. The meeting, for the reasons set out above, unanimously confirmed its view as set out in point 15 above, that due to a lack of consensus at application stage, the contract was to be considered as void and that all premiums contributed, were to be refunded.”
It may be worth noting that the insurer paid R663.68 to the complainant in accordance with the final determination.