The term long term insurance covers a fairly diverse range of insurance products, including life, disability, dread disease, income protection policies, endowments, retirement annuity funds, living annuities and compulsory annuities.

Last year, according to the Business Day (April 2008), South African policy holders invested R103bn in premiums for life and disability insurance and savings policies. This is up 13% from 2006.

The CEO of the Life Offices Association credits this growth rate with a renewed confidence in the long term insurance industry. The question is whether the factors which caused consumer confidence to drop in the first place have been resolved.

Common complaints:

According to the ombudsman for long term insurance some of the complaints routinely received by them include misrepresentation, lapsing and re-instatement of policies, and communication, administration and other errors by insurers.

An example of misrepresentation found among the ombudsman’s case list is that of a policy holder who accepted a quotation after being assured by the broker that 100% of the original investment was guaranteed at the end of the 5 year term of the policy.

Although this guarantee was repeated in the marketing material (and emphasized by the broker with a highlighter), the policy document itself contained no such guarantee. Fortunately for this client the ombudsman intervened and the broker stood surety for the difference.

Although bound by law to stand by the promises of brokers acting on their behalf, not all insurers willingly do so. In another case of misrepresentation, a client was informed that life insurance was mandatory for ABSA’s Platinum One Account. The client reluctantly signed the insurance contract and paid out approximately R45000 over the next 3 years.

Subsequently he found out, from a Discovery Life representative, that he was not under any obligation to have life insurance. When he tried to cancel the policy, however, Discovery Life initially refused, on the grounds that he had signed the policy and that they could not be “held responsible for unscrupulous brokers that represent them”!

When the policy holder stops paying premiums before the value of the policy exceeds the costs the policy lapses. In other words, the surrender value is zero. Often, though, the lapse is unintentional.

A policy holder who, due to financial difficulties, was unable to pay premiums for two months, discovered, when she paid up the full arrears the following month, that the policy had lapsed, despite the fact that the policy did not include a penalty clause for late payment.

The insurance company (unnamed) was willing to reinstate the policy but with the exclusion of her 75 year old father who was now too old to be included in a new policy.

Finally, among the abundant cases of administrative error is one where the insurer had invested the policy holder’s provident fund benefit in a retirement annuity fund.

However, the income from the retirement annuity had, for some unknown reason, been paid into the personal bank account of the Human Resources Manager of the policy holder’s previous employer.

Amazingly “the insurer took no responsibility for the fact that they had been paying the benefit to the wrong party and … they were not taking any steps to set the matter right themselves other than to pay future monies to the right party”

Conclusion:

The examples given above are only a small fraction of the complaints received regularly by the ombudsman and consumer forums about long term insurers. Under the circumstances, despite the growth they have been experiencing, it appears that this industry still has a long way to go to regain the confidence of their prospective clients.