Relying on a non-disclosure to repudiate
- Posted by Roger Hendricks
- On 10/02/2017
- 0 Comments
- life claims, life insurance, non-disclosures, ombudsman, repudiated claims, repudiations
The office of the Ombudsman for Long-term Insurance (OLTI) says complex products and more persistent complainants are making case finalisation more difficult. In maintaining fairness in the industry the OLTI gives guidance to the industry on the interpretation of certain legislation with the objective to ensure that complaints are handled effectively and with fair outcomes to complainants.
At the release of its annual report for 2016, Ombudsman Ron McLaren highlighted recovery of R187.7 million for complainants of long term insurance and awarded a further R487 335 in compensation for poor service by insurers. The office incurred expenses of R21 454 million for the year, each standard case costing insurers R3 650.
Almost 50% of finalised cases were for claims which were denied of which 83% were for claims in the life insurance and disability insurance categories.
McLaren says: “Although the percentage of cases resolved wholly or partially in favour of complainants is lower than previous years at 28.1%, we must take into account the impact of our new operating model. If we add the cases resolved by insurers on transfer to them, this percentage rises to 37, 4%; 78% of cases were resolved within the first six months.”
Some troublesome concerns
Among the most unusual complaints, of which there were several during 2016, was the case of the pacemaker scam. Briefly stated, complainants claimed illness totalling R30.5 million. “The scheme involved the allegedly unnecessary implantation of a pacemaker device into somebody who has significant cover for such a claim.”
Some of the situations the Ombudsman finds most troublesome include complainant behaviour and insurer behaviour. “This occurs when the behaviour of a complainant takes on unreasonable dimensions. A persistent claim arises when a complainant rejects the office’s provisional determination, leading to the requirement for a final determination,” saysMcLaren.
In 2008, less than 1% of cases closed had final determinations, in 2012 this had increased to 5.8% and this figure nearly doubled in 2016 at 10%.
“The persistence of complainants impacts on our productivity as more time has to be spent on such complainants. Insurer behaviour sometimes suggests a claim is being avoided at all costs. This is where the insurer is demonstrably looking for reasons not to pay what appears to be a valid claim, often by raising a new defence if the original reason for declining the claim does not succeed,” McLaren explains
Another example of unreasonable behaviour on the part of the insurer is expecting a claimant to prove an exclusion on which the insurer wishes to rely, to decline a claim instead of the insurer obtaining the information itself.
In addition, insurers may expect claimants to undergo a surgical procedure or electroconvulsive therapy when considering disability claims, in the absence of policy wording requiring such treatment.
“A major concern is insurers that have poor underwriting practices by, for instance, not conducting proper investigations at underwriting stage, but then relying on a non-disclosure defence to repudiate the policy when a claim arises. This involves the practice of shutting the eyes to the light at application stage,” McLaren says.
Another area of difficulty is the treatment of the equity/fairness jurisdiction by some insurers. McLaren points out, “They shy away from the very concept, yet they themselves make so called ‘ex gratia’ or ‘goodwill’ payments. This attitude to equity/fairness is difficult to reconcile with the Treating Consumers Fairly approach which has been introduced by the Financial Services Board.”
Nature of complaints
The Ombudsman received 9 871 written requests for assistance during 2016, marginally exceeding the 9 815 of the previous year. Of those requests 5 284 were chargeable complaints exceeding the 2015 volume by 266.
In 2016 the number of cases finalised by the office was 3 324, of which 28.1% were resolved wholly or partially in favour of the complainants – marginally lower than the 3 491 finalised in 2015.
An analysis of the Transfers (which in 2016 was 58% of the chargeable complaints) over the past three years shows that the total number increased and the percentage (currently 24.5%) settled in favour of the complainants by the insurers.
The types of long-term insurance products most consumers complained about were funeral and life insurance products. Complaints in the health category decreased for the third consecutive year as a result of fewer complaints about Hospital Cash Plans. Complaints about poor communication, historically the second largest category of complaints, however, showed an increase.
In general, the Ombudsman reports that case finalisation is becoming more difficult because more complex products, more persistent complainants and the impact of the office’s new business model has led to simpler complaints being resolved by insurers and no longer by the office. Since the implementation of the office’s new business model the figures have been consistent over the past three years, despite an increase in the number of policies sold by insurers.
“The complaints in our office reflect less on the behaviour of intermediaries and more on that of insurers. Insurers appear to be taking complaints more seriously and that impacts on our numbers. Based on first quarter experience we do not foresee a significant change in 2017. We do not expect an increase in complaints,” said McLaren.
Read more: https://www.fanews.co.za/article/compliance-regulatory/2/life-ombudsman/1097