Long-term insurance: Learn from these complaints

The Long-Term Insurance Ombudsman issued its annual report for 2022 last week and the case studies in it make it clear that insurers cannot get away with poor service and failing to bring unusual terms to the attention of consumers before they sign a policy contract.

Poor service in long-term insurance

A consumer complained to ombudsman after an insurer rejected a claim against a policy for death due to “non-natural” causes.

The insurer declined the claim because the person did not die of “non-natural” causes.

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The ombudsman found in its investigation that the person asked for life cover when asked what cover he preferred and when the call centre agent mentioned “non-natural”, it was in a rushed manner and often inaudible.

The insured was also never asked if he understood the terms of cover.

The consultant’s response to the person’s numerous medical disclosures was “no problem”, which suggested a lack of understanding and appreciation of the importance of those disclosures.

Therefore, the ombudsman questioned if there had been a meeting of minds at application stage.

However, the insurer said there was a meeting of minds as the contract was concluded according to its sales process, which included all sales calls being recorded, monitored and scripted in line with industry standards. 

The call also passed the insurer’s quality assurance process.

At an adjudicators’ meeting it appeared that the insured was not a sophisticated applicant and that the call was done in English although the consumer was Afrikaans speaking.

The call centre agent also did not appear understand his medical condition and it should have been apparent that he wanted cover for his condition and that he was not applying for accidental cover.

Even after listening to the call numerous times, it was almost impossible to hear the reference to “non-natural”.

These factors made the ombudsman believe that the insurer had not demonstrated good practice.

The ombudsman concluded there was no meeting of minds at application stage and that the premiums should be refunded to the complainant and that the insurer must pay R30 000 to the complainant to compensate for poor service.

However, the insurer maintained its view that there had been a meeting of minds and that its products did not require “sophistication” as a prerequisite, the insured was intellectually competent to understand and affirming what the call centre agent conveyed to him, while he also had ample opportunity to ask for clarification or explanation if required.

The insurer did acknowledge that the service was poor and offered R15 000 compensation, but the consumer rejected it.

The adjudicators’ meeting said the insurer’s stance demonstrated a lack of appreciation of the serious nature of the poor service and instructed the insurer to refund all the premiums and pay R30 000 in compensation. The insurer accepted this.

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Not bringing unusual terms to consumer’s attention

A consumer who was the uncle of the complainant had been in and out of hospital and asked the complainant to take out a funeral policy on his life.

The complainant then bought what she understood to be a funeral policy.

The uncle passed away in January 2022 and the complainant lodged a claim with the insurer, but the insurer rejected it.

The insurer response was that the complainant did not buy a funeral policy, but an “accidental/natural death and hospital cash benefits product” and that the uncle was added to the policy as an “additional dependant” who lived with the complainant.

However, it was established at claim stage that the uncle did not live with the complainant and was not financially dependent on her.

The insurer argued this constituted a misrepresentation or material non-disclosure at application stage which entitled it to decline the claim and cancel the policy from its inception.

The ombudsman also received other complaints about this product that looked like it was a funeral policy but was in fact not one.

The assumption that it is a funeral policy is due to the low premium and sum insured, the type of cover for multiple lives and the waiting period before cover commences for natural causes, a restriction which is commonly used in funeral policies, not in life policies.

The product is also aimed at the lower income market, which is the usual target market for funeral policies and the manner of marketing is similar to that used for funeral policies as it is done by direct selling, sometimes on the street, by “agents” who provide information, but are not allowed to give advice.

The adjudicator’s meeting concluded that the complainant’s assumption that the product was a funeral policy was reasonable.

The ombudsman says if there is an unusual term or condition in a policy, the insurer has a duty to draw attention to it and that financial dependence to qualify as an “additional dependant” was such an unusual term/requirement in this policy.

Therefore, the insurer had a duty to bring it to the complainant’s attention, but the insurer relied on the words “permanently residing and financially dependent on you” in small print on the application form.

The meeting agreed that the print was too small and did not suffice for the purpose of drawing attention to the unusual term.

The adjudicators’ meeting felt that even if the insurer was contractually entitled to decline the claim, the benefit should be paid on the basis of equity or fairness.

The insurer agreed to admit the claim and paid the benefit of R40 000.