No cover, no refunds: thousands of 'high risk' policyholders' life and illness policies cancelled

Thousands of people who took out life and illness policies, some as far back as a decade ago, will be left with no cover at the end of the month - and no premium refunds - in the wake of the sudden cancellation of their policies.

The policies - Prime LivingLegacy and Prime Living CoverGrow - were sold by Prime Meridian Direct and underwritten by short-term insurer Constantia.

The former was sold as an “accident and health” policy to 2,771 people between September 2010 and December 2016, and the latter to 2,445 people between January 2015 and May 2018.

The first those policyholders knew about the unilateral policy cancellations was in the last week of February when they received an SMS saying their policy will be cancelled with effect from March 31 “due to regulatory changes” and urging them to "please don’t be alarmed".

In the case of the CoverGrow policy, a waiting period was imposed on disclosed, pre-existing health conditions, which in many cases was about to expire, or had just expired, when they received the shock policy cancellation news.

Many of those very alarmed policyholders discovered in the following days that they would not get any of their premiums refunded, and the older ones are now in danger of not being able to find alternative cover at all, given their advanced age.

The Financial Sector Conduct Authority (FSCA) has stepped in and is engaging with Constantia "to ensure this matter is resolved in a manner which does not lead to unfair outcomes for policyholders”.

The average age of CoverGrow policyholders is 51 years, and they’ve been paying, on average, R475 a month.

Moira Sturmair and her partner André Theron, of Langebaan in the Western Cape, both took out CoverGrow polices three and five years ago respectively, the latter paying R1,500 a month. Theron, at 69 and in ill health, fears he won’t be able to find alternative cover.

“There are thousands of other people in a similar situation and it’s just not right,” Sturmair said.

Sauro Venturi, of Durbanville, took out a R2m policy in November 2016, paying R749 a month. His waiting period expired just four months ago.

“My accrued benefit as at December 2019 was about R1.2m, and the reality is that from April 1, should I die, my family gets nothing.

“At 73, no insurance company will consider life cover for me going forward.”

Tyron Brett wrote to TimesLIVE in a state of panic after receiving "the letter".

His 30-year-old wife has lupus and a host of related medical issues. Having taken out the policy two years and seven months ago, they were anxiously awaiting the end of the three-year waiting period when they received the bad news.

“She had been declined by several companies already,” Brett said. “Prime Meridian was the only option we had.”

Many told TimesLIVE the initial “soothing talk” from Constantia about finding them alternative cover had evaporated as the days went by.

In a HelloPeter post, “Neil L” told how he cancelled his previous life insurance policy of 20 years to take out the CoverGrow policy in 2015, with a R1,500 premium “because the terms of this policy were better”.

“What they have done is completely unconscionable and shocking,” he said.

“At first, the cover was very low but it has steadily increased to well over R4m. I took the risk of low initial cover. Now, at this stage, when it is finally paying off, they are pulling the plug because they found some loophole.”

That “loophole” is the Insurance Act, which was introduced in 2017 and became effective mid-2018. It draws a distinction between life and non-life, previously referred to as short-term insurance.

Prior to that, short-term insurers had been writing insurance to cover some death and disability events, as in the case of the now-cancelled Prime Meridian Direct policies.

“In terms of the new Insurance Act, insurers may no longer conduct life and non-life insurance under the same licence,” Constantia told its affected policyholders.

“Your Prime CoverGrow policy meets the definition of a “life policy” as defined in the Insurance Act, and given that Constantia Insurance Company Limited is licenced as a non-life insurer, we may no longer provide this cover.”

The FSCA, which became aware of the policy cancellations last week, told TimesLIVE its engagements with Constantia are not only about the refunding of premiums and alternative cover, but are with regard to how Constantia met their obligations when they cancelled the policies, the processes they have followed and the impact on policyholders.

“We are also looking at the waiting period applied,” said conduct of business supervision head, Kedibone Dikokwe.

“There is no basis for premium refund in the normal scope of how insurance works,” she said. “However, in this instance the premium refund would be more like compensation for the fact that the insurer cannot even offer an alternative for the policyholders, and also because of the waiting periods imposed, which have now expired, and the age of many of the policyholders.

“In other words, a premium refund in this instance would be from a 'treating customers fairly' perspective.”

The FSCA is not aware of any other such cancellations, Dikokwe said, “but even if an insurer may no longer continue to underwrite certain product offerings, this should not lead to unfair outcomes for policyholders".

Constantia told TimesLIVE it had stopped marketing its CoverGrow product in May 2018, which was shortly before the Insurance Act became effective.

“We continued to provide cover and pay claims while we considered various other options, but in the end, we were not able to come up with an equivalent alternative.”

Asked why the company is refusing to consider premium refunds, it said its policyholders had received immediate cover for accidental death and for all forms of natural death as a result of illness, “including limited cover for disclosed pre-existing conditions during the waiting period”.

"Policyholders who died as a result of a disclosed pre-existing condition after the waiting period were paid out the full policy benefit, and those who died as a result of a disclosed pre-existing condition during the waiting period were paid a benefit up to the value of their premiums paid."

Asked why it took on high risk clients, Constantia said: “We provided extensive benefits to people who would not ordinarily have qualified for such benefits.

“The cancellation came about as a result of the changes to the insurance legislation, and we could not have foreseen this at the time the products were launched.

“This product provided extensive benefits, particularly to people of an advanced age who would not ordinarily have qualified for these benefits.

“The product has worked exactly as it was designed to do, and we have paid out tens of millions in claims to the families of claimants."

Asked to reveal its claims ration, Constantia said it could not disclose any financial information as it was currently in a closed period.

The insurer did admit its initial “don’t be alarmed” notification “failed to take into account the human impact, and we apologise for this”.

“Subsequently, we have responded with increased resources to address any outstanding queries with the sensitivity they deserve.”

The insurer said there were “market alternatives” for its LivingLegacy policyholders, “so they may not be as affected by the cancellation".

GET IN TOUCH: You can contact Wendy Knowler for advice with your consumer issues via email: consumer@knowler.co.za or on Twitter: @wendyknowler.