Nondisclosure in life cover applications is increasing
Failing to disclose important health information in life cover applications is a growing problem in SA and leads to life assurers turning down claims.
According to figures from the Association for Savings and Investment SA (Asisa), the SA life insurance industry repudiated a total of 5,026 claims —worth more than R1bn — in 2017, mostly because of nondisclosure or misrepresentation of material facts at the time of application.
It is distressing for consumers who diligently maintain their premiums to hear about incidences of life insurance companies not paying out claims, says Stacey Roper, certified financial planner at Alexander Forbes Financial Planning Consultants.
A recent example of nonpayment — which was later reversed after public outrage — was Momentum, which refused to pay out life cover of R2.4m to Durban widow, Denise Ganas, in November following the murder of her husband in a hijacking incident. Momentum had rejected the claim because her husband failed to disclose that he had had a blood sugar test two weeks before he applied for the policy in 2014 — something the insurer regarded as key medical information.
After taking public criticism to heart, Momentum later announced that a “violent crimes benefit” would apply to all past, existing and future clients which was funded out of company profits rather than clients’ premiums and Ganas was paid R2.4m, while several other claims were also paid.
Brad Toerien, CEO of life insurer FMI, says it has seen nondisclosure claims rise from 2.4% in 2015 to nearly 8% in 2018 — giving many people the perception that insurers don’t want to pay claims.
FMI is part of Bidvest Life and offers individuals disability, critical illness and life cover.
But, he says, insurers will always try to find a way to make paying the claim possible, even if there is nondisclosure, and he says that Asisa’s figures back him up: in 2017, life insurers paid out 99.75% of the value of all claims made, making benefit payments of R469bn to beneficiaries and policyholders.
“Decisions to decline a claim have a real impact on people’s lives, so we try to make the best possible call for our customers with the information presented to us. But it’s critical for policy holders to understand that as an insurer we also have an obligation to all other policyholders, as nondisclosure and misrepresentation can have a dire impact on the entire industry’s premiums,” he says.
The application process is a delicate balance between making sure the customer doesn’t have to jump through too many hoops to get sufficient cover for their needs upfront, and making sure they provide the insurer with enough medial history so that they can, in turn, offer fair terms of the policy upfront, he adds.
Toerien attributes the rise in nondisclosure more to customers’ circumstances than an increase in dishonest behaviour.
Factors that may lead to nondisclosure and misrepresentation are as follows:
Stressful financial times and increasing illnesses means you have more information to remember and disclose when applying for life cover.
Doctors being too quick to prescribe medications, which may lead to life companies noting the conditions as pre-existing conditions. Pre-existing conditions can lead to your life assurer excluding certain conditions or loading your contribution if they do cover the conditions.
Filling out applications in a hurry. Customers are time-pressed and forget to really consider their health history.
Applying without the assistance of a financial adviser to check your application and ensure that you have answered all questions accurately...