From the Long-term Ombud’s 2016 annual report:
The Assessors and Adjudicators in the Long-term Ombud’s office were canvassed about the issues that currently fall into this category. The following are some of the matters raised.
1. Bad bargains
These include products that do not provide value for money or do not deliver on promises and expectations.
- Policies that provide very limited cover. g. a policy termed a “Cancer policy” which in effect only provides cover for female cancers or male cancers, but it is only by reading one particular clause in the policy that the policyholder will discover that the cover is limited in this way.
- Unexpected or unusual provisions in policies. These are terms and conditions that are not part of standard policy terms or conditions and that we have seldom or never encountered previously. The question then arises whether policyholders, or even intermediaries, were aware of these unusual provisions when the policies were purchased. g. policies that reverse the normal onus of proof; whole life risk policies that give the insurer a right to cancel the policy.
- Policies which are unsuitable for their target market. g. capital protector policies with premium reviews sold to pensioners. Although the concept of a capital protector policy has distinct advantages, if there is a premium review which results in a high increase in the premium it could make the premium unaffordable for a pensioner who is on a fixed annuity. We have had many complaints about such premium increases following premium reviews.
- Legacy products that have become outdated. g. critical illness policies with outdated definitions which are difficult to apply because of advances in medical science.
- Policies that are sold that raise expectations that have no chance of being fulfilled. The Ombud quotes a case where a terminally ill client, who disclosed this, was sold a life policy, and died the day after acceptance. The claim was declined as, at the date of death, the policy only provided accidental cover because the “underwriting process” (three months) had not been completed.
- Investment policies that do not provide good value for money because of high costs. The charges are disclosed in the contractual documentation but it is unlikely that the policyholder fully appreciates the eroding effect of such charges. g. we have seen some policies where the charges amount to up to 33% of the premium or where the Reduction in Yield was illustrated as 10% which reflects the impact of costs on the return of the investment. The chances of a policyholder getting a real return on such a policy are slim.
- Complex products
- There are some extremely complex products in the market. The majority of these policies are critical illness and disability policies with cover for a myriad of conditions. Some of these policies consist of more than 100 pages. We find it difficult to interpret and understand the policies. The question is how many policyholders would be able to understand these policies? We have cases where legal experts differ on the interpretation of policy wording as the drafting is not always clear, particularly where there are medical or actuarial terms involved.
- There are products that have design flaws. This can lead to difficulty at claim stage when applying the wording in the policies to the conditions they are supposed to cover. These are products that have not been tested in the “real world” or have not been “thought through”. g. a benefit that pays out if the insured suffers from four grand mal epileptic seizures during a specified period. However, the insurer had not indicated in what manner the insured would have to prove the incidence of such seizures. Funeral policies covering “cousins”. It is of course not that easy to prove that someone is a cousin. In certain indigenous languages there is no distinction drawn between a cousin and a second cousin. We have had a number of complaints where a policyholder covered a second cousin but described the insured as a cousin” because of this difference in terminology.
- Products that provide perverse incentives that then lead to unintended consequences. The problem of excessive claims on the hospital cash plans is an example of this.
From the above it becomes evident why Treating Customers Fairly is an essential foundation on which future regulation will be built. With greater emphasis on accountability for product design and outcomes, product providers will no longer be able to get away with the issues outlined above.
The question one has to ask is why this is not already happening. If the basis of an insurance contract is “mutual trust”, should providers not set the ethical example, rather than try to avoid their contractual obligations?
In Part 2 we discuss complainant behaviour, insurer behaviour and systemic issues.
