How insurers avoid paying claims - OLTI
While the Ombudsman for Long Term Insurance (OLTI) has recovered millions for complainants its annual report findings also show that some insurers will go to any lengths to renege on a claim. Angelique Ruzicka delves a little deeper in the OLTI’s 2016 annual report to thrash out some trends and finds out who the worst offenders are
The Ombudsman for Long Term Insurance (OLTI) 2016 annual report highlights a suspicion that many consumers believe to be true, which is that some life and disability insurers will stop at nothing to avoid paying out a claim. “Insurer behaviour sometimes suggests a claim is being avoided at all costs,” says Ombudsman Ron McLaren. “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 reasons for declining the claim does not succeed.”
He adds that OLTI has found that some insurers expect a claimant to prove an exclusion on which the insurer wishes to rely. Typically it’s the insurer’s job to obtain such information but if consumers can’t do it then some insurers have been known to decline the claim.
The OLTI findings reveal that some insurers expect their customers to go through some questionable medical treatment before paying out a claim. For instance, claimants have been expected to undergo a surgical procedure or electroconvulsive therapy when considering disability claims, even in the absence of policy wording requiring such treatment.
Another major concern, McLaren says is that some insurers have poor underwriting practices and don’t conduct proper investigations at underwriting stage. But then they rely on a non-disclosure defence to repudiate the policy when the claim arises. “This involves the practice of shutting the eyes to the light at application stage,” he says.
Recovery of claims
When drilling down into the stats for 2016, it reveals that there were 9 871 written requests for help from the OLTI of which 5 284 became chargeable complaints. But it’s not all bad news. The Ombudsman recovered a whopping R187.7 million for complainants and awarded a further R487, 335 in compensation for poor service by insurers. Conducting investigations is expensive though and the office incurred expenses of R21.454 million for the year, with each standard case costing insurers R3, 650.
But the OLTI is refusing to be the solver of all problems that customers have with their insurers and it’s certainly not going to take on battles without customers having tried to resolve the issue themselves first.
“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,” says the OLTI.
Trends in complaints
When asked about any notable trends in consumer complaints, Jennifer Preiss deputy ombudsman for long-term insurance relayed that the OLTI is seeing a drop in the health [insurance] complaints. “It has dropped for the third year in a row. We have highlighted over a number of years on suspicious claims on hospital cash plans but that is starting to reduce and we are very pleased about that,” she says.
Non-disclosure, where insurers accuse customers of not being upfront with information at could affect the underwriting and as a result the premiums they would pay is increasingly becoming a common defence.
“There is a slow creeping up on the number of complaints that are declined on the basis of non-disclosure. When you claim later on, the insurer relies on the fact that you didn’t disclose the information, that increase has stayed 3% for many years but it’s climbing. We’re not sure if insurers have become more vigilant or that people are not disclosing as they should. There are disputes of fact and they can take a long time to resolve,” says Preiss.
However, some claimants can’t claim to have squeaky clean intentions either. It’s not surprising that when times are tough people try their luck and claim from their disability insurance provider to bail them out of sticky financial situations. “We do see more people submitting disability claims and therefore more disability complaints as a result,” says Preiss.
Of all the complaints listed (see table below) miss-selling has reduced the most (just seven complaints were recorded), but this is because the OLTI no longer handles these types of complaints. “The reason why it’s such a small category is because the FAIS Ombud deals with that now. It will eventually disappear because the Financial Advisory and Intermediary Services (FAIS) Ombud will deal with inappropriate advice,” says Preiss.
One of the ultimate challenges is around the education of consumers around how insurance works. Some, particularly those customers who’ve had policies for years, feel disillusioned about the amount of money they have paid over to insurers because they haven’t ‘received anything back’. While this is a good thing because it means the customer hasn’t died or become disabled, some, particularly pensioners, find themselves in a double bind. They can’t afford their premiums but at the same time don’t want to relinquish their policies in the event that something does happen and they are then able to leave something for their beneficiaries.
“We try to explain to people why that happens and point out that some people gain and others will lose. But those who lose don’t understand. But what do you do now? If you stop now you won’t get anything. And if you carry on the premiums will only increase. So we try and do in those cases that we make the policy paid up so you don’t have to pay more premiums but not all insurers want to do that,” points out Preiss.
She adds that this problem is not a unique one to South Africa and that with the medical advances and treatment people are living longer than expected, well into their 90s and even beyond the age of 100. “We can’t make rulings in those cases but we try and persuade insurers to do that [make it paid up]. Sometimes insurers’ systems can’t do that and others say it’s the nature of the insurance industry. We will see more complaints like this in the future as more people are living longer and some have purchased policies some time ago,” she adds.