Martin Hesse | 17 December 2024
Martin Hesse is a writer and editor with more than 25 years’ experience. He was previously the personal finance editor for a leading South African newspaper group and has been writing and editing personal finance articles for more than 15 years.
There is often a “disconnect” between the design of a severe illness policy and how it is interpreted by the consumer, the life insurance ombud says.
Denise Gabriels, the lead ombud of the life insurance division at the National Financial Ombud Scheme, took part in a recent panel discussion on the complexities of severe illness policies and the various types of disability cover at the recent annual conference of the Actuarial Society of South Africa in Cape Town. (Read more: “What is disability cover?” and “What is severe illness cover?”.)
Gabriels said that no more than 10 percent of long-term insurance complaints to her office related to health and disability products. Her office receives, on average, about 350 such complaints a year and typically about a third of these are resolved in favour of the complainant.
However, these cases were often the most difficult to resolve, she said. This is because of the complex nature of the cover and the many variables involved.
In the majority of cases, complaints arise from policy wording that is open to different interpretations. It is often difficult to objectively determine the severity of a certain condition, the extent to which it causes disability, and at what point the criteria for disability are met, she said.
Gabriels said her office’s approach was to follow the general legal view that where there was ambiguity in a contract, the consumer was given the benefit of the doubt.
Neil Parkin, head of business development at reinsurance firm RGA South Africa, shared the panel with Gabriels to speak on behalf of the designers of severe illness and disability products.
He said it was difficult to write into contracts the many grey areas around disease and disability.
Parkin said insurers could not escape the complexity, and tension arose where policy wording had to be legally sound and yet comprehensible to policyholders.
“Consumers must understand that there is a narrow range of events that drive a claim,” he said.
Parkin also noted that medical advances had resulted in critical illness policies, in particular, becoming outdated relatively quickly. This was because a condition that a decade or two ago required an intensive, costly operation, may, with new techniques, be relatively easy and inexpensive to treat.
A case study referred to in the panel discussion demonstrates how a policy can be designed in one way by an insurer and understood in another by a policyholder.
In 2023, in a case that came before the Gauteng High Court, the judge found in favour of the complainant, who had claimed on his severe illness policy for a series of heart-related events, culminating in a heart attack.
According to the judgment, the policy had “benefit groups” for different families of related conditions, with a number of “events” listed under each group.
The policy, like many severe illness insurance policies, paid out a percentage of the benefit according to the level of severity of the event. Read more: Why does my severe illness policy pay out at less than 100% of the insured amount?.
A policyholder could claim multiple times on the policy, but it was the conditions under which this could be done that were questioned in the case.
In April 2012, the complainant claimed under the policy’s cardiovascular benefit group for ischaemic and peripheral arterial disease, which resulted in him requiring a coronary stent. He was paid 10 percent of the full benefit amount for which he was insured.
In July 2012, the complainant claimed for further arterial disease, which resulted in him undergoing bypass surgery, for which he was paid 90 percent of the insured benefit.
Three years later, in August 2015, he suffered an acute heart attack. For that he was paid out 25 percent of the benefit.
The complainant maintained that for the heart attack he should have received the full benefit.
The life insurer said the product was designed so that, once you had received 100 percent of the benefit in a certain benefit group – as the complainant had after the second event – any further claim in the same benefit group made 90 days or more later, would result in a maximum payout of 25 percent for people under 75 years of age and 15 percent for people over 75.
The complainant, who was under 75, had correctly received 25 percent of the insured amount, the insurer argued.
But, according to the judgment, the complainant’s legal team argued that, according to the policy wording, one could claim up to 100 percent of the insured amount for each event.
In other words, for each of the events listed in the cardiovascular benefit group, one was entitled to an amount up to the full benefit. Thus the complainant was entitled to the 100 percent of the benefit accorded to the event “heart attack”.
The judge concurred, saying the wording suggested that the benefit was per event, not per benefit group, and ordered the life insurer to pay out the full amount less the 25 percent already paid.
Subsequent to the discussion, Gabriels offered the following advice on buying and claiming on disability and severe illness policies:
Understand the (financial) need that you are trying to cover and ensure that the product you are purchasing matches the need. For example, severe or critical illness products cover specifically defined events and are typically designed to assist in meeting lifestyle needs in the event of a specified illness; they do not replace medical scheme cover.What is disability cover?
What is severe illness cover?
What is an income protection policy?
When will a disability policy pay out?
Do I need severe illness cover?
What does it mean if my cover is accelerated or stand alone?
Why does my severe illness policy pay out at less than 100% of the insured amount?
What illnesses does my severe illness policy cover?
How can I find a good financial adviser?
