Consumers buying life policies – make sure that you will be covered!
Jennifer Preiss at the Ombudsman for Long-Term Insurance
Article extracted from Ombuzz Issue 49, the newsletter from the Ombudsman for Long-Term Insurance
We have been receiving an increasing number of complaints where policyholders or beneficiaries were not aware or did not understand that the policy that was bought, offered restricted cover, in that it only provided accidental cover. Consumers buying life policies may be under the impression that they will be covered, whether the insured event is as a result of accidental or natural causes.
We have written in the 2020 Annual Report (see p 25) and posted on social media to caution prospective and existing policyholders to ensure that their insurance cover is what they require.
The question in many of these cases is whether there was consensus at sales stage as to the cover that was purchased.
The complainant had wanted R1 million life cover. During June/July 2018 he applied at the insurer and according to him, his application was successful. He contacted the insurer in 2021 to take a further R1 million cover, only to discover that his cover was limited to accidental benefits only. The complainant subsequently cancelled his policy in August 2021 and wanted a refund of the premiums he had paid together with interest. The insurer declined the request. After the complaint was lodged with the office it was discussed at an adjudicator meeting.
The meeting considered, amongst others, the following documents:
No mention of an exclusion or that benefits are limited to accidental or traumatic causes of death.
The exclusion appears on page 4 of the unsigned counter–offer letter.
As far as the meeting could ascertain, the first mention of the exclusion appears on page 17 of the 51–page document.
The meeting was of the view that the above documents did not sufficiently alert the complainant that, contrary to his application for life cover, he only qualified for accidental death cover.
The question of consensus therefore arose. Like any other contract, a contract of insurance is founded on consensus, or a meeting of minds, supported by the serious intention of both parties to be legally bound by what they have agreed. In order to achieve consensus, the parties involved must make their intentions known by declarations of intent or offer and acceptance. In this instance, there is evidence that what the complainant applied for, and what he was led to believe he qualified for, was not the cover he enjoyed.
Accidental death cover is quite a different from the life cover the complainant applied for and as stated above, the contractual documents do not spell it out clearly that the complainant’s cover was limited to accidental events.
There is case law that signatories will not be held bound by the contractual terms, if the contract is not what was agreed to at application stage and if it contains hidden clauses. [See Du Toit v Atkinson’s Motors Bpk 1985 (2) SA 893 (A), Spindrifter (Pty) Ltd v Lester Donovan (Pty) Ltd 1986 (1) SA 303 (A), Dlovo v Brian Porter Motors Ltd 1994 (2) SA 518 (C) and Keens Group Co (Pty) Ltd v Lotter 1989 (1) SA 585 (C)].
As there had not been consensus, the legal remedy is that the parties must be placed in the positions they would have been had the contract not been concluded. In this instance, the insurer would have to refund the premiums paid. A provisional determination to this effect was issued after the adjudicator meeting and the insurer complied.
POLICIES SOLD BY TELESALES
Accident policies are often sold by means of direct marketing, such as telesales, without advice. If the sales process is not conducted in such a way that it is explained in easy–to–understand terms that the policy only provides accidental cover and that claims due to natural causes are not covered, it can lead to disappointed expectations. It is particularly concerning where the policies are sold to financially unsophisticated consumers.
A policy was sold by a bank by means of a sales call to the policyholder/life insured. During the sales call, when advised that the cover offered was non-natural and being asked what cover he preferred, the policyholder responded, “life cover”. The reference to “non-natural” cover was rushed by the call centre agent and not explained. The policyholder was not asked if he understood or if he accepted that limited cover was offered. He could possibly have misunderstood the cover offered, considering the numerous medical questions asked and disclosures made, to which, on many occasions, the consultant merely responded, “no problem”. It is common to be asked medical questions for full life cover, but not so for accidental/non-natural cover.
The life insured died from natural causes and the insurer declined the claim as the policy only provided cover for “non-natural” causes. After the complaint was lodged with the office by the claimant and after listening to the sales call, a question was raised with the insurer if there had been consensus at application stage. The insurer insisted there had been and that a valid contract ensued as the call passed its quality assurance process.
An adjudicator meeting found:
That the deceased was not a financially sophisticated applicant;
He was Afrikaans speaking, however, the call continued to be conducted in English;
During the call, there was an emphasis on his disclosed medical condition of angina, even though the call centre consultant did not appear to have an understanding of said condition;
That the policyholder’s intention had been to apply for insurance to cover him if he died from natural causes, and that he clearly had not been applying for only accidental cover;
Given the disclosure of his health condition, the call centre consultant should have emphasised and explained that the cover was for accidental causes only;
Even after listening to the call numerous times, it was difficult to hear the reference to “non-natural” cover;
The use of the term “non-natural” is confusing and the overall impression of the call was that it had been disingenuous.
Having regard to the above, the meeting questioned the insurer’s stance in respect of the quality of the call.
The complainant was also unhappy with the treatment she experienced at claims stage. The meeting agreed that this had amounted to unacceptable and incompetent service on the part of the insurer as envisaged in Rule 3.2.5.
A determination was issued that there had been no meeting of the minds at application stage. Although the insurer was upheld on the decision to decline the claim, the premiums were to be refunded and an amount of R30 000 was to be awarded for compensation.
The insurer disputed the provisional determination and maintained that the late policyholder had made an informed decision. The insurer declined to refund premiums and made a counter-offer of R15 000 compensation.
The counter-offer was rejected by the complainant.
After a further adjudicator meeting a final determination was done confirming the provisional determination, and the insurer complied.
In a recent complaint where the policy had been sold by means of a telephone call, the issue of consensus again arose. As is the case with some telesales the sales tactics and pressure by the sales agents were questionable. The complainant put it as follows “they confused me because they talk a lot”. A sales call in 2010 and the subsequent upgrade calls (6 calls) were rushed and some were made at times inconvenient to the policyholder who was at work. Despite the policyholder wanting more time to think about the original purchase and expressing financial difficulties, he was pressured into purchasing a policy which was not what he required. The policyholder stated in the sales call that his wife had life cover with another insurer but “Ek het niks nie” (I have nothing). As he explained in his letter of complaint, he had been under the impression that he was buying life cover which also included accident cover, and that he would have refused the policy had he been aware that it was only accidental debility cover.
In a later telephone call with the call centre in 2018 he starts the conversation by stating “Ek het ‘n lewensdekkingpolis.” (I have a life cover policy). The call centre agent did not point out that he only had accidental cover. It was only in 2020 when he telephoned to check on the policy that he became aware that he had only accidental cover and “the bomb burst”, according to him. He claimed a refund of all his premiums.
After discussing the complaint at an adjudicator meeting a provisional determination was issued that premiums should be refunded by the insurer. The determination specifically pointed out that the complainant had never been told that he did not have cover for natural causes. This falls short of what the Policyholder Protection Rule 3 k) requires, i.e.:
“Concise details of any special terms and conditions, exclusions… restrictions or circumstances in which benefits will not be provided.”
The insurer offered a refund of 50% of the premiums, partly because the initial sales call could not be produced, and some upgrade calls were not up to standard. The complainant made a counter-offer of 75%, which the insurer refused.
At a further adjudicator meeting the matter was again considered together with two further calls in 2013 and 2018. Although there were references to the policy offering accidental cover in these calls, there was again no reference to the limitation on cover for natural causes. These calls were in any event made some time after the sales call. The meeting remained convinced that there had been no consensus on the terms of the policy at sales stage, and therefore no valid contract came into force. The final determination instructed the insurer to refund the premiums, and the insurer complied.
POLICIES WHERE THE COVER REDUCES TO ACCIDENTAL COVER
There are also policies where the cover commences for accidental and natural causes, but then reduces to only accidental cover because the life insured does not comply with the insurer’s medical/underwriting protocol or criteria. It is important that policyholders understand that the full cover might not be sustained after the initial period with this type of policy.
The office’s view is that if the cover reduces to only accidental cover, the premium must reduce as well. Some insurers at first disagreed with this view (See for example Case 42 under Final Determinations issued in 2019). It appears from the lack of complaints in this regard that insurers now make this premium adjustment as a matter of course.
For more information about the office and its activities, please visit our website: www.ombud.co.za
Ombudsman for Long-Term Insurance
Sixth Floor, Claremont Central Building, 6 Vineyard Street, Claremont, Cape Town, 7700
Private Bag X45, Claremont, Cape Town, 7735
Ombudsman Central Helpline: 0860OMBUDS / 0860 66 2837
Ombuzz is published for general guidance only. The information it contains reflects our policy position at the time of publication. This information is neither legal advice nor a definitive binding statement on any aspect of our approach and procedure. The case studies are based on actual complaints we have dealt with.