Life insurance companies paid a record amount of close to 99% of claims lodged against “fully underwritten life policies in 2015, providing beneficiaries with a cash pay-out of R12.3 billion to help them cope financially after the death of a loved one,” stated the Association for Savings and Investment South Africa (ASISA).
These fully underwritten policies are only issued if the policyholder has gone through the underwriting process. This process usually involves a comprehensive assessment of the insured’s medical history, among other specifics.
In the report released this week, last year’s annual consolidated statistics for death benefit claims for complete underwritten policies, indicate that only 1.1 % of these claims were declined.
“The consistent claims payment record of our member companies demonstrates that life companies are well positioned to offer families valuable financial support following life-changing events, as well as injecting much-needed money into a sluggish economy through benefit payments,” stated Peter Dempsey, deputy CEO of ASISA.
It is known that the loss of an income earner can have a devastating impact on a household. It is in this light positive to note that life insurers continue to honour most of the filed claims.
“While the percentage of claims paid remained the same as the previous year at 98.9%, the value of claims honoured increased by R2 billion from R10.3 billion in 2014 to R12.3 billion,” Dempsey said.
He added that the “life industry is in good financial health, as in 2015 the long-term insurance industry assets exceeded liabilities by more than four times the legal reserve buffer required. This means life companies remain well positioned to honour policy claims.”
Thus making it vital for consumers to opt for trusted and reputable financial institutions, with a good regulatory system and a good track record of pay-outs.
The following are the key reasons for the 1.1 % declined claims, Dempsey explained:
“The number one reason provided by life insurers for declining claims continues to be non-disclosure.” He notes, however, that there has been a consistent reduction in non-disclosure following an intensified consumer education focus on the serious risks of this practice for policyholders and their beneficiaries..
Non-disclosure in this case refers to the deliberate omission of relevant and pertinent information about a medical or lifestyle condition in an attempt to gain a lower premium, or cover without exclusion.
“It is extremely short-sighted for policyholders to take the gamble of withholding material information from a life insurer, which could result in loved ones losing out on much-needed financial assistance,” Dempsey noted.
Another common reason is underwriting exclusions.
“In 24.2% of all claims declined in 2015, the death of the policyholder was caused by a condition that had been specifically excluded by the policy.
“This represents an increase from the 8.1% experienced in 2014, which points towards improved underwriting and greater honesty by policyholders,” said Dempsey.
Fraud has also ranked as one of the top reasons for claims being declined.
“Last year 8.8% (2.9% in 2014) of death benefit claims was declined due to criminal intent by either the policyholder or the beneficiary. Claims fraud usually involves the submission of fraudulent documentation and/or syndicate activity aimed at getting the life company to pay a claim to someone not entitled to the benefit.
“Fraud and dishonesty tend to increase when people face increasing financial hardship and are tempted by the hope of policy pay outs. However, dishonest policyholders risk having claims declined and fraudsters may end up facing severe legal consequences and jail time,” Dempsey highlighted.
Dempsey noted that the “the number of claims declined due to suicide continued to drop from 13.3% in 2014 to 8.3% last year.”
“Life-insurers apply a two-year exclusion period to suicide in order to prevent someone from taking out life cover with the intention of committing suicide shortly afterwards. This means that if a policyholder commits suicide within the first two years of taking out life cover, no death benefit will be payable to the beneficiaries,” Dempsey added.