En­hanc­ing val­ues

Th­ese pol­icy en­hance­ments rep­re­sent a broad-based so­lu­tion

Finweek English Edition - - The life offices’ association -

AS THE LIFE IN­SUR­ANCE in­dus­try gears up to hand over R3bn in pol­icy value en­hance­ments to qual­i­fy­ing re­tire­ment an­nu­ity (RA) mem­bers and en­dow­ment pol­i­cy­hold­ers this year, pol­i­cy­hold­ers are be­ing ad­vised that value en­hance­ments can be ex­pected be­fore end-May this year.

Lizé Lam­brechts, CEO of San­lam Per­sonal Fi­nance and re­cently ap­pointed chair­man of the Life Of­fices’ As­so­ci­a­tion (LOA), says since most RA fund mem­bers and pol­i­cy­hold­ers have main­tained their poli­cies, their val­ues will sim­ply be en­hanced in the case where they qual­ify for one.

She says that al­ter­na­tive ways of re­fund­ing qual­i­fy­ing clients will only ap­ply to RA fund poli­cies that are no longer on the books of an in­surer due to early re­tire­ment, par­tial re­tire­ment or be­cause the RA fund pol­icy had lapsed. In such in­stances, in­ter­est will be added to the re­fund amount. That doesn’t ap­ply to sur­ren­dered en­dow­ment poli­cies, where peo­ple have al­ready taken the money or the pol­icy has lapsed.

Lam­brechts says ben­e­fits would ac­crue to RA fund mem­bers who dur­ing the pe­riod be­tween 1 Jan­uary 2001 and 1 De­cem­ber 2006 had stopped pay­ing or re­duced their pre­mi­ums and whose fund val­ues were re­duced by more than 35%, to RA fund mem­bers who re­tired early from their fund and who re­ceived less than 65% of their fund value, and to RA mem­bers whose poli­cies lapsed and who lost their en­tire fund value.

En­dow­ment pol­i­cy­hold­ers who stopped pay­ing pre­mi­ums or who re­duced their pre­mi­ums but who left their in­vest­ment with the life in­surer would also re­ceive at least 65% of the to­tal fund value.

Ac­cord­ing to the LOA, as many as 50% of all pol­i­cy­hold­ers and RA fund mem­bers who ter­mi­nated their in­vest­ments dur­ing the five-year pe­riod would ben­e­fit. “So th­ese pol­icy en­hance­ments rep­re­sent a broad­based so­lu­tion, not just fo­cused on ad­dress­ing com­plaints re­ceived via the Pen­sion Funds Ad­ju­di­ca­tor.”

From an in­di­vid­ual com­pany per­spec­tive, SA’s big five in­sur­ers are pro­vid­ing the lion’s share of the value en­hance­ments, with Lib­erty Life al­low­ing for claims of R843m from share­holder funds, Old Mu­tual (R716m), San­lam (R620m), Mo­men­tum and Sage Life (R280m) and Metropoli­tan (R175m).

Lam­brechts says that ex­ist­ing pol­i­cy­hold­ers or mem­bers of RA funds will not be prej­u­diced in any way by the im­ple­men­ta­tion of min­i­mum stan­dards. Pol­icy en­hance­ments are to be funded ex­clu­sively by the com­pa­nies’ share­hold­ers, with rat­i­fi­ca­tion by their boards of direc­tors.

She says the R3bn set­tle­ment fig­ure should also not be seen as an “ad­mis­sion of guilt” fine. “The life in­dus­try’s new com­mit­ment to pay­ing min­i­mum val­ues doesn’t mean that life in­sur­ers pre­vi­ously took more money from you than al­lowed. Life in­sur­ers are re­quired by law to ap­ply ap­proved ac­tu­ar­ial rules when cal­cu­lat­ing pol­icy val­ues. The im­proved val­ues sim­ply mean that life com­pa­nies will no longer re­cover all the costs re­lated to a pol­icy when a con­trac­tual change is made.”

Lam­brechts says as the in­dus­try moves to­wards an en­vi­ron­ment of on­go­ing fees and com­mis­sions it’s im­por­tant to recog­nise that in­ter­me­di­aries put in a lot of work with clients and that they need to be re­mu­ner­ated and in­cen­tivised on a bal­anced struc­ture.

Jan­nie Ven­ter, mar­ket­ing ac­tu­ary at Metropoli­tan Life and con­venor of the LOA stand­ing com­mit­tee on prod­ucts, says the life in­sur­ance in­dus­try is fac­ing the chal­lenge of hav­ing to re­cal­i­brate it­self while at the same time en­sur­ing its sus­tain­abil­ity and prof­itabil­ity. “The SOI process deals with the ex­ist­ing book for poli­cies and the ter­mi­na­tion val­ues that were ap­plied to those. In deal­ing with what needs to be in place for

fu­ture new busi­ness the LOA made pro­pos­als to Trea­sury, given that there was an op­por­tu­nity for a new de­fined approach.”

Ven­ter says once those pro­pos­als are en­acted, the in­dus­try re­quires about nine months to come into line with new reg­u­la­tions in terms of amend­ments to the Act reg­u­lat­ing long-term in­sur­ance on ap­ply­ing min­i­mum early ter­mi­na­tion val­ues.

Says Ven­ter: “Our role is to de­ter­mine min­i­mum ter­mi­na­tion val­ues to serve as a floor, though ob­vi­ously each life in­sur­ance com­pany can de­ter­mine its own level while pro­vid­ing good value for money for the client and a liveli­hood for the in­ter­me­di­ary.”

Ex­ist­ing pol­i­cy­hold­ers or mem­bers of RA funds will not be prej­u­diced in any way. Lizé Lam­brechts

A tough task. Jan­nie Ven­ter

RAs & EN­DOW­MENTS

RAs & EN­DOW­MENTS

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