These policy enhancements represent a broad-based solution
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