Total declined claims are negligible and should be avoidable. RISKSA goes directly to the source to find out from insurers what are the most common reasons for declined claims and how advisers can ensure this is never the case for their clients.
n 2012, life companies paid 99 per cent of all claims made against fully underwritten life policies, to a value of R6.8 billion, according to consolidated death benefit claims statistics released for the first time in South Africa by the Association for Savings and Investment South Africa ( ASISA).
IFrom these statistics, it is clear that declined claims are by far the exception to the rule and that when submitted correctly, policyholders and financial advisers have little to be concerned about. So, what are the pitfalls? “Our number one reason for declining claims is non- disclosure,” says Magda Briers, head of claims at FMI income protection specialists. “Over the past two years we have seen a significant increase in the level of non- disclosure on policies. The number of claims declined due to non- disclosure has doubled in the past year. In addition, we have seen a significant decrease in the time from policy inception to the date of the first claim, particularly in cases where non- disclosure is found. Currently, the average time lapse from policy inception to first claim in cases of nondisclosure is less than a year.” This experience is in line with national statistics, with just more than 70 per cent of all declined claims resulting from material non- disclosure at the inception of the policy, according to Peter Dempsey, CEO of ASISA. According to Dr Maritha van der Walt, chief medical officer at Discovery Life, only one per cent of claims submitted to Discovery Life were declined during 2012. Like FMI, the leading cause for declinature was material nondisclosure, followed by policy terms and conditions not being met; misrepresentation; and suicide within the first two years of the policy’s duration. Dempsey explains that since the person applying for life cover knows more about the risk to be insured than the insurer, the law compels applicants to honestly disclose all information likely to influence the judgment of the insurer when determining appropriate policy terms and premiums. While financial advisers cannot force their clients to disclose all relevant information, they can certainly play a valuable role in ensuring clients understand the significance of not doing so. “If the financial adviser or the applicant is in any way unsure whether to mention a specific symptom, problem, medication or the like, rather mention it and allow the underwriting department to assess whether it is actually considered a risk,” Briers advises. “Advisers should encourage clients to disclose more information than may seem necessary rather than leave anything out, even if they consider the information to be irrelevant,” Dr Van der Nest agrees. “This will eliminate instances where claims are declined as a result of non- disclosure.” In Liberty Life’s experience, material nondisclosure is the second most common reason for declinature. “When it is discovered at claims stage that the information supplied was not materially complete or was inaccurate, the insurer is entitled to cancel the policy from inception. However, the insurer will first aim to determine what terms they would have offered, had they known all of the details,” explains Nicholas van der Nest, divisional director for risk products management at Liberty Life. According to Van der Nest, there are a number of possible scenarios in this instance: • If the decision would have remained unchanged, the claim will be paid in full. • If the terms would have changed, the insurer could offer the policyholder the opportunity to change the terms of the contract from inception, applying the higher premium or exclusion and adjusting the benefit payment instead. • If it is impossible to determine the terms that would have been offered, for example because the additional medical reports cannot be obtained, the insurer would have no alternative but to decline the claim. In this case, the contract would be cancelled from inception. The insurer would return all premiums received, less any costs that they may have incurred.
A case in point 1
POLICY Discovery Life capital disability policy The policy had a benefit amounting to R1.1 million. CLAIM The 39- year- old insured submitted a claim for bipolar depression. Investigation revealed that in his policy application, he failed to disclose that he was smoking cannabis in large quantities on a daily basis. REASON FOR DECLINE Had he disclosed the extent and the frequency of his cannabis usage at underwriting stage, Discovery Life would not have granted the capital disability benefit at all. “Due to the member not disclosing such important information, we had to reconstruct the policy which meant that his capital disability benefit was cancelled and the claim declined,” says Van der Walt. CLAIM REQUIREMENTS In 2012, Liberty Life’s statistics experience showed that the most common reason for declinature was that the condition claimed for did not meet the claim requirements. “These are usually limited to critical illness and impairment- type claims where, for example, in order to qualify for a claim payment, the condition must be of a minimum severity level." " We are seeing an increasing trend of clients submitting claims either knowing that the condition doesn’t meet the claim requirements ( but still trying) or not actually checking the policy documents before submitting claims,” says Van der Nest. “Quite often clients do not understand when their claims are declined as a result of the condition not being covered under the contract. As experts in contract terms and conditions, financial advisers can help inform clients’ expectations upfront by communicating clearly when they believe that the condition claimed for doesn’t qualify in terms of the contract definitions,” she adds. OCCUPATION AND ACCURACY FMI has noted an increase in claims where there is a significant difference in occupational duties as described at policy application stage versus claim stage. “Although not a major factor in the declinature of claims, it may affect the expected outcome of the claim.“ ” At policy application stage, there may be an overstatement of administrative duties which results in a lower premium. At claim stage, the actual occupational duties are then more manual in nature,” Briers explains. This is another area where financial advisers can help their clients by communicating the need for occupations to be detailed as accurately as possible. Briers suggests that advisers make it clear that inaccurate occupational descriptions may result in declinature of claims.
A case in point 2
POLICY FMI income protection benefit with a seven- day retrospective deferment period. Insured occupation - business owner in the automotive industry spending the following percentage of time on different duties: 85 per cent administration, five per cent manual, 10 per cent travel. CLAIM Within one year of the policy commencement, a claim was submitted for a musculoskeletal problem, a knee arthritis, that would prevent someone from working in manual duties. REASON FOR DECLINE The condition would not prevent one from working in an occupation considered to be 85 per cent administrative in nature. Upon further investigation, it was determined that the policyholder’s occupation could be considered at least 50 per cent manual work, which would qualify for a partial payment at the very least. “This claim clearly indicates the importance of helping your clients report occupational duties as accurately as possible in order to ensure the accurate assessment and outcome of claims,” Briers comments.
Non- disclosure case by case
THE POLICY 1 Income protection benefit from FMI with a 14- day non- retrospective waiting period. The applicant disclosed a back condition which resulted in a subsequent spinal exclusion. CLAIM On 1 March 2013, FMI received notification of a claim. The claim period was 12 February to 18 March 2013 for a surgical procedure to treat a gastroesophageal condition. Medical investigation revealed that the policyholder had been on chronic treatment for the gastroesophageal condition but failed to disclose the condition at underwriting stage. REASON FOR DECLINE The claim was declined based on the fact that had FMI known about the chronic treatment for the gastroesophageal condition, an exclusion would have been applied to the policy and the claim would not have been valid. THE POLICY 2 Life cover policy from Discovery Life. Insured value of R500 000. CLAIM A 42- year- old man died of a heart attack and a claim was submitted. The insured had not disclosed any medical impairment when he applied for the life cover. The claimant had in fact consulted a doctor for his hypertension and received treatment for it. REASON FOR DECLINE Had the member disclosed to Discovery that he suffered from hypertension, Discovery Life would have called for underwriting requirements that would have identified his severe uncontrolled hypertension. “We would not have granted the policy as the risk of severe uncontrolled hypertension is too high to grant terms. By not disclosing his medical impairments he denied us the opportunity to assess the risk. Due to nondisclosure of his health condition, the claim was declined,” Van der Walt explains.
s istic stat A ASIS 2012 Death benefit claims statistics for 2012 were submitted by the 12 long- term insurance companies that offer fully underwritten life cover. The statistics show that in 2012 these life insurers honoured 34 724 death benefit claims and declined 352 for the following reasons: