Stak­ing claim

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.

RISKSA Magazine - - CONTENTS - Sarah Bas­sett

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:

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