‘High-risk’ policyholders hung out to dry

● Thousands of Constantia clients to be left without life, illness cover

Thousands of people who took out life and illness policies, some as far back as a decade ago, will be left with no cover at the end of the month — and no premium refunds — in the wake of the sudden cancellation of their policies.

The policies — Prime LivingLegacy and Prime Living CoverGrow — were sold by Prime Meridian Direct and underwritten by short-term insurer Constantia.

The former was sold as an “accident and health” policy to 2,771 people between September 2010 and December 2016, and the latter to 2,445 people between January 2015 and May 2018.

The first those policyholders knew about the unilateral policy cancellations was in the last week of February when they received an SMS saying their policy would be cancelled with effect from March 31 “due to regulatory changes” and urging them to “please don’t be alarmed”.

In the case of the CoverGrow policy, a waiting period was imposed on disclosed, preexisting health conditions, which in many cases was about to expire, or had just expired, when they received the shock policy cancellation news.

Many of those alarmed policyholders discovered in the following days that they would not get any of their premiums refunded, and the older ones are now in danger of not being able to find alternative cover at all, given their advanced age.

The Financial Sector Conduct Authority (FSCA) has stepped in and is engaging with Constantia “to ensure this matter is resolved in a manner which does not lead to unfair outcomes for policyholders”.

The average age of CoverGrow policyholders is 51 years, and they’ve been paying, on average, R475 a month.

Moira Sturmair and her partner Andre Theron, of Langebaan in the Western Cape, both took out CoverGrow polices three and five years ago respectively, the latter paying R1,500 a month.

Theron, at 69 and in ill health, fears he will not be able to find alternative cover.

“There are thousands of other people in a similar situation and it’s just not right,” Sturmair said.

Many said the initial “soothing talk” from Constantia about finding them alternative cover had evaporated as the days went by.

In a HelloPeter post, “Neil L” told how he cancelled his previous life insurance policy of 20 years to take out the CoverGrow policy in 2015, with a R1,500 premium “because the terms of this policy were better”.

“What they have done is completely unconscionable and shocking,” he said.

“At first, the cover was very low but it has steadily increased to well over R4m. I took the risk of low initial cover.

“Now, at this stage, when it is finally paying off, they are pulling the plug because they found some loophole.”

That “loophole” is the Insurance Act, which was introduced in 2017 and became effective in mid-2018.

It draws a distinction between life and non-life, previously referred to as short-term insurance.

Before that, short-term insurers had been writing insurance to cover some death and disability events, as in the case of the now-cancelled Prime Meridian Direct policies.

“In terms of the new Insurance Act, insurers may no longer conduct life and non-life insurance under the same licence,” Constantia told its affected policyholders.

“Your Prime CoverGrow policy meets the definition of a

“life policy” as defined in the Insurance Act, and given that Constantia Insurance Company Limited is licenced as a nonlife insurer, we may no longer provide this cover.”

The FSCA, which became aware of the policy cancellations last week, said its engagements with Constantia were not only about the refunding of premiums and alternative cover, but were with regard to how Constantia met its obligations when it cancelled the policies, the processes it had followed and the impact on policyholders.

Constantia said it had stopped marketing its CoverGrow

product in May 2018, which was shortly before the Insurance Act became effective.

“We continued to provide cover and pay claims while we considered various other options, but in the end, we were not able to come up with an equivalent alternative.”

Asked why the company was refusing to consider premium refunds, it said its policyholders had received immediate cover for accidental death and for all forms of natural death as a result of illness, “including limited cover for disclosed pre-existing conditions during the waiting period”.