ANTICIPATED SPIKE

THE OMBUDSMAN for Shortterm Insurance, or Osti for short, recovered R94.9 million for consumers in 2019 after intervening on their behalf in complaints about short-term insurance claims. This is more than the amounts recovered in 2017 and 2018 (each about R87m), but less than what consumers got back in 2015 and 2016 (about R100m and R99m respectively).

These statistics, among others, were published in the ombudsman’s annual report for 2019, which was released this week.

Deanne Wood was the ombudsman in 2019 . However, at the end of the year Wood stepped down, and long-term insurance ombudsman Judge Ron McClaren became head of both short-term and long-term ombudsman offices.

Wood’s office received 10367 complaints last year, of which 9167 were closed.

Almost half of the complaints closed – 4492 (49%) – were for motor vehicle claims.

The second-highest category was homeowner’s (building) insurance (1843, or 21% of complaints closed). House contents insurance complaints were relatively low (551, or about 6% of complaints closed).

I’m still earning despite the lockdown, but my retirement savings have depleted significantly. Is the money I had invested gone forever? I feel depressed to keep contributing and a little scared.

Name withheld

It is understandable to feel this way during times of uncertainty, but focusing on your investment goals will lessen the probability of making an emotionally driven decision. Keep in mind that your monthly contributions are effectively buying more units or shares of the underlying fund(s)/ shares during times of suppressed markets (rand-cost averaging).

To illustrate, imagine a farmer goes to purchase 100 avocado trees, but the price has fallen 50% in the past month. He purchases double the trees for the same amount of money (your monthly contribution) and proceeds to plant them. During the following harvest, he yields double the produce from these trees, and so this cycle continues. Much like the farmer, so too will your future retirement savings bear more fruit (interest and dividends) from the additional “on sale” units/shares your monthly contributions have purchased when markets were down.

You could consider temporarily pausing your monthly contributions (ensuring this will not incur any penalties), but still make these contributions towards a voluntary or discretionary investment, ensuring access to capital if needed. Before the next financial year end (February 2021), you could use these accumulated

MOTOR VEHICLE CLAIMS

In the area of motor vehicle claims, 19% of disputes were resolved in favour of policyholders, with the ombudsman’s office putting R47701385 back into claimants’ pockets.

Senior assistant ombudsman Ayanda Mazwi said that, of 4492 vehicle claim disputes, 73% were for accident damage. Complaints involving warranty and mechanical breakdown claims comprised 8%, and complaints involving theft and hijackings comprised 8%, being “consistent with previous years”.

Mazwi said most motor vehicle complaints were disputes over settlement amounts calculated by insurers. She said most of these disputes related to vehicle credit shortfall and uninsured accessories.

Mazwi warned consumers that an insurance payout would not necessarily cover the amount owed to the bank on their vehicle.

“Vehicle credit shortfall is the gap between the vehicle’s insured value and the amount owing to the finance house. Should a vehicle be stolen or written off in an accident, the vehicle’s credit shortfall can be crippling, as the consumer is left owing money on a motor vehicle that he or she no longer has.

“Consumers must, therefore, ensure that their policies include savings to make a lump-sum contribution to boost your retirement capital, while (still) enjoying the tax benefit. Chat to your financial adviser if you aren’t sure what is best for you.

I’m a DIY investor in shares, and my capital of R1.2 million has reduced by at least 30% since Covid-19 hit our shores. Is there any way to put some protection in place when investing in shares?

Name withheld

Looking back at the calendar to Friday, February 21, we may have felt like things were going to be okay and that the market would somehow get through the pandemic, but the following three weeks saw the fastest 30% market decline in history. No equity market was spared; there was nowhere to hide.

Could you have avoided the losses? With hindsight, yes, you could have moved into gold and cash and would have made money through the crisis. As we know, getting that timing right is extremely difficult.

Other protection options are derivative hedging instruments, but for the retail investor these have to be monitored extremely closely, as they “mark-to-market” every day. If they move against you, losses can exceed the size of position taken for protection.

The best protection is diversification, holding quality companies across various sectors and geographies. As a South African investor with rands, having a portion of your portfolio offshore would have held up the rand value to a cover for the credit shortfall and any financed accessories which have been added to the insured motor vehicle,” she said.

HOMEOWNER’S INSURANCE

In this category, 268 (15%) of the 1843 disputes considered were resolved in favour of policyholders, with a recovery of R14653628.

Mazwi says in the report that 54% of complaints related to claims for damage were caused by acts of nature, largely storm-related. This figure dropped from 58% recorded in 2018.

In 30% of complaints, the insurers rejected claims in which wear and tear, gradual deterioration and lack of building maintenance was the cause of the damage, she said.

Typically, wear and tear, gradual deterioration and loss through the property not being maintained properly are not covered under a homeowner’s policy.

“While this cause for complaint declined by 18% when compared with 2018, this rejection reason continues to be the main basis for consumer dissatisfaction in homeowner’s insurance.”

Mazwi said if damage was attributed to the poor condition of the property, the claim may be rejected, “even if an insured event degree. Although significant losses were experienced in dollar terms in offshore markets, the dramatically weakening exchange rate, largely mitigated these.

Partnering with an investment professional will help to temper the risks, reduce your downside and keep your emotions in check. Markets do bounce back, and they can do it very quickly; at May 22, the JSE was up 35% from the low.

Can you access your full retirement annuity (RA) if you’re diagnosed with a terminal disease?

Name withheld an RA due to disability through infirmity of mind or body. Accordingly, it’s not a given that you’ll be able to access these funds due to being diagnosed with a terminal disease. However, the illness may result in disability.

The fund’s rules will be considered, and the trustees of the fund may also apply their judgement and discretion in these cases.

The treatment of funds that you access as a result of disability will be subject to the normal tax rules and requirements that apply at normal retirement – that is, you have the option to take up to a third as a lump sum, with the rest having to be used to buy an annuity.

For the portion of the retirement fund that needs to be used to purchase an annuity, note that there may be some insurers that provide you with an “ill health enhanced annuity”, so did occur”. However, she said the burden of proof lay with the insurer, who should establish a connection between the condition of the property and the damage.

Although the report does not cover 2020 operations, it does refer to an expected surge in complaints related to the Covid-19 pandemic, particularly in the areas of business disruption and travel.

Osti chief executive Edite Teixeira-Mckinon said there were signs that 2020 would be very different from previous years: “Up until the end of March, we received, year on year, substantially more complaints. But in April we saw a decline in complaints, and that was predominantly because 49% of our complaints are from motor vehicle claims. With less vehicles on the road, there are less claims and therefore less complaints,” she said.

Teixeira-Mckinon said the office was well prepared to continue functioning during the lockdown.

“We are equipped to continue registering and resolving complaints from home. The fact that we can continue to offer the same services that we have in the past is important. We are still here for insurers and consumers,” TeixeiraMckinon said. it’s worth checking in with your financial adviser as to your best options.

Are hospital cash plans more affordable than medical schemes?

Name withheld plans are different to medical schemes. The latter are non-profit organisations regulated by the Medical Schemes Act (MSA), while hospital cash plans fall under the Long Term or Short Term Insurance Acts and are sold commercially for profit.

Medical scheme premiums only differ based on income and family size, while in the health insurance environment, premiums will be based on the insurer’s assessment of the risk and may differ from person to person.

The MSA makes it obligatory for all options on all medical schemes to cover the costs for Prescribed Minimum Benefits (PMBs, which include specific hospital treatments and chronic illnesses with no benefit limit) at full cost.

Hospital cash plans will pay only the specified benefits. Medical schemes reimburse healthcare services (provided they are covered by the specific plan) based on cost, while the health insurance products pay according to the benefit schedule applicable.

Hospital cash plans are generally cheaper, because they do not have to comply with the provisions of the MSA or cover PMBs. Across all medical schemes, the cost of covering the PMBs is in excess of R900

THE LOCAL collective investment schemes industry (comprising mainly unit trust funds and exchange traded funds) reported net inflows of R23 billion in the first three months of this year after having experienced net outflows of R3bn in the fourth quarter of 2019.

This is according to industry statistics for the quarter and 12 months to the end of March, released this week by the Association for Savings and Investment South Africa (Asisa).

Total net inflows over the 12-month period were R93bn.

Sunette Mulder, senior policy adviser at Asisa, says that despite the net inflows in the first quarter, the Covid-19-induced market turmoil caused assets under management to decline by R0.22bn to R2.26 trillion at the end of March.

Just under half of these assets were held in South African multiasset portfolios (49%), with the rest in local interest-bearing portfolios (34%), local equity portfolios (15%) and local real estate portfolios (2%).

Mulder says after suffering net outflows of R15.9bn in the fourth quarter of last year, money market portfolios (which fall within the larger interest-bearing category) attracted R22.2bn in net inflows in the first quarter of this year. per beneficiary, but this gives medical scheme members complete peace of mind that they are covered in full for any serious (life-changing) condition or event. Hospital cash plans will only pay benefits covered per the benefit schedule, which could lead to potentially catastrophic financial shortfalls if treatment is needed for serious injuries or disease.

I would recommend medical scheme membership before a hospital cash plan for overall affordability in the long run.

I’ve lost 30% of my investment portfolio so far this year, and I’m afraid of what losses may still lie ahead. Do I need a new investment strategy for the post-Covid-19 world?

Name withheld change an investment strategy and particularly so during a crisis. This is because you are more likely to make mistakes and sell low when you have incurred losses and the future is uncertain.

We believe that the Covid-19 crisis introduces investment risks and opportunities. The lockdown has severely damaged the economy and the profits of many businesses. Most will recover, even if it takes a year or two.

When we look at what has happened to share prices, it is clear to us that the market has decided that most businesses will never recover. This provides an excellent opportunity for longterm investors. Selling at these prices and crystallising losses could have a very detrimental impact on your portfolio.

As a result of space constraints, we are unable to publish the unit trust prices. The performance data can be found online at www.fundsdata.co.za/ navs

1. Call for the government to unlock retirement funds.

2. How will Covid-19 impact ESG investing long term?

3. OPINION: Is early access to retirement savings an option?

4. Covid-19: the inescapable truths faced by investors.

5. Understanding Africa and emerging markets in Covid-19.

SOUTH Africa’s retirement fund legislation stipulates that active members of retirement funds cannot access their retirement savings while employed, and benefits can be paid only when they leave their employers.

In an effort to assist members affected by Covid-19, retirement fund regulators in other countries have amended their retirement fund legislation to grant members temporary early access to their retirement savings. They are using the following eligibility criteria. Members must be unemployed, made redundant, subject to reduced working hours, or sole traders whose business has been suspended or whose turnover has fallen.

The Australian government has allowed members to access up to AU$10 000 (R114 949) of their retirement savings before July 1. These members will have another opportunity to access an additional payment of up to AU$10 000 between July 1 and September 24. These payments will be tax free.

The Employees’ Provident Fund Organisation in India has changed its rules to allow for an advance non-refundable withdrawal of retirement savings. Employees will be allowed to withdraw the lower of 75% of their retirement savings or three months’ salary as an advance from the fund, while remaining an active fund member.

Members participating in the Malaysian Employees Provident Fund will be able, over the next 12 months to withdraw up to 500 ringgits (R2 004) a month from their retirement savings. This will apply only to members below 55 years old.

The US has implemented the Coronavirus Aid, Relief and Economic Security Act, which allows the following:

◆ Members can withdraw money from their individual retirement accounts and employer-sponsored retirement plans without incurring the 10% tax penalty for early access.

◆ Members will have three years to repay this amount and when repaid within the three years, no income taxes will be due.

◆ The maximum loan amount from an employer-sponsored retirement plan is now $100 000 (R1.7 million) and a member can now borrow up to 100% of vested assets.

Although the National Treasury and the Financial Sector Conduct Authority have not announced plans to amend the retirement industry legislation to follow the global trend, a number of suggestions have come up over the past few weeks about how members could receive relief using their retirement fund savings. The ideas range from pension-backed lockdown loans in partnership with banks to accessing savings under a special relief benefit.

The lockdown loan would allow members to access competitively priced loans without withdrawing from their retirement savings. In the longer term, the repayment of the loan instalments may become a financial burden to members. If the members leave their funds, their retirement savings’ balance will be reduced by the amount owed.

These measures could be an opportunity to alleviate members’ financial hardship by leveraging their retirement funds. Implementation would, however, require amendments to the legislation. The National Treasury would also need to say whether these proposals are in line with their policy on retirement reform.

Year-to-date major equity markets are severely down from their peaks, so withdrawal of retirement savings during such market conditions could see members locking in any losses incurred. Early withdrawal can be likened to members borrowing from their financial futures, as every rand taken from retirement savings today means less will be available in retirement.

With millions of members possibly experiencing financial distress due to the pandemic, the introduction of early access to retirement savings may result in a substantial outflow of funds within a short period of time, leading to a negative impact on the retirement industry and investment markets. This needs to be balanced with the potential relief such a measure could provide to employees facing financial hardship.

◆ Also see “Call for government to unlock retirement funds” (Personal Finance, May 23), on IOL, www.iol.co.za/personal-finance.