Life companies won’t answer the key questions

It seems that the major life companies see nothing wrong with side-stepping consumer protection legislation by selling funeral policies in the name of a funeral parlour, burial society or funeral benefits administrator.

None of the life assurance companies can explain why Parliament would enact legislation to protect consumers only so that it can be sidestepped and nullified. None of the life companies wanted to provide Personal Finance with details of the extent of their funeral assurance or membership structure business, or simply ignored our questions.

The responses that Personal Finance did receive from the assurers include the following:

Sanlam, which provided the most comprehensive response, says it believes that communities ensure that funeral parlours behave ethically.

Anne Livingstone, chief executive of Sanlam Sky Solutions, which services the entry-level market, says the role of “members” can take action only in terms of the Consumer Protection Act. The “members” lose all the rights conferred on them under a number of Acts and regulations, which include: The Long Term Insurance Act; The Policyholder Protection Rules of the Long Term Insurance Act (see “Membership structures not part of protection rules”); and the funeral parlour and its relationship with its members are unique and deeply embedded in African culture and the values of ubuntu.

“There are typically deep levels of trust between the members of the community and the particular funeral parlour. This relationship has many advantages, including reduced fraud and non-performance on the part of the funeral parlour.

“We believe that insurers contribute positively to the financial stability of the parlours with which they partner, which secures appropriate products and services to the end client,” she says.

Livingstone says the members have a claim against the funeral parlour to be provided with the agreed burial services. As a result of the nature of the relationship between the members and the funeral parlour, and the fact that the parlour is part of the community, the community in general will retaliate against a parlour that does not make good on its promises.

Livingstone admits that Sanlam

The Financial Advisory and Intermediary Services (FAIS) Act, which sets requirements for selling and advising on financial products. Funeral parlours, burial societies and administrators do not have to register under the FAIS Act, which means the “members” do not have the right to complain to the financial advice ombud.

Normally, funeral policies, which does not police the provision of benefits, but “we endeavour to do business with reputable funeral parlours, and take complaints extremely seriously. We will not hesitate to terminate relationships with parlours which are found to be behaving unethically.”

Old Mutual’s executive head of the foundation market, Thembisa Mapukata, says that when selling policies to burial societies, Old Mutual:

Insists that money paid by, or due to, members is held in a trust account;

Undertakes all communication to members that concerns premiums and the payment of claims;

Advises members of the nonpayment of premiums, as well as claims paid or declined; and

Issues membership certificates to members of the burial society. These certificates state the premium, the cover, when the benefits will and will not be paid, the names of all the lives assured and how to lodge a complaint, are legally termed “assistance business”, are sold on an individual basis or under a group scheme, where each consumer is an individual policyholder but undergoes no underwriting, such a medical assessment.

An “assistance policy” is defined in the Long Term Insurance Act as one where neither the benefits nor the premium exceed R18 000. including the contact information of the relevant regulatory bodies.

Metropolitan, under whose brand MMI (Momentum and Metropolitan) sells funeral assurance policies, refused to answer the questions submitted by Personal Finance.

Belinda Faulkner, Metropolitan brand executive, says it would be premature to answer the questions, because “we are currently in the process of engaging with the FSB [Financial Services Board] in regard to this issue in the context of the binder regulations. We will be happy to provide you with the answers to your questions post the outcome of our discussions with the FSB.”

Note: the binder regulations cover

There is nothing in law that provides for a “membership” structure where a single policy is issued in the name of a body that sells on funeral benefits; this is simply a loophole of which the life assurance industry is taking advantage.

Sanlam admits that, “in our view, and the view of our legal advisers, the structure where the funeral parlour is the policyholder falls outside the white-labelling of a life assurance product and have nothing to do with funeral assurance sold through a membership structure.

A few years ago, Metropolitan’s refusal to take responsibility for its white-label products led to a change in legislation and a toughening up of the binder regulations.

Liberty Life admits that it uses the membership structure but claims it treats the members as policyholders.

Graham Thomas, head of risk product solutions for Liberty Corporate, says the policies are sold primarily under its Capital Alliance Life Group Risk and Liberty Active Limited licences.

Thomas says Liberty seeks to the ambit of Part VII of the Policyholder Protection Rules, because it does not meet all the requirements of the definition of ‘ assistance group scheme’ as set out therein”.

Anne Livingstone, chief executive of Sanlam Sky Solutions, says a funeral parlour that has been issued with a policy in its name will offer “members” various funeral service options relating to the ensure that, where the policy is issued to an institution (whether a funeral parlour or an independent administrator), “the family of the deceased is protected, because the costs associated with the funeral are paid for. So, although we issued the policy to the institution, we treat the underlying members as individual policyholders …

“Our view on these structures is that they create a mechanism for reaching policyholders who otherwise would not normally be reached by the insurance sector in terms of individual or retail policies. Having said that, it is important that the compliance and governance issues around these policies are applied properly to protect the individual members and their families.” choice of coffin and hearse and the type of catering.

The service options and the related membership fees are agreed between the funeral parlour and its “members” and are not regarded as an insurance transaction/premium but as a monthly membership contribution to the funeral parlour to procure the burial and other services, Livingstone says.