April 10, 2010
 By Bruce Cameron
You have risk life assurance so that a benefit is paid when it is required, but too often you are tripped up by what can easily be seen as unfair conditions.
Recently, I was included in a spat between two retirement fund administrators over a repudiated claim. The spat is over who was responsible for not submitting a group life disability benefit claim in time (see "Admin muddle leaves disabled man with no benefit", below).
The insurance company, New Era Life, had a condition that claims must be submitted within one year or they would be repudiated. To my mind, this, more than anything else, is where the problem lies. Why should an insurance company be allowed to repudiate a claim on the grounds that the claim was not submitted within a year of the event?
After all, by law, prescription on a legal claim for the payment of a debt is three years from when the claimant becomes aware that the money is owed. An insurance benefit is nothing more and nothing less than a debt owed to someone.
New Era is not alone in imposing this one-year limitation on claims on group life assurance policies.
By the way, New Era has been placed under curatorship, which further bedevils this dispute.
Short-term and long-term (or life) insurance companies are imposing additional conditions as grounds for repudiation.
For example, if they do not receive all the required information within a certain timeframe, they will automatically close the file and repudiate the claim. Note: This applies only to group life assurance schemes attached to occupational retirement funds. The repudiation terms do not apply to individual risk assurance policies (see "No time limit on individual policy claims").
This racket, and it is a racket, was started by the short-term industry, which now applies claim periods as short as three months. But it did not take long for the life assurance industry to get in on the act.
Very often, people who submit claims have gone through extreme trauma, and getting claims in order is the last thing on their minds.
Submitting a claim can also be an onerous task, particularly for people who are not financially literate - in many cases, they may even be functionally illiterate - particularly when it comes to group life assurance schemes.
The insurance industry uses numerous arguments to justify the time limits. These include:
Capital adequacy requirements. All insurance companies have to hold reserves to ensure that when you make a claim, they have the money to pay you out. By cutting back on time periods, they have to hold lower reserves. To my mind, this is not a reason for having claim periods that are out of line with the Prescription Act.
The timeous reporting of a claim affords the insurance firm reasonable time to verify and authenticate a claim, thus reducing the potential for fraudulent claims. So must the innocent suffer along with people who would, in any case, submit fraudulent claims?
Weasel-like conditions, such as submitting the proper forms and all the required information (in the definition of the insurance company), show that the industry is not looking to protect policyholders.
While individuals do not have much power to reject these unacceptable conditions, retirement funds do. Retirement fund trustees should simply reject any conditions on group life assurance contracts that impose unreasonable limitations on claims.
The short- and long-term insurance industries have no right to make a huge issue of policyholder fraud when they impose these types of unacceptable conditions. It actually encourages policyholder fraud.
Fortunately, the Financial Services Board (FSB) has its far more insightful eye on these practices.
Jonathan Dixon, the FSB's deputy executive in charge of insurance, says that all these issues are being considered in terms of a new FSB initiative, called Treating Customers Fairly. In terms of this policy, financial services companies will have to put your interests first and not, for example, design products simply to boost profits or commissions.
Dixon says that extending the claims period could result in problems with the capital adequacy requirements, but the FSB is still trying to assess the exact impact.
Admin muddle leaves disabled man with no benefit
Mr S was a member of the South African Transport and Allied Workers' Union National Provident Fund. In 2006, he was laid off with a two-year temporary disability benefit.
However, by the time the temporary disability benefit ended, no claim had been submitted on Mr S's behalf for a permanent disability benefit with the insurer, while the employer continued to pay contributions on behalf of Mr S.
At the time Mr S was laid off, the insurance benefit was underwritten by a very troubled company, New Era Life, which was placed under curatorship last year following a successful application by the Financial Services Board (FSB).
By the time a permanent disability claim was made, a new underwriter, Sanlam Employee Benefits, had been appointed.
New Era repudiated the R150 000 benefit claim on the basis that the time period of 12 months for claims had expired. Sanlam rejected the claim on the basis that it should have been made against New Era. Sanlam refunded the contributions paid.
The spat between the administrators is over who failed to make a timeous claim: the employer or the fund trustees.
Meanwhile, Mr S goes without his permanent benefit.
No time limit on individual policy claims
Unlike group risk benefit claims, individual life and disability risk policy claims are never repudiated because of late claims, Peter Dempsey, the deputy chief executive of the industry body, the Association for Savings & Investment SA (Asisa), says.
Dempsey says all insurers will hold the proceeds of an in-force individual policy and pay out legitimate claims no matter how long it takes for the beneficiary or policyholder to come forward and claim the benefit.
Asisa members also subscribe to the code on unclaimed benefits, which sets out steps that companies must take to trace the policyholders or beneficiaries where benefits remain unclaimed for more than six months.
In terms of the code, member companies must take reasonable steps to trace the last-known address of the policyholder and/or beneficiary. The company then has 60 days to send a letter, fax or email to this address, informing the policyholder and/or beneficiary of the benefit.
If no response is received within 30 days, the company must request the policyholder's intermediary (financial adviser) to try to trace the policyholder or beneficiary. If the benefits are still unclaimed, this process must be repeated once more after three years. But you or your beneficiaries also retain a claim.
Dempsey says that if you think you are owed an unclaimed benefit, you can ask Asisa to assist you by calling 021 673 1620. You will need to complete a form, which is circulated to all member life offices, which must check the details against their records.
Working within the deadlines
The deadlines for submitting a group risk benefit (as opposed to an individual policy) claim are usually 12 months for death claims and 12 weeks after the expiry of the waiting period for disability claims.
In the case of group life assurance, the waiting period for disability benefits is usually three or six months, which means the submission period can be as long as nine months after the employee's last day at work.
Dempsey says group schemes involve four different legal parties: the employer, the employee, the trustees and the insurer. Each has contractual obligations to fulfil before a claim can be processed and settled.
Dempsey says the main reasons claims are repudiated on the grounds of late submission are:
It is difficult for claims assessors to determine the degree of disability in retrospect, and if claims are received more than 12 months after the event, it is difficult to create an accurate picture of the severity of the disability when the person stopped working. (My comment: If the claimant cannot work when the claim is actually made, what difference does it make what his or her condition was 12 months earlier when no claim was being paid?)
It is impossible to help an employer accommodate a disabled employee in the workplace (as required by the Labour Relations Act) if he or she stopped working many months previously. (My comment: I cannot see why this is impossible.)
Group schemes are often re-brokered every 12 months, and insurers need to be able to get a fair indication of what the claims experience has been to be able to price the scheme accurately. If a claim is received long after the disability, it may be unclear which insurer is responsible for the claim.
It would cause fundamental problems in the group life arena if there were no consequences for not submitting claims within a certain timeframe. For one, employers would be incentivised to time their claims to get lower premiums if they were switching life assurance companies or negotiating new risk premiums. In other words, they would delay claims until they got a premium rate based on a lower claim rate. The higher the historical claim rates, the higher are the future premiums.
More than happy
Dempsey says that feedback from a major re-insurance company indicated that life companies are normally "more than happy to consider a claim even after a submission deadline, but that reasons are usually requested for the late submission. If there is a reason (usually any logical reason), they will accept it and consider the claim.
"Insurers also do not expect illiterate employees or their families to struggle with claims on their own, and will assist in this regard."
Where does this leave the employee? The first step would be to resubmit a claim to the insurer (in the New Era case to the curator). The employee could also pursue a negligence claim against his employer. A third option would be to take the case to the Pension Funds Adjudicator, who in the past has ruled against employers responsible for late submissions, making them pay the claim.
Dempsey says if you are covered by group life assurance, there are a number of ways to ensure a claim will not be delayed or repudiated. These include:
You should familiarise yourself with the type of cover provided in terms of your contract of employment. It is very important to share this information with family members, who are often not aware that risk cover is in place, particularly in the event of death.
While it is your employer's responsibility, as the policyholder, to submit the claim on your behalf, you or your beneficiaries need to gather the necessary information and present it to the employer. For this reason, you should familiarise yourself with the rules of your retirement fund and the group assurance policy on submission deadlines.
It is also in your interest (or in the interest of the beneficiary) to put pressure on the employer to submit a claim in time.
  
 
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