Momentum’s about-turn on its tough life insurance policy rules shows just how wrong you can be, even when you are right.
Its refusal to pay out a claim on the basis that its client had lied about an existing medical condition was absolutely correct in terms of the law, but was a deeply flawed business decision.
It has had its reputation trashed in the court of public opinion and now, even though it has scrambled to clean up the mess, the damage has been done. Also, its “solution” may very well have a bevy of unforeseen circumstances not only for itself, but the industry as a whole.
You can bet that insurance industry actuaries are already calculating the consequences of Momentum’s decision to compromise on payouts and will factor that into their pricing models.
The already high cost of life insurance in South Africa is likely to rise even further to compensate for its decision.
Momentum thought it had a cut and dried case. After all it had been rejecting claims like the one made by Denise Ganas for years.
Momentum, part of JSE-listed MMI Holdings, refused to pay out Ganas after her husband Nathan was killed in a hijacking in KZN two years ago, because he lied on his application forms.
Momentum has evidence of a medical diagnosis two weeks before he applied for the insurance cover. Even though his death had nothing to do with his undisclosed high blood sugar levels, the company cited this as enough reason to not pay his beneficiaries’ R2.4m claim. The matter went to the insurance ombud, who agreed with the company.
What it failed to consider was that social media world is a very unforgiving place when its citizens perceive an injustice.
Momentum found itself pilloried, yet stood firm. It would not make a payout. Its group CEO Hillie Meyer even went as far as saying that the easy decision would be to pay out the claim to make the problem go away, but it was taking the harder decision to not stump up the cash. The company was branded as heartless and money grabbing. It lost the PR war even before it started.
It took the firm more than two days to find a way out of the mess it had created for itself, but the damage was already done.
Now Momentum says because of South Africa’s considerably higher than average murder rate, it will pay out claims up to a maximum of R3m if one of its clients is killed unlawfully, even if they lied on their application forms.
It seems like a decent compromise. It will apply this retrospectively meaning Denise Ganas will get her R2.4m payout, less the R50,000 the firm paid out on her husband's death (and had demanded back initially).
The firm is still trying to figure out what this means in terms of the total liability it will assume into the future. Official police statistics show 20,388 South Africans were murdered last year. Global stats reveal you have a far higher chance of being murdered in South Africa than most other places on the planet. At 35.8 murders per 100,000 of the population, South Africa’s murder rate puts it in one of the top ten places in the world where you are likely to be killed unlawfully.
According to worldinfigures.com you would be safer in places like Columbia, Mexico and Cote D’Ivoire than in South Africa.
Of those 20,388 murders, how many would have had any form of life cover?
We don’t know the answer to that. Life cover is the preserve of the employed and really only those who can afford the premiums. Let’s be generous and assume that a quarter of those murdered had some form of life insurance – say 5,000 people.
It’s probably a bit high, but let’s use it anyway.
Momentum claims to have up to 15% market share of the lives assured in South Africa, so it might cover the lives of 750 people murdered annually.
Last year it rejected 0.4% of life assurance claims. Not all of them for the same reason as Nathan Ganas, but if we assume that to be the case, then it refused to pay the beneficiaries of 22 murder victims last year. Not all of those would qualify for the new maximum payment of R3m, but even if they did, it would mean a liability for Momentum whose holding company delivered R2.8bn in headline earnings last year, of R66m.
The number will be nowhere near that figure, but it makes the point that Momentum’s decision to dig in its heels on a point of principle may have been a considerably costlier mistake from the perspective of its reputation, than paying out a few life claims as a result of death due to causes unrelated to undisclosed medical conditions.
If it’s willing to pay out for murder victims what about the many thousands more injured as a result of violent crime. If you fail to disclose a medical condition and survive a violent crime, but are disabled by it, will firms like Momentum pay you out? And if not, why not? Momentum is not yet ready to answer that question. A failure to do so would be a double standard. Surely?
Insurance, at the best of times is a grudge purchase.
Few people happily pay insurance premiums as industry statistics will show that 70% of the vehicles on our roads are uninsured, despite high road accident statistics.
So while the insurance industry and its army of very clever actuaries can hide behind standard industry practice and demand compulsory disclosure to form the basis of the risk the insurance company takes on when it insures your life and determines the premium you will pay, it’s going to have to think very hard about how it communicates this to its clients.
Insurance brokers are incentivised through sales.
They are motivated by sealing the deal. They are paid the same level of commission whether a sale takes them two hours or two weeks. This may be part of the problem.
Also, a life insurance salesman with fewer scruples might be tempted to gloss over the small print as much of it would put prospective clients off signing up if they thought about it too hard. The industry accepts many of their clients will seek to fudge their medical records in order to secure lower premiums, in the hope that the company concerned will not find out at the time of the claim which is why the industry does carry out investigations before making payouts.
There has to be a smarter way of selling insurance and educating clients about why the industry is such a stickler for rules.
If it doesn’t, it will cost the industry new business and drive up the cost of your premium.
Bruce Whitfield is a multi-platform award winning financial journalist and broadcaster.
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