Life insurance companies honoured 99.3% of claims against fully underwritten life policies in 2016 to a record value of R13.1 billion, delivering much-needed financial support to beneficiaries following the loss of a loved one. Fully underwritten life policies are only issued if the policyholder has completed a full underwriting process, which may involve a comprehensive assessment of the life insured’s medical history.
The 2016 annual death claim benefit statistics for fully underwritten policies released this week by the Association for Savings and Investment South Africa (Asisa) reveal that life insurers honoured 35 347 death benefit claims by families (35 983 in 2015).
Hennie de Villiers, deputy chair of the Asisa life and risk board committee, observes that this means that life insurers paid an average of 97 claims every day last year. By comparison, life insurers declined just 261 claims (389 in 2015) to a value of R332 million in the entire year.
“Contrary to what many believe, these statistics show that life insurers have a solid track record of paying benefits and delivering on their long-term promises to policyholders. In fact, the percentage of underwritten death benefit claims paid has consistently lingered around the 99% mark since the statistics were first collected five years ago.”
De Villiers adds that South African life insurers remain well positioned to honour long-term promises to policyholders. The long-term insurance industry continues to be well capitalised with assets exceeding liabilities by more than four times the legal reserve buffer.
Reasons for declines
Claims against fully underwritten life policies will always be honoured by insurers, provided the claim is not fraudulent, and the policyholder did not commit suicide within the first two years of taking out the policy, withhold important information from the insurer when applying for the policy, or die as a result of an excluded condition.
De Villiers states that the primary reason supplied by life insurers for rejecting claims is non-disclosure, which involves an act of dishonesty on the part of policyholders. Non-disclosure accounted for 55.3% or just over half of death benefit claims declined last year (52.3% in 2015).
Non-disclosure refers to the failure of policyholders to disclose information about a medical or lifestyle condition in an attempt to secure lower premiums or to obtain cover without exclusions. Incidents of non-disclosure have continued to decrease since 2012 when it accounted for 70.34% of the 352 claims rejected.
“The reality, however, is that too many policyholders continue to take the risk of withholding information when applying for life cover at the expense of their beneficiaries,” he says. By contrast to the number of claims declined for non-disclosure, only 9.2% of claims declined last year were as a result of the policyholder dying from a condition that had been specifically excluded by their life insurance policy (24.2% in 2015).
Incidents of claims declined due to suicide nearly doubled to 62 claims (23.7%) last year from just 32 claims (8.3%) in 2015. All life insurers apply a two-year exclusion period to suicide in order to prevent someone from taking out life cover with the intention of committing suicide shortly afterwards.
Death benefit claims declined due to criminal intent by either the policyholder or the beneficiary decreased slightly to 7.3% of claims in 2016 (8.8% of claims in 2015). Claims fraud usually involves the submission of fraudulent documentation or syndicate activity aimed at getting the life company to pay a claim to someone not entitled to the benefit.
The remaining 4.6% of claims declined last year were rejected for a variety of less common reasons. De Villiers says it is important to make policyholders aware that some of these claims were declined on the basis that the insured’s death was caused by driving while under the influence of alcohol.
“In at least two cases last year, claims were declined where the policyholder was involved in a fatal accident while driving over the legal alcohol limit,” he says. Although life insurers usually take many factors into account before rejecting a claim since there has to be a direct link between the intoxication and the accident that caused the death.