Monday, 20 May 2019

Momentum’s about-turn: What industry experts say

Denise Ganas with her husband Nathan Ganas. Picture: Supplied

Durban – Nathan Ganas’ widow Denise heard on Tuesday night from the media that her husband’s R2.4-million life insurance policy would be paid out by Momentum. 
After days of public outrage about the insurer’s refusal to pay out the policy because Ganas failed to disclose that he had diabetes, Johan le Roux, chief executive of Momentum Life, announced on Tuesday night that Momentum would do so after all.

Le Roux admitted to Bruce Whitfield on 702 that the past few days had been “very difficult”, which inspired them to develop a solution for the victims of violent crime.

In a statement, Momentum said: “It is clear from market reaction over the last two days that under certain circumstances, current industry practice creates the impression that insurers are looking for reasons not to pay. Momentum is in the business of paying claims and we have taken the criticism to heart.

“We have created a solution that will pay an amount equal to the death benefit (limited to a maximum of R3 million) in the case of violent crime, regardless of previous medical history. This will apply to all existing and future life cover clients.”

He said Momentum would be paying out Ganas’ policy, minus that which they had already paid to the widow, and would proactively contact past claimants who were also victims of violent crime who had their policies declined.

The pay-out will be “fully funded from Momentum’s profits and not from our clients’ premiums”, Le Roux said, adding: “The guarantee will pay out when the death was a direct result of violent crime, even when material medical non-disclosure impacts the legitimacy of the contract; the pay-out is not in addition to the normal death benefit. It only applies in circumstances when the death benefit will not be payable or has been reduced.”

He said Momentum reserved the right to reject any fraudulent claims and that the guarantee would apply immediately to all their life cover clients, and applied retrospectively. “We are identifying clients who were impacted in this way and we will contact their families to arrange payment. This includes Mrs Ganas.”

Momentum stressed the importance of full and honest disclosure at application stage: “The only time your health status matters, is when you apply for cover. This is when you need to share all your medical and health information. If your health deteriorates after commencement of the policy, there is no need for you to inform Momentum – your claim will be completely valid if the information provided at the start of the policy was accurate.

With exception of the new guarantee, full disclosure remains non-negotiable to ensure peace of mind.

“We care for our clients and always strive to solve for their needs. We hope that this solution illustrates that.”

The insurer had been lashed online, with prominent public figures such as Thuli Madonsela, Redi Tlabi and Jonathan Jansen questioning the company’s ethics for declining to pay out widows due to technicalities.

Ganas, who was shot dead outside his home in a hijacking in Durban in March last year, had taken out the life policy already in 2014, paid diligently for years, and his family had expected to receive the pay-out after his tragic death.

But then the claim was repudiated, because Momentum discovered that Ganas was diabetic and hadn’t disclosed the condition at inception of the policy. Not only that, but three blood tests indicated he had a sugar problem. He wasn’t on medication, but this material fact is considered by insurers to be a material non-disclosure.

The Long-term Insurance Ombudsman’s latest annual report, released in June 2018, showed only around 5% of claims are declined due to non-disclosure.

Jennifer Preiss, the deputy ombudsman for Long-term Insurance, says it’s a common misconception that the non-disclosure has to be linked to the claim event for the insurer to be able to repudiate the policy.  That is not so: even if you die of something completely unrelated – such as being shot, in Ganas’s case, rather that dying of diabetes complications – the contract requires that you have been upfront with the insurer. And on the basis of that, the insurance is granted. Momentum has stuck to its guns in this unfortunate situation, saying it can’t make an exception. Ethically, that decision has been panned on social media. But contractually, if they allowed it that would set a precedent and open the floodgates.

“When a person applies for a policy and he/she is asked questions about health etc. The insurer relies on the answers to assess the risk.  If wrong information is provided, in legal terminology, it is a pre-contractual misrepresentation,” says Preiss.

“The insurer, when it becomes aware of the true facts, can repudiate the policy (i.e. cancel it from inception). It doesn’t matter whether the non-disclosure or mis-disclosure was intentional (fraudulent) or not. The insurer had relied on the wrong information to decide whether to grant cover or not and therefore can cancel the policy.”

Momentum had initially argued it would never have granted Ganas the cover in the first place: he had already been diagnosed with diabetes, but wasn’t managing his condition, so he was a high risk – and the premiums would have been loaded for a low-risk client.

Preiss says: “If, for example, the proposer for an insurance policy answers ‘no’ to the question whether he suffers or has ever suffered from raised cholesterol.  The insurer issues the policy. Six months later, by chance the insurer finds out that the proposer had suffered from raised cholesterol for many years and was on treatment for it. The insurer can immediately cancel the policy because of the non-disclosure”

She says this shows that the cause of a claim is irrelevant to the non-disclosed information because there has been no claim. “It is because the insurer was misled that it has the right to repudiate the policy. The causal connection is between the non-disclosure and the conclusion of the contract and not between the non-disclosure and the claim event.”

But the non-disclosure has to be material for the insurer to have the right to repudiate. 

“Material non-disclosure means that a reasonable prudent person would have disclosed the information that was not disclosed.  If it is not material non-disclosure then the insurer cannot repudiate the policy.  This is the legal position.”

An insurance industry insider, who declined to be named, said with elevated sugar levels, Ganas would have battled to get life cover with one of the top five insurers because the underwriting is so stringent. HIV is another condition that is almost difficult to get cover for. She warns that you can’t take on cover at a late stage when you’re already ill because the risk is so high. “You cannot non-­disclose, take cover and then claim.”

And if you’re a high-risk candidate, you need to provide prove you’re managing your condition. “Even people with HIV can get cover but they have to prove they are managing it.”

Often, those conditions are covered by reassurers, who will take on that risk. High-risk clients often get assurance that way. “The industry gives you cover if you’re healthy. The broker will present you with documents to fill out, but if you don’t disclose you had, for instance, a family history of heart disease, cancer or diabetes, they won’t go any further. So cover could be issued based on incomplete information, which the consumer either wilfully or negligently failed to disclose.”

In the Ganas matter, Preiss notes there was no finding this was intentional non-disclosure, but “it doesn’t have to be, it could be negligent, the insurer can still rely on the non-disclosure”.

The ombud advises that consumers disclose full information in response to questions asked in an insurance application form. This is the one instance where you want to overshare and be brutally honest with a company.

“Rather give too much information than too little. It can be difficult to remember all the medical information, if this is the case, then ask for more time so that you can check with your doctor or medical aid on the details before answering the questions. Also mention the medication that has been prescribed for your condition.  If you have had any symptoms from which you suffer even if your doctor has not yet given a definite diagnosis, rather disclose the symptoms.”

The insider said: “If your health changes materially, you don’t necessarily have to inform them but one would think there’s a duty to inform them if your circumstances change. If you assume unnecessary deliberate risk – like take up extreme sport, take part in wars, strike. We had a guy who climbed Kilimanjaro and died – we did not pay because he failed to notify us. They also ask if you’ve been declined, loaded or excluded. “

Momentum’s about-turn throws the ball back in the court of the other major insurance houses, who will now be expected to follow suit.

* Georgina Crouth is a consumer watchdog with serious bite. Write to her at [email protected], tweet her @georginacrouth and follow her on Facebook.


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