The Financial Sector Conduct Authority (FSCA) has been alerted by the South African Ombudsman for long-term insurance about a rise in complaints related to universal life policies over the last few months.
The regulator explained that a universal life policy is a specific type of cover where the total premium payment has two components: the risk premium and a payment towards an investment or savings part of the policy.
The first one covers the cost of death benefits and administrative fees and it usually the minimum sum required, while the latter constitutes any payment above the risk premium to keep the policy in place – also known as the cash value.
The complaints are about high premium increases, a lack of suitable cover options being provided, premiums being deducted from savings without policyholder permission, and policies being unaffordable after the guaranteed period, especially for elderly clients.
As a result, the FSCA has started consultations with industry players to develop solutions to achieve fairer customers outcomes.
Policyholder outcomes ‘still unfair’
The FSCA said: “Universal life policies have been a topic of consideration for the FSCA for some time and following engagements with the four main life insurers that offer these policies, certain additional requirements were introduced into the insurance legislation to address some of the concerns mentioned [above].
“The additional requirements were included in the Regulations and Policyholder Protection Rules (PPRs), issued in terms of the Long-term Insurance Act, No 52 of 1998 (LTIA). The additional requirements are aimed at ensuring that insurers focus on the value the products provide to a policyholder, during the lifetime of the product.”
These are related to product design, the determination of premiums, disclosures, the ongoing review of product performance, premium review, and changes to actuarial basis and values.
But they do not seem to be enough, the watchdog added.
The FSCA said: “Despite the introduction of the requirements, the ombudsman notes that these types of policies may still result in unfair outcomes to policyholders. Further consideration of these policies has been undertaken.
“The FSCA has also engaged with various industry bodies and insurers to obtain a better understanding of the current concerns. The Authority has also decided to collaborate with the Life Market Conduct Committee of the Actuarial Society of South Africa to conduct a further review of these policies.”