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FSB steps in to curb lapses and surrenders
Millions of rands are lost each year by assurers and policyholders, writes LUCIENNE FILDLIFE assurers will soon be required to provide the Financial Services Board with detailed information on policies which have lapsed or surrendered.
This follows concern by the FSB about the thousands of policies that are lapsed and surrendered each year, resulting in financial loss both for policyholders and life assurers.
A policy is lapsed when the policyholder stops paying premiums. If there is a cash value, the policy generally funds itself until no money is left from the premiums you have paid. You get nothing back and lose all the premiums already paid.
By contrast, when a policy is surrendered, the policyholder sells the policy back to the assurer in return for the cash value. But this amount is substantially less than the policy's worth on maturity.
In a bid to understand why so many policies are lapsed or surrendered, the FSB will soon require assurers to submit quarterly reports on policy terminations.
The FSB is also planning onsite visits to assurance companies - once the policyholder protection rules of the Long-Term Insurance Act take effect and the Financial Advisers Act is promulgated - to make sure assurers comply with the regulations.
These pieces of legislation aim to enable policyholders to make informed decisions when taking out insurance, and to ensure that intermediaries conduct business honestly and fairly.
The board will also encourage assurers to educate investors.
An investigation launched by the FSB early last year found that between 1994 and 1998 more than 3-million policies were surrendered. Because of this, life assurers lost about R4.2-billion in premiums in the five years.
During the same period, about 4.1-million policies were lapsed, resulting in a loss of R6.2-billion worth of premiums for assurers.
The board's survey showed that most policies were terminated for economic reasons. Poor investment performance also caused a large number of lapses.
Most policyholders said they were satisfied with the quality of service provided by life assurers.
But many respondents said they would not consider taking out another policy with the same company.
A number of respondents accused intermediaries of a lack of knowledge and of unsatisfactory service. These people said they would not take out another policy with the same intermediary.
The Life Offices Association commissioned similar research last year.
It found that 65% of respondents stopped their policies because of a change in personal circumstances. Of this group, 46% could no longer afford their premiums.
Financial advisers were also blamed by respondents. About 10% of respondents cited false promises as the reason for stopping their policies, while 18% felt the policies they were sold did not suit their circumstances.
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