Sale of insurer’s business CR317
Insurer selling off portions of its business to various other insurers – paid-up cover – which insurer responsible.
BACKGROUND
During 2007 a number of complainants submitted similar complaints to the office regarding the paid-up cover reflected in policy endorsements provided by Insurer A.
In all of the cases the complainants’ late spouses had had policies with a short term insurer which included a funeral benefit underwritten by Insurer A, a long-term insurer. When their spouses died, funeral benefit claims were submitted and paid. The complainants then each received a letter from Insurer A containing an endorsement that they still enjoyed cover on a paid up basis.
The endorsements had all been issued prior to 31 March 2004, the date on which the short term insurer changed the underwriter of the funeral cover. The complainants later tried unsuccessfully to establish whether the cover was still in force and which insurer was liable for it. We enquired from the short term insurer concerned which long-term insurer was responsible for the paid-up cover and they suggested that it would be Insurer A.
Unfortunately various sections of Insurer A’s business had in the meantime been sold off to different insurers who we then approached. None of them seemed to have any knowledge, however, of this particular book of business.
DISCUSSION
We made a provisional determination against Insurer B, one of the insurers which took over some sections of Insurer A’s business, but Insurer B informed us that the book of business was not taken over by them and that “the liability to pay any benefits in respect of paid up policies still remain with Insurer A.”
We were provided with a copy of the agreement that had been concluded between Insurer A and Insurer B. After perusing it we decided that “the liability to pay any benefits in respect of paid up policies still remains with Insurer A”. The provisional determination was therefore set aside, and we informed Insurer C, which was the other insurer who took over most of the sections of Insurer A’s business, accordingly.
In our provisional determination we advised insurer C as follows:
“As you will note from the attached documents, we approached various subscribers in respect of this matter …
We perused the reinsurance agreement between Insurer A and Insurer B, but it would seem that this business was not taken over by Insurer B.
…
(In) the absence of any agreement that the liability was transferred over to the new insurer at the time that the underwriters were changed … we must assume that Insurer A is responsible for the paid up cover provided for in the endorsements/letters. Our understanding is that Insurer C in taking over Insurer A would now be the responsible insurer.”
Insurer C then advised us “that this is not an Insurer C issue as these policies do not form part of the book of Insurer A that we (Insurer C) administers.”
Upon receipt of insurer C’s response we approached the Financial Services Board (FSB) for assistance. We explained as follows:
“It would appear that when Insurer A was sold off to the different insurers this matter may have fallen between the cracks, as no insurer is prepared to provide the cover as set out in Insurer A’s letters to the policyholders. It would be much appreciated if you would look into this matter and advise us which insurer underwrites this scheme.”
The FSB interviewed the Public Officer of Insurer A and addressed certain enquiries to Insurer C, whereupon Insurer C responded:
“Following numerous enquiries it came to light that Insurer C is indeed liable for the paid up cover payable to the spouse and dependents of deceased principal members of the policies in question…”.
OUTCOME
Confirmation was provided to the complainants that the paid-up cover was in force. Compensation for the inconvenience caused to them was also awarded to the complainants, which they gladly accepted.
Insurer C also undertook to investigate their database “to determine how many paid up policies are involved and the amount of the benefits payable to the beneficiaries concerned”, and to inform the FSB of the outcome of their investigation.
HE
March 2011
