CR91

Funeral Policy – Increase in premiums – compensatory award.

Background

In July 2001 the complainant had seen an advertisement in terms of which a bank offered a funeral policy to cover the insured, the spouse and up to 5 children for R33 per month. The complainant visited the bank and consulted with an employee of the bank who explained the terms and conditions of the proposed policy, to the complainant. The complainant understood that she would pay R33 per month on the policy until the date of her death and thereafter the policy would be fully paid up for her husband as well. Some time during 2003, she noticed on bank statement that the debit order with regard to the policy had been increased to R45 per month and in 2004 it had again been increased to R50,50 per month.

The complainant communicated with our office, requesting an explanation and requested our assistance.

We sent a copy of her letter to the insurer and requested an explanation. The insurer responded and confirmed that the policy was a funeral cover plan which provided cover for the life assured as well as her spouse. The policy had commenced with effect in August 2001 with a monthly premium of R33.

In May 2002 the premiums had increased to R38 per month. Another R7 increase occured in June 2003 and the final increase of R5,50 in November 2003. The insurer confirmed that the current premium was R50,50 per month. The insurer explained that the actuaries had reviewed the benefits and in order to retain the existing benefits, it had become essential to increase the premium. The insurer relied on the terms of the policy which stipulated inter alia that the premium would be reviewed each year and in the event of it being necessary to increase the premium, three months notice would be given. Furthermore, it was provided that the premium rate may be revised by the actuary to bring the rate in line with the actual claims experienced.

We conveyed this information to the complainant who expressed her dissatisfaction. She alleged that the explanation given to her by the bank employee had been to the effect that the premium payment would remain unchanged and, specifically, required answers to the questions as to:-

1. why the permium payment had been increased to R50,50 but the insured amount remained unchanged? and,

2. whether the advertisement which had influenced her to take out the policy, had any affect on the situation?

Assessment

The insurer alleged that the training provided to the employees of the bank who assist the applicants in the completion of their application forms and advise those applicants of the nature of the insurance, rigorously stressed the importance of furnishing an explaining to each applicant the provisions contained in the policy information booklet. The insurer alleged further that although no documentary evidence existed that would definitely prove that the complainant was provided with a policy information booklet, the overwhelming probabilities suggested that the booklet was furnished to her on the date that she applied for the funeral cover, namely 20 July 2001. The complainant had denied receiving a policy information booklet, but admitted that she had signed the application form. The application form contained a provision reading as follows:

“I accept this insurance and understand that it is bound by the standard terms and conditions that apply to this policy”.

The insurer advised that the complainant had paid her premiums by means of a debit order from the date of the commencement of the policy being 1 August 2001. In February 2002, in accordance with the provisions of the policy, the bank had sent a circular letter to all insureds advising them that, owing to inflation and in order to retain the same benefits and service, the monthly premiums would increase to R38. This premium increase took effect from May 2002. Apparently the complainant had paid that amount by debit order without question or complaint. The circular letter pertinently advised that if any client had any queries regarding the proposed increase, that the client should contact either the bank’s funeral plan call centre, or attend someone at her nearest bank branch.

In March 2003 a further letter was sent advising that the monthly premiums was to increase to R45 per month with effect from June 2003. She was provided with a similar explanation for the reason of the increase and again invited to raise queries with either of the bank funeral plan call centre or the nearest bank branch. This premiums increase was put into effect in June 2003 and again the complainant had paid the increased premium by debit order without demur.

The insurer admitted that neither it nor the bank had copies of the letters referred to, as of the relevant times, copies were not retained. The insurer was adamant, however, that the letters were sent as its systems had been programmed to produce and dispatch such letters to all policyholders three months prior to any proposed increase in premium.

A third letter was sent to all clients on 31 July 2004 in which the clients were advised of the increase in premium to R50,50 per month with effect from 1 November 2004.

In the light of the aforegoing, the insurer had concluded that since as early as 2002, the complainant had been notified of, accepted and paid the increased premiums for the same cover. The complainant had at all relevant times not raised any query regarding those increases or objected thereto until the latest increase to R50,50. The insurer therefore concluded that the most reasonable inference to be drawn is that the complainant knew of their entitlement to increase the premiums as necessary and had accepted that fact.

With regard to the complainant’s contention that the employee of the bank had misled her into believing that the premium would be fixed at R33 per month for the duration of the policy, the insurer relied on the application form signed by the complainant as well as the terms and conditions of the policy.

The complainant, on her part, denied having been provided with a policy information booklet, which, according to the insurer, would have explained all conditions pertinent to the policy, prior to the complainant completing and signing the application form. Furthermore, the complainant persisted in her version of events, namely, that the bank employee had advised her that the premiums would remain unchanged. The complainant could however not offer any explanation as to why she had not reacted to the earlier increases on the policy premiums.

With regard to the complainant’s allegation that she had been influenced by the advertisement into taking up the policy, we suggested to her that the advertisement had clearly stipulated that further information concerning the policy would be provided if she visited her nearest branch of the bank for more information or called the specific call centre telephone number. Since the complainant had consulted with a bank employee, all information requested in respect of the policy should have been provided.

Result

At an adjudicator’s meeting we decided that the insurer, on a balance of probabilities, was justified in increasing the premiums. The insurer offered, on an entirely without prejudice basis, to settle the matter by cancelling the policy and returning all premiums paid by the complainant since date of inception with interest. The complainant insisted on retaining the policy.

Following another adjudicator’s meeting in our office, we suggested to the insurer, that the most appropriate way of resolving the complaint was to pay to the complainant a solatium in the amount of R2500. The insurer accepted the suggestion as a preliminary ruling, albeit reluctantly, on the basis that no precedent was created. The complainant was accordingly so advised.

Footnote

Ironically, the complainant has been notified that as of 1 November 2005, the monthly premium has been increased to R56 which has been accepted by the complainant.

HE
October 2005