The Ombudsman for Long-term Insurance Judge Ron McLaren recently applied equity/fairness when he ordered an insurer to refund a portion of premiums paid for full cover when in fact accidental cover was provided.
The matter that came up for adjudication concerned a policy aimed at persons who are HIV positive; it is marketed by AllLife and underwritten by Centriq Life Insurance Company Limited.
During the telephonic sale, the complainant was advised by the AllLife agent that the policy will have a disability benefit.
“To maintain the full cover of your policy you must complete our underwriting process within three months. Should you fail underwriting or not complete underwriting, your cover will automatically be limited to accident only cover,” the complainant was advised.
Where the cover is placed on accidental cover due to the insured not completing the underwriting process, it is referred to as “Process ADB”. Where the cover is changed when the insured fails the underwriting process, it is referred to as “Medical ADB”. In both instances, “ADB” stands for “Accidental Death Benefit”.
The complainant did not complete the underwriting process. His cover was placed on accidental cover only and he was notified in writing on 30 March 2016. The complainant was again underwritten in August 2018. Due to being hospitalised for cancer, he did not pass underwriting. His cover remained as accidental cover only. The premium was, at this stage, reduced.
A claim for disability was submitted to the insurer in 2018. The claim was declined as the disability was not as a result of an accident. The complainant requested to be reimbursed with all of his contributions as he was of the view that the cover had been amended without his consent.
The insurer was asked by the Office of the Ombudsman for Long-Term Insurance if the premium was reduced when the policy was changed to only accidental cover during March 2016. The insurer replied in the negative and said there would not have been any adjustment as the customer could complete underwriting at any stage.
The complaint was discussed at an adjudicators’ meeting at which it was unanimously agreed that the insurer should refund to the complainant the difference between the full cover premium and the accidental cover premium for the period between March 2016 and August 2018.
The insurer disputed the correctness of the provisional ruling and made the following submissions: “The premium was not amended as the benefit reduction was due to underwriting not having been completed in the 90-day period, and the insured was able to complete the underwriting process at any stage. The Life Insured agreed to these contractual terms and conditions.
“Premiums are only amended if, after the underwriting process, it is determined that the benefits are limited to Accidental Death Only due to medical reasons, through this risk assessment process. Premiums are not amended if the Life Insured has not finalised the underwriting process within the three months allocated.”
It was agreed at the adjudicator’s meeting that, contractually, the disability claim was not payable as the disability was not as a result of an accident;
In the final determination, it was stated equity jurisdiction was not restricted to the terms of the policy.
“Prejudice to the insurer and other policyholders does not preclude our office from exercising our equity jurisdiction. Such prejudice is taken into account and weighed against the prejudice suffered by the complainant to decide if an equity decision is justified.”
It was noted that prior to October 2016, the insurer’s process did not allow for pricing adjustment for Process ADB. However, such system and/or practice constraint did not prevent the exercise of the Ombudsman’s equity jurisdiction.
The meeting unanimously agreed that in terms of equity/fairness, the payment of a premium for full cover, when the actual cover provided is that of accidental cover only, could not be justified and as such, the difference between the full cover premium and the accidental cover premium for the period between March 2016 and August 2018, was to be refunded to the complainant. Thus, AllLife/Centriq was instructed to calculate and refund the difference between the full cover premium and the accidental cover premium for the period between March 2016 and August 2018, to the complainant with interest.