Life assurance
schemes or assurance scams ?
By M.Z.M. Nazim
Following deregulation of the insurance
sector and the granting of open trade licensing to insurance
companies in the private sector, a wide variety and
a panoptical range of life insurance covers is being
advertised under various names arousing the interest
of the public.
![](../images/ft2-1.jpg) |
Unscrupulous insurance companies
are coming up with schemes to outwit unsuspecting
policy holders |
The regulatory body that has been appointed
by the government -- the Insurance Board of Sri Lanka
(IBSL) should not only take cognizance of these diverse
and assorted life assurance schemes but also should
be aware, knowledgeable and mindful of their modus operandi
which has now become a rat race among the various insurance
companies vying for a bite, however small the piece
may be in the largely untapped life insurance market.
This article is meant to focus on
all schemes so that the IBSL could take sufficient action
or impose sterner rules and regulations; guide the unsuspecting
public to be alert, attentive and observant on the various
artifices and deceptive maneuvers employed by some of
the persons categorized as representatives of life insurance
companies, who are actually decoys - beguilers, roaming
the country-side, using these exceptionally high-sounding
schemes as bait to lure, the unsuspecting souls; and
that the IBSL should also note that large companies,
or companies that provide a substantial premium income
to the insurance companies or powerful individuals who
have the financial and/or political clout, are being
catered to. Their claims, whatever they may be, are
even met with the least possible resistance –
but individuals who, according to Sri Lankan standards
– are being categorized as the middle-class, lower
middle class and the poor are those who bear the brunt
of the attack and the subsequent, irreparable loss.
Modus Operandi
Scenario 1:
* A large army of life assurance representatives
are dispatched. They are even grilled to the extent,
whatever they may do, at least obtain one premium from
the person whom you are visiting.
Say, for example, the minimum monthly
premium, is Rs.100 and a minimum of one million individuals
are successfully targeted, The insurance companies get
a minimum of 100 million rupees into their coffers.
In addition to new business that may
be targeted the following month, the so-called representatives
persuade the previous month’s successes to pay
their second premiums.
This process goes on and on and the
people who are being targeted -- mostly the poor villagers,
farmers, people of low income groups --, may pay one
premium or a couple of premiums or even say 6 to 12
premiums in the year and you can imagine the millions
and millions of rupees that go into the coffers of insurance
companies.
The ‘best’ part of it
is, that a very large majority of these people are not
in a position to continue their payments and all these
millions are in the coffers of insurance companies.
They say, “The policy is lapsed,
we cannot refund you anything, we have to cover our
initial expenses – we are however, willing to
continue the policy if you can continue to pay the premium”
– another sly move, to get some more of the poor
man’s premium, which they know – through
and through – that the individual will not be
able to continue, but millions go into their coffers
even if they are able to scrounge one premium.
I need not go into the detailed logistics
of the amassing of billions of rupees over the years
– This, you should know, is unclaimable wealth
accumulated without any risk, whatsoever.
Scenario 2:
* Now among these there are the upper
middle class and the middle-class citizens who have
some means and who would have taken the trouble to pay
a minimum of Rs.1000 or 1,500 per month. And suddenly
due to unforeseen circumstances, they are not in a position
to continue payment. They may have paid premiums for
a period of say, 3 to 5 years or even more. Now they
appeal to the insurance company stating their plight
and that they would like to get some refund of the premium
that they have faithfully paid.
The insurance company shows sympathy,
(rather crocodile tears), and comes out with all the
high-sounding technical rantings, which their policyholder
does not understand.
They talk about actuary department
and their actuarial calculations and they talk about
“Surrender values” which, the policyholder
does not care. He only wants himself/herself to be relieved
of the burden of paying the premium and to obtain some
redress because of the unforeseen calamity that they
have faced. The insurance companies come out with a
paltry - not even 10% of the premiums they have paid,
as compensation.
The result is, more than 90 % of such
innumerable, multitudes of premiums are being added
on to the coffers of the insurance companies without
the risk of having to pay-back.
Just imagine the billions that the
insurance companies may have accumulated and piled up
in their depositories and repositories?
A detailed analysis of these showed
statistics that these people who have passed their 50th
year have been the target of life insurance policies
with medical benefits. The so-called ‘representatives
of insurance companies’, give the impression that
their medical bills will be paid, their hospitalizations
will be paid and they show an impressive piece of paper
listing out the variety of benefits on a variety of
headings – vis-à-vis : Basic Life Cover,
Accident benefit ( 2 times or 3 times the basic life
cover), Medical and Hospitalization cover, Disability
benefit – both permanent and partial – and
a variety of other headings purporting to protect the
family and waiver of premium etc. etc. and the amounts
against these are shown in millions or hundreds of thousands
depending on the “pay-power” of the individual.
Now these people who have passed their
prime – and who are in need of their soaring medicals
bills to be attended to, fall for this gimmick –
this clever but deceptive manoeuver.
We can go on enumerating a check-list
with stunning revelations, Since space does not permit
to detail all, but I think, for the time-being, this
would suffice for the reader to understand and read
between the lines, the Modus Operandi of unscrupulous
insurance companies – whose instructions to their
field staff are “achieve targets” –
how you achieve or what mode you use to accomplish and
attain your targets, is immaterial – because even
a single premium would swell their coffers by the millions.
So those people who come knocking
at your door, are not interested in you, but in achieving
their targets. Other systems of deceptions are also
largely prevalent; but space does not allow us to discuss
all of them.
This is what the Regulatory
Authority – (IBSL) should do:
* When it comes to the question of
surrender of a policy by a policyholder, The surrender
values should be subject to explicit and denotative
guidance by the IBSL which should be implicitly executed
without question – where the age of the policy,
the quantum of premium, the number of months paid, the
total amount paid and the amounts or percentages specified
and clearly defined, not just leave the policyholders
at the mercy of the so-called actuaries who are themselves
employees of the Insurance Companies. And/Or in the
alternative, let the IBSL employ their own Actuary –
to determine the compensation or benefits when a life
policyholder surrenders his/her policy.
If necessary, the IBSL should call
for legislation to be passed in this regard, without
any delay.
* Call for a detailed list of all
policies abandoned, by the policyholders – This
should include those who have paid even one premium.
The IBSL is going to have a stunning discovery on the
colossal quantum of premia abandoned by unfortunate
life policyholders as well as the balance of premia
retained after the payment of “surrender values”
determined by the insurance companies – they are
astronomically staggering indeed.
*The IBSL should duly inform the Inland
Revenue, with regard to the accumulation of such premia
without reservation and which have been subject to a
“No-Risk” situation. This is a case of abandoned
premia – which the insurance companies are loath
to part with.
C. Advise to the general public:
* Whenever you are confronted with
a ‘representative’ advocating the purchase
of a life policy, get the information in writing or
their brochures and consult someone who has a very sound
knowledge of insurance; better, a professional in Insurance.
I would recommend that you see an insurance broker who
will give you the best advice and the intricacies that
are involved in each of these policies. Insurance brokers
could be held responsible, by law and penalized by law,
for giving the wrong advice.
*In the alternative, you could also
visit the manager of the life division of the insurance
companies. He should be a professional and is subject
to a Code of Ethics by the Institute of which he is
a member and he would hardly jeopardize that position
and qualification. Get his personal details too and
you can inform the institute or body through whom he
obtained his qualifications if he had given you wrong
and malicious advice.
* When you have decided to take the
policy, make sure, that the term selected – the
number of years, you are going to pay premiums, are
practical. Can you sustain the payment of this premium
for a long period? You are the best judge. Better take
short term policies, if you desire to benefit.
* If you are certain that this would
not be possible, then open a savings account in a bank
and continue to pay for 2 or three years without a break
and you will be subject to quite a number of other benefits,
like loans etc., depending on your short term payments
being sustained with regularity. You will not only get
all your money back but with other accumulated profits
and benefits as well.
* Some banks, after the introduction
of Bankassurance, are providing life cover to their
account holders as well – nevertheless, I will
quote a case in point how an old lady was deceived by
a well-known reputed insurance company and her rightful
life benefit of a paltry Rs.25,000 was deprived by the
deceitful questioning of the investigator.
Case report:
This person was a farmer, who was
living with his old mother in a village in Panadura.
He had been coerced into obtaining a life policy by
one of the so-called “representative” of
an insurance company dealing in life insurance. The
mother and son were illiterate, the form had been filled
in English by the “representative” –
the farmer did not know what was written except what
had been explained by the “representative”.
Quite unfortunately, some one-and-a-half years later,
the man developed a fever and later died in hospital.
The beneficiary was his old mother.
A certain person in the village had
taken the trouble to submit the claim to the insurance
company, who sent their investigator. Now this investigator
very surreptitiously asks the innocent old mother –
“Did your son suffer from any fits of epilepsy?”
The mother innocently replies that
when her son gets fever he gets a fit and that was when
he was just 3 years old. Since then he had not suffered
any fits.
The rascal investigator states in
his report that the son had suffered from epilepsy.
And when the proposal form was checked – it was
found that the suffering of epilepsy has not been declared.
The insurance company rejected the
claim on grounds of false declaration.
One of the cashiers who had been attached
to the company in which I was working, and who happen
to be a relative of this poor family, came to me and
related the whole incident and requested me to help.
I called for the Medical Report and I found that the
man had died due to some other illness and not epilepsy
or anything that is related to epilepsy.
I spoke to the then managing director
of that insurance company and he said that he would
revert back to me after making enquiries.
He called me a couple of days later
and said that they cannot meet the claim because of
a false declaration. I quietly explained to him that
their policyholder is illiterate and the proposal form
had been filled by the “representative”
of his company and moreover, the man had not died of
anything related to epilepsy and to give the benefit
of the doubt and pay this small amount of Rs.25,000
to the destitute old lady.
The man refused outright, saying he
does not want to create any precedents.
You can imagine my dismay and more
so the consternation of the beneficiary, the old lady.
And from that moment onwards, I always advise people
against obtaining life insurance policies. The stony
hearted, pitiless, unsympathetic and the obdurate attitude
of the managing director representing the said company
speaks volumes of the deceit and the chicanery involved.
At that time the IBSL had not been established for us
to make representations and I am sure the poor old lady
is not in the land of the living, now.
* Do not ever agree to pay your life
Insurance Premium out of your EPF (Employees Provident
Fund) or your PPF (Private Provident Funds). This is
another ruse adopted by the life insurance companies.
“Your Provident Fund monies are lying idle; why
don’t you pay your life premiums through your
Provident Fund account, if you cannot pay out of your
salary?” says a representative – a pernicious
attempt to ensure a continuous supply of funds to the
insurance company.
If you succumb to this – then
at the end of the day, neither are you benefited by
the Provident Fund – which is your hard-earned
compulsory savings, nor your life assurance.
Invariably, the “representative”
will tell you, that to pay a lower premium, you can
extend the term of the policy say 20 to 25 years. So,
at the end of your retirement, you may have still pay
for another few years more - which you may not be able
to – because retirement has its shortcomings and
deficiencies.
At that time when you state your inability
to continue the policy, you may get that paltry amount
which is described as “Surrender Value”
which I have referred to earlier in this article. You
not only lose your full benefit that you may derive
from your Provident Fund – but also since, monthly
deductions of premiums take their toll of the Provident
Fund, even the profits that accumulate in this fund
are also drastically reduced.
So my advice to all and sundry, irrespective
of who you may be - :
“Never - ever, agree to pay
your life premiums out of your Provident Fund.”
The Business Editor invites any comments
or complaints of a similar nature as reflected in the
article which we’ll pass onto the IBSL and the
Insurance Ombudsman.
(The writer is a chartered insurance
practitioner and formerly Director of Hayleys Insurance
Services (Pvt) Ltd./Volanka Insurance Services (Pvt)
Ltd and has retired after having served the industry
for over 37 years).
|