The Sunday Times FT - Life assurance schemes or assurance scams ?

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.

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.

* 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.

* 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.

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).