FSCA: High funeral policy premium increases a concern

Pretoria - The Financial Sector Conduct Authority (FSCA) has today issued a statement noting with concern the high premium increases that are being implemented by insurers on funeral policies. In its statement, the regulator said that while it recognises the impact of COVID-19 on mortality rates and funeral policy claims, the Authority expects insurers to ensure fair outcomes for policyholders and also reminds insurers of their obligations pertaining to premium increases. 

“Insurers must ensure that in line with Rule 1.2 of the Policyholder Protection Rules (PPRs) issued under Section 62 of the Long-term Insurance Act, 52 of 1998 (LTIA), they act with due skill, care and diligence when increasing premiums. It is the view of the FSCA that premiums must be priced correctly at the inception of the policy so that any increases which may be implemented would still result in fair outcomes for policyholders, with the policy continuing to perform as expected.“

The premiums set by insurers must be actuarially sound, in line with Section 46 (1)(a) of the LTIA which provides that: “A long-term insurer shall not enter into any particular kind of long-term policy unless the statutory actuary is satisfied that the premiums, benefits and other values thereof are actuarially sound”. 

The regulator said it has noted that some of the recent premium increases may relate to historic books of the businesses which were under-priced from the inception of the policies. It said it is therefore its view that if policies were not priced correctly at inception of the policy and exorbitant increases are thereafter implemented due to the impact of COVID-19 or underwriting losses, this would result in unfair outcomes for policyholders.

“Such increases would not be compliant with Rule 15.5(e) of the PPRs, which provides that: “A review of a premium payable under a policy will not comply with 15.4 if the primary purpose or effect of the review is to allow for the adjustment of a low initial premium consciously based on overly optimistic assumptions …….”.

The FSCA has received complaints that some insurers are increasing premiums more than once for the same policy within a 12-month period (even though the terms and conditions allow only for increases on the anniversary of the policy), said the regulator, and this falls foul of the requirements of Rule 15(1) of the PPRs which states: “A premium payable under a policy may only be reviewed if the policy provides for a review and states the frequency at which and the circumstances in which a review will take place”. 

The Authority also noted that some insurers are exponentially increasing premiums on funeral policies without considering the requirements of Rule 15(4)(a) of the PPRs which provides that: “any review of a premium payable under a policy must reasonably balance the interests of the insurer and the reasonable benefit expectations of policyholders or members”.

The regulators said it expects insurers who intend to increase policy premiums on existing policies to consider the existing requirements and to follow the appropriate processes. “Insurers must be able to demonstrate that they are complying with the provisions of the LTIA, particularly the PPRs and treating their customers fairly.”

To read the full communication on the FSCA’s expectations regarding premium increases on life policies, please click here