When Insurer system failures hit grieving families

For many South African families, a funeral policy is not a luxury. It is a modest monthly payment made in the belief that the family will have one less financial burden when death comes. That promise matters. Funerals are expensive. There are burial costs, transport, food and undertaker fees. For families whose relatives live far away, there is also the cost of bringing people home. For households living from payday to payday, a funeral policy can be the difference between managing and borrowing. This is why the conduct of insurers when claims are rejected deserves greater scrutiny. When limits become a trap A troubling situation arises when a person has paid premiums on more than one funeral policy underwritten by the same entity. The overlap is discovered only after death. The insurer may then argue that the deceased was already covered up to the permitted limit and decline or reduce the claim. Insurers are entitled to set limits. The question is when those limits should be identified. Under the Prudential Standard for the funeral class of business, the maximum payout is R100,000 per insured life a figure that escalates with inflation. If a person holds multiple funeral policies with the same insurer and the combined cover exceeds that cap, the insurer is prohibited from paying more than the maximum. The excess is forfeited. But if an insurer has the person's identification number, it can establish that the same life is already insured within its own system. Why should the problem only become apparent when a family submits a death claim? The Ombudsman's ruling The Ombudsman for Long-term Insurance dealt with exactly this issue in its 2021 annual report. The office recorded a case in which an insurer's system could not detect over-insurance at the application stage. Multiple policies were issued on the same life. When the life assured died, the insurer tried to cap its liability on a 'first-come, first-paid' basis. The Ombudsman ruled in favour of the policyholders. It found the policy wording, which referred to 'ALL policies', to be ambiguous and imprecise. The insurer could not rely on that wording to refuse payment. Valid claims had to be paid. The system was later upgraded, but the damage was already done for the families involved. That raises an uncomfortable question about the allocation of responsibility. A consumer applying for funeral cover does not have access to an insurer's internal databases. They may not know that two policies sold under different brands are underwritten by the same entity. The insurer does. Not every rejected claim is unfair. Policies contain conditions and limits, and consumers must understand what they buy. But that responsibility cannot be separated from the insurer's obligation to administer the product properly and communicate material limitations clearly. There is something difficult to reconcile about accepting premiums and later relying on information that was available to the insurer when the policy was sold. The human cost Consider what happens when a claim is rejected. The family is not dealing with an abstract transaction. Someone has died. There may already be a funeral date, an undertaker waiting for payment and relatives travelling from elsewhere. For poorer households, there may be no buffer between receiving a rejection and having to find thousands of rands. This is why funeral insurance deserves attention from the Financial Sector Conduct Authority (FSCA), the market conduct regulator. A step forward, but families pay now There is movement. The Long-term Insurance Amendment Bill was tabled in Parliament in June this year. It would require insurers to check whether a prospective policyholder already holds funeral cover on the same life before issuing a new policy. They would have to disclose the consequences of multiple policies and review their existing books within 12 months. Policyholders would have 31 days to cancel duplicate cover. Insurers who fail to comply would face sanctions. The Bill is welcome, but legislation takes time, and families are paying premiums now. The broader principle is simple. An insurance contract should not become less certain precisely when the consumer needs it most. People buy funeral policies to spare their families from financial distress. Those payments are an act of responsibility towards the people they will leave behind. That trust should not be taken lightly. When an insurer's own systems fail to identify a problem at the point of sale, the full consequences should not fall on a grieving family. There is a difference between managing legitimate insurance risk and transferring administrative failures to consumers. South Africans who pay funeral premiums deserve to know where that line is. ALSO READ: Dark days for funeral industry: Blackouts raise the cost of dying