Push to end life policy loopholes

Durban - The Financial Services Board is pushing for changes to the law that will require a person whose life is being insured to give their consent to this.

Alarmingly, there is no legal requirement for a person being insured – in some cases, to the value of millions of rand – to consent to a policy being taken out on his or her life.

This comes a week after The Independent on Saturday reported on three suspects appearing in the Durban Commercial Crimes Court on two separate cases of insurance fraud in which they allegedly had two people killed to gain from life insurance policies collectively worth R15 million.

Newcastle businessman Rajanth Bisnath allegedly took out a life policy to the value of R4m on the life of his employee, Umesh Rabilal, in September 2012.

In the call to the life insurance company, Bisnath allegedly pretended to be Rabilal taking out the policy, which identified Bisnath as the beneficiary.

Rabilal was the only person killed in a house robbery in March 2013, and Bisnath made a claim under the policy three days later.

In the second case, a teacher, Thembi Shabalala, and her son, Nkululeko, were charged with insurance fraud to the value of R11m in connection with the death of Sifiso Hlongwane.

His stabbed body was found in a Tongaat sugar cane field.

In a similar modus operandi, police allege that Nkululeko pretended to be Hlongwane taking out a policy in terms of which he and his mother were nominated as the beneficiaries. Voice samples are expected to be used by police in prosecuting the matter.

When asked why taking out a policy on another person’s life was so easy, Jonathan Dixon, deputy executive officer for insurance at the FSB, said: “There is no formal legislative requirement that the life-insured must consent to having his/her life insured… We are currently considering making legislative proposals recommending that a provision be brought into law that would require such consent.”

Late last year, he said, a provision was made for dealing with a governance and risk management framework for insurers.

“In terms of this notice, all insurers are required, from April 1, 2015, to have in place a policy dealing with appropriate strategies, procedures and controls to deter, prevent, detect, report and remedy insurance fraud, and to effectively manage fraud risk and possible risks to the insurer’s financial soundness or sustainability caused by fraud,” said Dixon, adding that it was difficult to put a number on how many similar cases occurred.

Jennifer Preiss, deputy ombudsman for long-term insurance, said there was no requirement in law for a person being insured to give their consent.

“When a policy is being taken out, the person who is insuring someone else’s life has to have an insurable interest in the insured life, which means that they will suffer some kind of loss if the person being insured passes away.

“For example, an employer could insure his or her employee’s life if it is a key employee. Insurable interest also refers to ties of affection which in most cases refers to a family member,” she said.

As part of the life-insurance policy application, some insurance companies may require the insured person to give their consent, or undergo a medical examination.

“Some companies may require the insured person to undergo a medical examination, and this acts as security net, as the person knows they are being insured.”

Peter Dempsey, deputy chief executive of the Association for Savings and Investment SA, said: “This type of fraud is not common, and when it does occur it normally is detected and prosecuted due the capital crime nature of the offence.”

He said that Asisa claims fraud statistics for 2013 showed that, out of the 2 093 fraudulent and dishonest death and funeral cover claims that were detected, only 18 involved the beneficiaries of such policies.

When asked if consumers had a mechanism to find out whether policies had been taken out on their lives, Dempsey advised: “On our website (www.asisa.org.za), click on “Contact” and then scroll down to “Lost Policies”.

“Download the Lost Policy form, complete it, and either e-mail or fax it to Asisa. This form will be circulated among Asisa’s member companies.

“Life insurers will check the details against their records and, if there is an existing policy, you will hear from the company within seven days.

“The company will, however, need to ensure that you have a valid interest in the information about the policy.

“That means you must be enquiring either about your own policy or that of a deceased relative, and you will have to be able to supply the supporting documentation required by the insurer.”

Independent on Saturday