Summary
Summary RSK3701 TEXTBOOK C7
- Institution
- University Of South Africa (Unisa)
Summary of 32 pages for the course RSK3701 - Risk Financing and Short Term Insurance at Unisa (RSK3701 TEXTBOOK C7)
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POLICY SERVICING CHAPTER 7CHAPTER 7
POLICY SERVICING
Learning Outcomes
When you have completed this chapter you will be able to
explain the reason why an efficient policy servicing department is
a vital component of a life insurer’s operations;
list and explain the common duties that every life insurer’s policy
servicing department will have to deal with;
explain the importance of the policy document and the procedures
to be followed if this document should be lost or destroyed;
list and describe the different components of a policy document;
discuss the problems that may occur if the premium payments on
a life insurance policy cease and the ways in which these are
handled in different circumstances;
describe the method used by the average insurer to grant a loan
against a policy;
explain the ASISA’s Code of Practice on the Replacement of
Policies.
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,POLICY SERVICING CHAPTER 7
A person who buys a life insurance policy generally hopes to have to wait a long time before
he needs the money. Consider that the proceeds of a policy are normally only paid in the
event of the death or disability of the life insured.
It is only with an endowment policy that the policyowner can look forward to a pre-determined
date on which the policy will pay a large amount of money to him. However, even with an
endowment policy, the policyowner will have to wait for at least five years before the policy
can mature. It is only on earlier death or disability that a policy can pay a benefit before the
expiry of the initial five year period. Part 4 of the Regulation to the Long Term Insurance Act
is very clear on the fact that no life insurance company may sell a policy that has a term of
less than 5 years, if there is a savings element, other than a retirement annuity.
It is very important that every life insurer has an efficient department that can maintain its
policies and keep in contact with the policyowners. This department must also be competent
in providing assistance to any policyowner, who may experience problems with his policy, or
who may want to make changes to any of his policy’s details.
In most life insurance companies this department is usually known as the policy servicing
department.
While it is self evident that every life insurer will need to have some form of policy servicing
department, it is important to appreciate that the way that the departments are structured and
managed will differ from insurer to insurer. The market that an insurer concentrates in will
dictate the services that its policy servicing department will need to provide, and will therefore
affect the structure of the department. However, even though there are differences between
the policy servicing departments of the different insurers, there are certain roles and
functions that will need to be provided by the policy servicing department of every insurer.
These roles and functions entail:
conforming to any legal requirements;
Anything that is done by the policy servicing department will have to abide by the
statutory laws and regulations of the Republic of South Africa. All insurers who operate
in South Africa have to be registered as local insurers. Legislation that has the most
relevance to life insurance includes:
o the Long Term Insurance Act,
o the Income Tax Act and
o the Pensions Funds Act.
The student must, however, appreciate that there are a number of pieces of legislation
such as the Companies Act that must also be complied with.
acting in accordance with the conditions of the policy document;
Once a life insurer accepts a proposal form, the insurer will print a policy document with
the details of the contract entered into, and send the document to the new policyowner
as proof of the contract. The policy document will include all the terms and conditions of
the contract, as well as a description of the benefits that have been included in the
policy.
Whenever a policyowner wants to alter the policy, or submit a claim against the policy, it
is the responsibility of the policy servicing department to ensure that the change or
claim is allowed in accordance with the terms and conditions contained in the policy
document.
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,POLICY SERVICING CHAPTER 7
abiding by the company’s practice.
Staff within the policy servicing department must be well versed with company practice
in areas such as, the granting of loans against existing policies, and the interest to be
charged thereon. This is to ensure that no mistakes are made when advising a
policyowner.
Beneficiary changes
When you accept that the majority of payments made by a life insurer are death claims, you
will begin to understand the importance of the nomination of a beneficiary to the policyowner.
The deceased policyowner will have nominated a beneficiary to receive the proceeds as he
can no longer do so. What you must, however, understand is that the policyowner is allowed
to change the name of this beneficiary whenever he wants to do so.
There are a number of reasons why a policyowner may wish to change his nominated
beneficiary. If one considers the high divorce rate, and the large number of policies that are
nominated to a spouse may require a change to a child or parent. It is the responsibility of
the policy servicing department to record the amendments of any beneficiary nominations.
If this is not done correctly, it is possible that the benefits from the policy may be paid to the
wrong person when there is a claim. This could result in legal action being taken against the
insurer. If it can be shown that the insurer was informed of the change, but did not react
correctly, the possibility of having to pay the claim twice becomes a real danger.
General consensus in the past has been that any cession will cancel a beneficiary
nomination. Should the policy cession at a later stage therefore be cancelled, the policy
proceeds would be paid to the estate of the deceased if no new nomination of a beneficiary
is made by the policyowner.
A policyowner, who receives back from the cessionary a previously ceded policy document,
should appoint a new beneficiary. This must be done even if the beneficiary is the same as
the one nominated prior to the cession. In following this action, there can be no doubt as to
the intended recipient of the proceeds of the policy in the event of a death claim.
Policy alterations
If we accept the fact that a policyowner, who is 20 years old when he buys a life policy, could
live to the age of 73, the policy will have been in force for 53 years before it becomes a claim.
During this long period it is very likely that the policyowner’s ideas about the policy and its
intentions will change.
He might originally have bought a small policy that would have been enough to settle any
debts he may have had if he had died. If the policyowner were, however, to get married after
the policy commenced, he would soon realise that the amount of life cover included in the
policy was inadequate.
With the universal type policies it is unnecessary for the policyowner to purchase a new
policy if more life cover is required. The policyowner can simply ask the insurer to change his
existing policy by adding more life cover. Any increase in cover will be subject to satisfactory
evidence of health being provided to the underwriters of the insurer.
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Once the underwriters have approved the amendment to the policy, their underwriting criteria
may include the life insured having to undergo a medical examination, in which case the
policy servicing department will have to issue an amendment to the policy document and
send it to the policyowner.
Record maintenance
It is very important that the insurer keeps an accurate record of all the changes that are
made to a policy.
One of the most important duties of the policy servicing department is the keeping of
accurate records, and keeping these records up to date. Insurers maintain an accurate data-
base of all their client details.
Policyowner queries
Any call centre agent, or clerk in a branch office, will be able to answer general queries that
a policyowner has, by checking on the system.
Whenever a policyowner has a query about his policy that cannot be dealt with by the branch
personnel the query will be sent to the policy servicing department. It is then the duty of a
clerk in the policy services department to call for the file, check on the records and reply to
the policyowner.
Premium collections and procedures
Most life insurers have a special premium accounts department that is responsible for the
collection of premiums. This department will also keep an accurate record of the premiums
that have been paid by the policyowner. Premiums can be collected by debit order, or stop
order, and even cash. Cash payment is losing popularity in the industry, due to the risks and
costs involved in handling cash, fraud and money laundering.
The policy servicing department, however, has the responsibility to ensure that the premium
requested by the accounts department is correct and has not been changed as a result of a
policy alteration or inflation escalation.
7.1 THE POLICY DOCUMENT
In contractual law there is a need for an offer and acceptance of the offer, in order for a
contract to come into being. When a proposer fills in an application form for a life insurance
policy he makes an offer to the life insurance company, asking them to accept him as a
policyowner. The underwriters of the life insurer will check the information on the proposal
form and, if the information provided is acceptable, will agree to enter into the contract on
behalf of the insurer.
The policyowner will require proof that a contract has been entered into. The life insurer will
therefore issue a policy document as proof of the contract and give the document to the
policyowner.
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