Independent financial advisers give an overview of how financial services providers responded to the altered reality of a country in lockdown.
Financial planning practitioners are used to the situation where we need to help clients adjust course because of some unforeseen life event. If we run into challenges, this would typically come in the form of resistance from product providers. This is when the “terms and conditions” would come out. With Covid-19, though, it was different for both advisers and product providers alike.
The sheer scale of requests for some sort of adjustment to plans was unlike anything we’ve witnessed or experienced before. However, it was made easier by the fact that most providers were abandoning established ways of doing business and looking to provide some relief to clients.
There were lessons to be learned for all.
Role of the adviser
As the adviser to our clients, it quickly became evident that what we were dealing with was an unusual and pervasive situation. We couldn’t just fall back on the usual response to clients that “they would lose cover or benefits if they stopped their premiums”. We needed to get deeply involved and work with both clients and product providers to help protect clients as much as possible and retain as many of their benefits as possible, especially given that we were dealing with a health crisis.
Our first action was to offer clients a guide on how to deal with the financial impact of Covid-19. We shared what we thought was a good way to reprioritise their cover, ensuring that cancelling or reducing life and medical aid benefits was at the bottom of the list. We encouraged clients to firstly remove ‘bells and whistles’ from their short-term cover, then to assess the value of any rewards programmes to them personally, to stop or reduce discretionary savings ahead of retirement savings, and so forth. So instead of trying to deter clients from cancelling anything, we showed them how to cancel and reduce with minimum impact.
Most South African insurers were reasonably fast to offer different options on “premium relief” for policyholders. The impact of the lockdown on salaries left most people in extremely difficult circumstances. Rather than suffer mass lapses it was indeed sensible for insurers to offer relief options to their policyholders.
The general offer was the option to reduce cover to an affordable premium fora certain period and reinstate the cover without medical underwriting formalities after the expiry of this relief period. The next option was the so-called premium holiday.It had different implications at the various insurers. Some insurers offered the holiday but suspended all cover for the period. The benefit to the client was that the cover would be reinstated without formalities after that premium break. These breaks only applied during level-5 lockdown in many instances.
This approach left many clients exposed to the financial risk of dying at a time when they arguably needed the cover most.
Except for Sanlam and PPS, there were no insurers who were prepared to hold cover at the levels before Covid-19 struck. Insurance costing is not at all straightforward, however the most important request we got from clients over the lockdown was simple financial assistance without compromising their loved ones.
Sanlam offered the option of deferring up to three months of policy premiums. The outstanding premiums were treated as a loan. This loan could be repaid over time or written off at claim stage. Most importantly, cover would have remained in force during the premium holiday.
The second relief option was to do a reduction of cover to an affordable premium for a limited period. The cover could be reinstated to original levels, without formalities, after the expiry of the relief period.
PPS offered members the option to have their premiums deducted from the profit- share account if it was in credit.
Their second alternative, and by far one of the best in the industry, was to not pay premiums over two months while still retaining full cover on all benefits. If the profit-share balance was not enough to fund the premiums due, members could have applied for a temporary cessation of premiums. This option did mean that there was no cover over the premium cessation period, however cover would be reinstated without formalities once the client could pay premiums again.
Discovery Life also allowed policyholders to have their premiums paid out of any accumulated integrator payback benefits. If clients had insufficient cash available in these benefits, then they could reduce cover for a certain period. The cover reduction was allowed over two separate three-month periods. The cover reinstatement was done free from formalities.
Momentum allowed clients to have a premium holiday for up to three months. Over this premium holiday clients would be entitled to a 20% ex-gratia benefit in the event of a claim. They could reinstate their cover without formalities after the premium holiday.
Liberty Life offered their policyholders the option to reduce their cover for three or six months. The cover could be reinstated with the submission of a health declaration. There would be a challenge to have the cover reinstated if you had developed any medical conditions during the premium break.
Old Mutual allowed policyholders to skip three months’ premiums, however a claim during this time would have been limited to an ex-gratia pay-out of 25% of the cover available, capped at R3m. The alternative was to reduce your cover for three months and have the reinstatement done free of formalities.
Hollard Life allowed policyholders to reduce cover by 50% and reinstate the cover after three months without any formalities.
In addition, Sanlam and PPS have been especially good with claims on their illness benefits. Clients have had successful claims for testing positive for Covid-19 and for being forced to isolate after having had contact with someone who was positive. Claims for self- isolation have been admitted even without testing positive. Self-employed clients have been particularly protected, especially as the self-isolation period has often meant no compensation due to no work being done.
If the only certainty we have is that this probably won’t be the last time we experience such an event, then it’s time for insurers to provide more comprehensive and considered responses.
Short-term insurers stood to benefit the most from Covid-19 and the initial lockdown period. Clients would be at home all day, thereby reducing the risk of motor vehicle accidents or break-ins and robberies. The weather has been benign too. Many short- term insurers recognised that people would take the opportunity to dispense of their short-term cover – especially given that short-term insurance is a month-to-month contract and therefore easier than life cover to cancel and reinstate. Under “normal” crisis conditions, people tend to prioritise DStv and cellphone contracts ahead of their short-term insurance cover.
To date, though, most of our insurance providers have played a vital role in helping us assist our clients accordingly. Most insurers offered premium relief of between one and three months and discounts on motor vehicle coverage due to the lockdowns restricting travel. Discounts of between15% and 20% respectively were available for personal and commercial policies.
There were, however, insurers that went further and allowed us to offer even more premium relief to clients.
Momentum (ex-Alexander Forbes) offered limited mileage discounts, review of clients’ premiums, change of debit order dates to accommodate clients, self-inspection of vehicles to reissue policies after two consecutive unpaid premiums and further amendments due to the client’s request.
Echelon, Old Mutual and MUA offered a review of premiums, change of debit order date to accommodate clients and further amendments due to the client’s request to retain the client.
Santam offered limited mileage discounts, review of premiums, change of debit order date to accommodate clients and further amendments due to the client’s request in order to retain the client.
Discovery Insure offered limited mileage discounts, review of premiums, change of debit order date to accommodate clients and further amendments due to the client’s request to retain the client by us discussing their portfolio with them individually.
Retirement and investments
When we started our financial advisory business, we resolved never to invest clients into inflexible investment and retirement products which imposed penalties for adjusting, and which required clients to commit to paying premiums over a long period.
This probably cost us as a business as our earnings from these products was materially lower than what we could have earned.
However, the value of that decision was that clients could cancel their investment and retirement annuity contributions at short notice with no penalties or fees, and simply reinstate them when their financial position was restored. We therefore have no idea if there was any relief offered by insurers to clients of those products.
And ... those lessons that were learned?
Some providers played the long game and offered real relief when it was needed most. These providers will likely be the winners in future when clients look to increase their cover, or when advisers look to choose products that will benefit their clients in good and bad times. Hopefully, this is also the straw which breaks the proverbial camel’s back when it comes to product design and that we will see products designed with the client’s interest front and centre.
One thing is patently clear, though:if financial products are going to still be perceived as providing clients critical safety nets in times of crisis, then it is in everyone’s interest for product providers to take the time to work out with the financial advisory community where these products missed the mark over the past year and what could be done better in the future.
Clients will continue to need to adjust course in future as personal and macro circumstances change. It would be great if we could see more products that accommodate these changes with more compassion and flexibility; and fewer, if any, penalties.
Craig Gradidge, CFP (investments and retirement planning), Virath Juggai, CFP (risk and estate planning), and Mehmood Sader (short-term insurance), at Gradidge-Mahura Investments.