Hospital Scams Threaten Health Insurance Policies
The Financial Services Board (FSB), in agreement with the life assurance ombudsman, has directed a warning towards life assurance companies, advising them to apply caution when instating clauses that would allow the companies to cancel hospital cash plans marketed as whole-of-life policies.
The dispensation of warnings follows the recent uncovering of an organised scam that involves hospital plans receiving a significant number of claims for excessively large stays in hospital.
Ombudsman for Long-term Insurance, Judge Brian Galgut had been notified of the scam after hospital plan policyholders trendingly made complaints regarding life assurance companies rejecting claims either partially or entirely. What stood out about these claims were the ailments associated with them; the ailments did not require hospitalisation nor extended periods of hospitalisation.
Galgut had recently put a stop to the attempts of life assurance companies which have tried to apply new conditions to their policies. However, the companies themselves have insisted that policyholders have over-claimed and, along with the FSB and the Association of Savings and Investments SA (Asisa), say recent uprising of fraudulent claims justify new cancellation clauses.
The ombudsman has favoured life assurance companies only in cases where fraud is evident and sides with policyholders where assurers may unfairly cancel policies simply because policyholders have made many, but justifiable claims.
Last year, Asisa detected a reported 549 cases of fraud and 649 the previous year. These fraudulent claims amounted to R4-million and R12.6-million respectively.
FBS deputy chief executive of insurance, John Dixon has admitted to sharing Galgut’s concerns, however, he fears that the cancellation clauses instated by hospital plans could extended to all types of risk life assurance policies.
Dixon’s concern is based on the ill-clarification of the Long Term Insurance Act, stating the act “does not explicitly address the cancellation of policies by an assurer, save for assistance business schemes”. For this reason, “assurers may therefore provide cancellation in their policy contracts. Assurance contracts are governed by contract law; specifically common law rule that agreements are binding and must be enforced.”
Peter Dempsy, deputy chief executive of Asisa states, in proposition of the cancellation clauses, the clauses are not being included in the policy documents of other types of risk life assurers. His defence being: “…with all other types of cover, the policyholder of beneficiary must prove a condition or event for which a claim is being made.”
“With a hospital cash plan, the policyholder is admitted to hospital first then makes the claim once released. If a doctor hospitalises a policyholder for flu, the insurer cannot decline the claim, because the patient had been in hospital, where this was necessary or not.” states Dempsey.
Dixon has reported that the FSB is considering amending certain aspects of the Policyholder Protection Rules to rectify the matter.