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Tuesday, May 24, 2022

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Authorities to act on concerns about universal life policies

Published Oct 4, 2021


The Financial Sector Conduct Authority (FSCA) says it has been alerted by the office of the Ombudsman for Long-term Insurance that there have been many complaints received over the last few months relating to policies known as universal life policies. The complaints include high premium increases, lack of suitable alternative policy cover options being provided, premiums being deducted from the savings portion of the policies without the permission of policyholders, and policies becoming unaffordable, especially for the elderly policyholders after the guaranteed periods.

In response, the FSCA says it has begun consultations with industry to develop solutions that are aimed at achieving fair customer outcomes, in addition to the existing policy interventions made in the past few years.

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Universal life policies are life insurance policies where the total premium has two components to it, namely the risk premium and a payment towards an investment or savings component of the policy. The cost of the risk premium component covers the cost of providing the death benefit and administrative fees, and that is typically the minimum premium amount needed to keep the policy in effect. Any amount over and above the risk premium adds to the policy’s investment or savings component. This is also known as the cash value, subject to the limits in the policy.

The complaints from the insurance ombud relate to substantial premium increases in these policies, which often follow a guaranteed period when the premium is fixed.

“Universal life policies have been a topic of consideration for the FSCA for some time and, following engagements with the four main life insurers that offer these policies, certain additional requirements were introduced into the insurance legislation to address some of the concerns mentioned [above],” the FSCA said today in a statement.

The additional requirements were included in the Regulations and Policyholder Protection Rules (PPRs) issued in terms of the Long term Insurance Act. These requirements are aimed at ensuring that insurers focus on the value the products provide to a policyholder during the lifetime of the product.

Despite the introduction of these requirements, the FSCA says that the insurance ombud has noted that these types of policies may still result in unfair outcomes to policyholders. Further consideration of these policies has been undertaken. The FSCA has also engaged with various industry bodies and insurers to obtain a better understanding of the current concerns, and will collaborate with the life market conduct committee of the Actuarial Society of South Africa to conduct a further review of these policies.


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