Bust! Secret Sanlam money spinner, hidden in your life policies?

A BizNews visitor has seemingly uncovered a secret money spinner after asking why Sanlam backdated his life policy. In a nutshell, the company backdates new life policies – even though it wouldn’t pay out for a death if that occurred before the official starting date of a life insurance policy. Sanlam admits it does this on about 5% of all risk policies – “on special request of a client and typically for a few specific reasons”. With its value of new life insurance business declared as R2bn in the financial year to March 2018, it must be collecting tens of millions of rands each year for risk cover it isn’t really providing. Sanlam says the gains are offset by offering some policyholders free cover on future-dated polices. – Jackie Cameron

BizNews visitor writes:

I recently applied for Life cover with Sanlam and did all the necessary blood tests ect. On the 8th of July they informed me that my application was successful and that I am covered from the 1st of July and that they will take the full premium for July.

My question is, is this common practice to approve the policy application on the 8th of the month, but to back date the cover to the 1st of the month in order to levy the full premium? In other words with hindsight, they levied the premium from the 1st to the 8th without any risk. I also can’t help to wonder if something happened to me on say the 4th of July if they would have honoured the claim on the 8th?

BizNews asks Sanlam:

One of our community members is wondering whether you honour claims on back-dated policies. Please see his question. Do you cover claims for backdated policies? Also, we have our own question: How does Sanlam account for the money when backdating policies? How much money was accrued from backdating in the last financial reporting period? Is this pure profit for Sanlam? Please explain! Seems like the extra income you generate from backdating like this is money for jam or a bit of a con, but maybe I’m missing something?

Petrie Marx, Product Actuary: Sanlam Individual Life, responds.

Sanlam responds as follows:

Issuing a policy with an inception date which precedes the date on which we accept the risk for which a client applied (as in this case), is definitely not a standard process within Sanlam.

The backdating of a policy happens only in a small minority of instances, on special request of a client and typically for a few specific reasons, i.e. :

  • when a risk policy was replaced and the client wants to ensure that he or she enjoys continuous cover (a specific inception date will be requested on the application form and no permission will be given for us to change this date); or
  • the client’s birthday is in the application month and he or she wants to lock in the cheaper rate which is linked to being a year younger, even it if means paying an extra premium.

Inception dates are backdated on only about 5% of all risk policies for these specific reasons.

The vast majority of our risk policies, however, are issued with the inception date falling after the date of acceptance and then actually at our expense, as Sanlam contractually provides ‘free cover’ from the date of acceptance to the inception date, the 1st of the next month – before any premiums were paid.

On a technical level, to answer the questions in this regard: Sanlam does not account separately for the minority of backdated policies. All premiums go into the risk pool, and given the fact that Sanlam offers free cover on all future dated policies, Sanlam does not make any profit from flexible inception dates – it actually cost the company money in aggregate. Again, as explained above, back-dating is usually a specific request from the client, who is eager to do so for a specific reason.

From an investigation into Mr V’s case it seems as if the New Business department honoured his request for a specific inception date of 1 July 2019, but inadvertently overlooked the fact that he also gave his permission on the application form to change the inception date, if deemed necessary.

He still had limited accidental cover (‘Immediate cover’ – which Sanlam also offers for free) while underwriting was in progress, up to the date of acceptance. He then enjoyed the full cover afterwards.

Our Client Relation department will, however, contact him directly to apologise and to ensure that we correct this error to his satisfaction.

BizNews visitor Mr V says Sanlam version is not true:

I absolutely did not request Sanlam to backdate my policy. In fact, when it was communicated to me that I will be paying the premium from the beginning of the month as they have backdated my cover I was furious and the answer that I was given by the broker was that “it is different than short term insurance”. Wonder how many of these “special requests” do they authorise?

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