CR159 Penalties – duty to inform policyholder of punitive deductions when making a loan against a policy
Penalties – duty to inform policyholder of punitive deductions when making a loan against a policy – policyholder to be afforded a reasonable opportunity to make an informed decision about penalties charged.
On the 1st of January 2000, after his policy matured, the complainant re-invested a lump sum in the amount of R198 095-00 with the insurer. The policy document made provision for interest free loans against the investment. In the event of such a loan the insurer reserved the right to impose a charge or a penalty in respect of market conditions applicable. The terms of the policy provided that the first maturity option date was on the fifth anniversary date and every second anniversary date thereafter.
On the 7th of June 2004 the complainant took an interest free loan of R200 000-00 against the investment. It was only upon withdrawing the investment at the first maturity option date that the complainant was advised of a so-called market value adjuster (MVA)/penalty fee that had been levied against the policy at the time of the loan, which significantly reduced the maturity value.
Upon query it transpired that the insurer initially charged the complainant an MVA/penalty fee in respect of the interest free loan in the amount of
R30 459-21. A few days later the insurer discovered a miscalculation on its part and reduced the penalty fee to R25 000-00. The insurer ascribed this fee to a market value adjuster deducted from the fund value at the loan date.
The complainant contended that this penalty was excessive and unreasonable. He argued that he had withdrawn the funds from his own re-invested funds and thus had in fact not borrowed the money from the insurer.
In assessing the merits of the dispute we ut the following to the insurer:
1. It appeared the complaint had not been informed on application for the loan that the penalty fee would be an amount of R25 000-00.
2. Therefore he was not afforded a reasonable opportunity to reflect on this and make an informed decision.
3. In signing an application form without the full details of the punitive deduction the complainant would not expect such a high penalty fee.
4. It would be fair to advise the policyholder of the amount of the MVA/ penalty fee at the time of applying for the loan.
5. The above points would constitute normal practice.
We further asked the insurer to expound on the conditions which influenced the decision to impose the particular amount in penalty.
In response the insurer did not directly address the points raised but offered to halve the penalty fee. The complainant rejected this offer. A later offer to charge the complainant R5 000-00 and return R20 000-00 was acceptable to the complainant and the matter was settled on that basis.