CR311 Investment performance – Limitations of insurer’s responsibility
Investment performance CR311
Limitations of insurer’s responsibility
In 2000 Ms F took out two endowment policies which included investments in an offshore equity fund, and which matured in 2010. The total amount of premiums she had paid in amounted to R54 967 and the combined maturity values of the two polices totaled R40 947. She submitted a complaint to the office, expressing her unhappiness about the poor performance of the investments. She also stated that the maturity values had not met her expectations based on the illustrative values provided at the inception of the polices. She complained that the insurer should have intervened by hedging against the downward spiral of the investments, or should have contacted her to suggest alternative portfolios.
The insurer explained that the reason for the inadequate returns was the poor performance of the offshore markets over the term of the polices, and added that it had sent the complainant annual benefit statements reflecting the values. It contended that it had been up to her to monitor the performance of the market and to request any switch to the investment portfolios if she wished.
In determining that Ms F’s claim could not be upheld, the office highlighted the following:
1. The off-shore equity markets in which Ms F had been invested were volatile and performed poorly over the particular period of investment; there was negative growth over five of the 10 year period;
2. The ASISA Code of Conduct provided that illustrative values, created in quotations, must be reasonable given the economic environment and the policy charging structure, and that they were mere guidelines, were not guaranteed, and did not form part of the contract;
3. The insurer cannot act as the insured’s financial advisor and it cannot be expected from it to intervene and monitor each investment, suggest alternatives and then to carry the burden of losses that may result;
4. It is the duty of the insurer to dispatch appropriate communication to the policyholder and to pay the benefit in terms of the policy contract, whereas it is the responsibility of the insured to seek financial advice and to switch the portfolios when he/she chooses to do so;
5. The investment managers of a particular portfolio have the duty to make investment decisions within the confines of their mandate, which in this case would have been to invest in off-shore equities and to secure growth in the long-term. In this matter it could not be said that they had acted negligently.
6. Policy charges were set out in the contractual documents and also had an impact on the final amount paid out;
7. A complaint cannot be upheld merely because an investment in a policy turned out less successful than originally hoped.
8. In this case, to appease the complainant, the insurer was requested to provide an actuarial certificate to certify the correctness of the calculation of the benefit, which it did.