risk • A ccording to Momentum, a client contracted rheumatoid arthritis, which would lead to permanent disability, but the progression of the illness could be slowed down by a biological drug called TNF blockers. If slowed, the person could still add a number of productive years to their working life. However, the cost of the drug is about R100 000 a year. • Cancer treatment, although covered in full by most medical aids if the client agrees to be monitored by their wellness programmes, could be as much as R1.2 million. Of course, it does not cover any unpaid leave days the client needs to take for the treatment itself or for recovery. In all of the above, as well as similar examples, the choice very often is between having the money to pay for the illness and death, or at least financial ruin. I would argue that if the reason for the severe illness cover is to supplement a client’s medical aid, the appropriate level of cover is probably determined by how much cover is affordable.
The complexity of product and financial planners’ responsibility to due care Notwithstanding the appropriateness of severe illness cover for a specific client or the appropriate level of cover, another issue affecting financial planners is the complexity of the current products being marketed and the level of responsibility in terms of due care in advising clients it requires of planners. Not only are financial planners, in terms of the FAIS Act, required to know the products they are advising their clients on, but recent determinations and other decisions by the ombud clearly states that a planner is expected to have done a due diligence on the product and product provider.
Although most product providers are paying millions for severe illness claims every year, a worrying statistic is the percentage of claims that is declined, mostly due to ‘severe illness event did not meet definition in contract’. A reason for this might be the complexity of the products or at least the definitions of severe illness events. Most product providers define their severe illness events (especially when based on a severity level pay out) as per the American Medical Association’s definitions of conditions. While it might limit the ambiguity of when they will pay or not, it may require financial planners to act as semi-professional medical experts to be able to explain it in detail to clients.
Most product providers in the last number of years have been paying out more benefits as a result of severe illness claims than disability which confirms that the nature of the risks that could affect clients financially has changed. Medical technologies are also increasingly helping us to recover from conditions that were previously death sentences – but at a price. And it is this price that confirms that severe illness benefits are not an enrichment benefit. We as planners help to mitigate our client’s risk of financial ruin in the case of having their car or household items stolen or damaged. Do we not have an even bigger responsibility to ensure that our clients’ risk of having to make a life or death decision, or a financial healthy or bankrupt one, is mitigated to the smallest degree?
“Medical technologies are also increasingly helping us to recover from conditions that were previously death sentences – but at a price.” In order to reduce the complexity of severe illness benefit cover, the Association for Savings and Investment SA (ASISA) in 2009 developed a disclosure grid – SCIDEP – for the four most common illnesses (heart attack, cancer, stroke and coronary artery bypass grafts) where each product provider must disclose, according to a standardised definition of the illness, what percentage they will pay of the benefit for each of four levels of severity. Although this has simplified the life of the financial planner and reduced the liability to disclose to their clients how much they are covered for the different major illnesses, the responsibility with regard to full disclosure of all the other ‘minor’ illnesses is still there. In addition to the complexity of definitions, the financial planner needs to be able to determine the appropriateness of choosing a core benefit versus a comprehensive one. What if by selecting the core benefit, although less expensive, leaves the client in financial stress because they suffer one of the 80 non-core illnesses? Although, according to product provider’s claims statistics, about 80% of all severe illness claims are either for heart/cardiovascular illnesses or cancer, the financial impact of the other 20% may not be any less severe.
The Financial Planner
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