Multisure Corporation in Gqeberha is the latest intermediary to take Stellenbosch-based insurance underwriter KGA Life to task – and High Court – after failing to move its book of funeral policy clients to a different underwriter.

A change in legislation covering funeral group schemes has resulted in different interpretations in the insurance industry, leading to delayed payments and some claimants – many of whom are Sassa beneficiaries – not receiving their claims payments on time while the dispute is adjudicated.

The new laws, in terms of which group schemes were no longer allowed in certain circumstances, were implemented in 2018.

Insurers were instructed by the Financial Services Conduct Authority (FSCA) to no longer receive new group scheme funeral policies from intermediaries who were not a fund, autonomous body or employer.

The instruction given to insurers was to convert all existing group scheme policies to individual policies by July 1, 2021, and no new group scheme policies were to be entered into after October 1, 2018, unless they fall into one of the above categories.

Apart from Multisure, KGA Life has been accused of bullying tactics to hold on to the business it receives from insurance intermediaries, including funeral parlours, which the company underwrites.

This apparently happens as soon as such intermediaries want to terminate their business with the company and move to another insurer.

According to Multisure, it had been forced to bring an application in the Port Elizabeth High Court to force KGA Life to “release” its book of business to another insurer, which has been normal practice in the insurance industry for years. Judgment is currently awaited.

Multisure Corporation CEO Denton Goodford has taken Stellenbosch-based insurance underwriter KGA Life to High Court after failing to move its book of funeral policy clients to a different underwriter. Photo: Supplied

Advocate Denton Goodford, Multisure CEO, said the dispute started when it gave KGA Life notice that it would be moving its book of business to a new underwriter, African Unity Life (AUL), in July 2021.

This included, he said, a considerable number of Sassa (SA Social Security Agency) clients who had been provided with funeral policies by Multisure under its group scheme, which was then in place with KGA Life.

“Initially KGA had no problem with our cancellation of the underwriting agreement with them,” said Goodford. “But, at the last minute, they made a complete turnaround and refused to cooperate, citing new legislation for not being able to do so.”

He added that KGA Life had failed to adhere to the new rules set by the FSCA since 2018 and simply continued treating Multisure’s business as a group scheme, which he only became aware of during 2021.

“They say they have no problem with us moving the book but that we have to get individual consent from each and every client that they agree to the move to African Unity Life.

“This is usually a requirement where policies entered into were individual policies, but not in the case of group scheme policies,” said Goodford.

“KGA, therefore, wants to now treat the book as individual policies but they themselves never converted the book from a group scheme to individual policies for the past three years,” he said, pointing out that they were required to do so in terms of Rule 2A of the Policy Holder Protection Rules of the Long-Term Insurance Act.

“Even worse, they kept on accepting new group scheme business from us after October 1, 2018, which was clearly against the law but convenient for them to do by just accepting more new business and the premiums for the past three years.

“Now, ironically, they want to use the very same rules, which they ignored, in their favour and demand that we obtain written consent from each client in order to move our underwriting to an alternative insurer.”

Goodford said that despite KGA Life withholding the premiums and commissions due to Multisure monthly, his company continued to pay out claims until they were advised by the FSCA to stop doing so.

“We simply could not let our clients be negatively affected by KGA Life’s actions,” he reiterated.

In a similar 2017 case, which was heard in the Cape Town High Court, four intermediary companies had to defend themselves against KGA Life, who tried to prevent them from terminating their underwriting agreement with the company.

KGA Life lost and had a punitive cost order awarded against it by the judge for the way it conducted its case and for withholding vital information from the court concerning the agreements entered into with intermediaries.

AUL’s head of legal, Johan Ferreira, said as the case was sub judice, he could not say too much, but was able to confirm several points.

“We have confirmed underwriting for all Multisure policies that were marketed and sold by them,” he said. “This was, however, placed on hold after the matter went to court.

“Having investigated the Multisure-KGA intermediary agreement before AUL could confirm underwriting, as part of our due diligence, we found, in our opinion, that the agreement gave Multisure full control to cancel underwriting in terms of a master policy agreement with KGA.

“They seem to be of a different opinion and the court will ultimately have to make the final decision on the validity of the cancellation.”

Multisure has accused KGA Life of withholding payments to itself during the dispute, which Ferreira said could cause irreparable harm.

“We don’t know this for a fact but, if it is the case, it will prejudice the policyholders to withhold valid claims while an insurance company is receiving the premiums. Multisure, as well as the beneficiaries, can be harmed irreparably in many ways by this conduct.”

He added that AUL had been involved in litigation with KGA Life before when it tried to block intermediaries from entering into agreements with new underwriters. One of these involved E & S Russell Funeral Directors.

“KGA lost that case, with a cost order against them, in an arbitration hearing where it was found that the intermediaries legally cancelled their relationships with KGA and had the full right to enter into new agreements,” he said.

Sean Russell, owner of E & S Russell Funeral Directors in Komani, said he and others experienced a similar problem with KGA Life when they wanted to move their underwriting in 2017.

In the end the matter went to arbitration in 2018 and Russell’s firm and another company won their cases.

“When we decided to leave, KGA took us to court, but my strong point was that my contract with them allowed me to leave,” he said.

“At some stage I grew unhappy with the premiums and commissions KGA was paying and, hearing of other opportunities, I started talking with AUL.

“KGA then said the policies belonged to them and that I could not move my book to AUL. But that was nonsense. I could prove that they were sold under my name and that they were merely the underwriters.

“They put in a 950-page affidavit against me and ultimately it went to arbitration and I won the case.”

Goodford said Multisure had registered a complaint with the FSCA to investigate KGA Life’s conduct, but that the status of the complaint was currently unknown.

In the current High Court matter, while not disputing that it did not act in terms of the new legislation, KGA Life CEO Clinton Macdonald insisted that the company still had an “underlying relationship with the policyholders”.

By doing so, said Goodford, KGA Life relied on an argument already rejected by retired Appeal Court judge FDJ Brand in the arbitration award.

“They should be investigated for the way in which they conduct their business as they clearly tend to look for any reason to hold onto business for as long as possible. They will even ignore or rely on legislation as and when it suits them to achieve their aim.

“Most entrepreneurs will not have the resources or knowledge to take them on to see to it that justice is done, and this should be a big concern to the authorities and companies who have placed their trust in KGA to underwrite their clients’ policies.”

In another development, Multisure has opened a criminal case against the management of KGA Life for paying it a bribe to keep its book of business with the company.

“We have the proof which they cannot dispute,” said Goodford. “When that did not work, they started to strong-arm us into not leaving.”

The South African Police Services’ investigation is currently ongoing and, if found to be the case, KGA Life could face several charges under the Prevention and Combating of Corrupt Activities Act, Insurance Act and Competition Act for which its directors and management would have to answer.

Attempts to get comment from the FSCA and KGA Life were unsuccessful.