DEAR READER -

MOST readers and I continue to have a good laugh every time we re-read the exchange, transcribed by Mr Nose in our last issue, between forensic investigator Dr David Klatzow and Lerato Mametse, the spokesperson for the Life Offices Association. Ms Mametse defends the indefensible with such dauntless ingenuity, wit and patience that you have to laugh.

The life insurance industry has long been notorious for its shady marketing techniques – and has been the butt of many jokes on that account. But the consequences of those shady marketing ploys, for their pensioner customers (and more particularly their widows and orphans) are no joke at all. Further enriching the rich (as epitomised by the insurance companies’ own spectacularly wealthy executives) at the expense of gullible but well-intentioned clients and their widows and orphans, must surely represent one of the uglier faces of Capitalism.

This has become so obvious of late that even the mainstream media have been driven – reluctantly, because insurers are big advertisers – to give the issue some critical attention. Not unexpectedly, the industry has not welcomed that attention.

In this issue Mr Nose presents us with another riveting transcript, this time of Dr Klatzow’s sometimes heated discussion with Francois Marais, actuary, head of Sanlam’s New Products division, and co-ordinator of the LOA’s committees.

The LOA has recently aggressively advertised its introduction of a new code of conduct for policy quotations, which stipulates that projections of annual investment returns used in marketing insurance “products” must be based on a “low” inflation rate of 4% and a “high” inflation rate of 10%. All very worthy, since previously the industry had used a “high” rate of 15% which, they now acknowledge, caused clients to have “unrealistic expectations”.

The current controversy surrounds a confidential email Mr Marais sent to colleagues on an LOA committee in which he proposed that the industry should “quietly” at the end of the year “up” the “high” rate again to 12%. With, presumably, much the same effect that the previous high rate had on clients.

Mr Marais dismisses the controversy as “scandal-mongering” by the media. He wants us to believe his use of the word “quietly” was innocent, since, he says, the change he proposed was “technical” and “of little consequence” – and therefore “not worth a song-and-dance”.

Bruce Cameron doesn’t believe him. Nor does Alec Hogg. David Klatzow finds it hard to believe him. So do we.

Currently inflation is running at about 3.5%. It hasn’t been above 5% for years. It would seem that the industry is already pushing its luck using a “high” projected earnings rate of 10%. Why, then, the wish to raise it to 11% or 12% – if not for reasons that you would rather keep quiet about?

Mr Marais has himself demonstrated how the system works in an article entitled The New Code on Policy Quotations, published in the August edition of Cover, a magazine for the insurance industry.

The problem, claims Marais in his article, is that the projections of policies sold in the late 80s and through the 90s were based on high inflation rates: in that period they averaged 15%. As inflation came down in the mid 90s, investment returns also came down. “The industry did not emphasise enough that high bonus rates in the 80s and 90s were largely the result of high inflation” (and not of the investment skills of the insurance companies).

“The [previously used] high nominal projected rates ... were wrongly understood to be a realistic expectation of the future,” he claims in the article.

But how else were clients supposed to see the projections so elaborately illustrated in the sales brochures?

However, “to avoid a repetition of past mistakes,” says Marais in Cover, “it is very important to stress the point that [the rate in] the new code on policy quotations is only a planning tool and is not intended to provide accurate projections of expected future values.”

Now, how, we ask, is a client to use the projection as a planning tool if it doesn’t provide a fair indication of future values? Surely this is more of the sophistry the assurance industry uses to cover its tracks?

Sorry, Mr Marais, maybe you’ve been in the industry too long to notice. You’ve simply added a new dimension to that old dictum about the road to Hell being paved with good intentions: the optimistic projections that the life insurance industry continues to use to seduce its clients, continue to ensure that far too many pensioners find themselves in hellish circumstances.

Oilgate

WE RARELY have the occasion – or the inclination? – to compliment colleagues on other publications. But the spectacular – and, ultimately, brave – Oilgate exposé by our friends at the Mail & Guardian has to be such an occasion. Congratulations!

And there’s much more to the story yet; issues that are life-threatening to our democracy. Watch this space.
The Editor