The life industry is starting to demonstrate that it need not remain the unfeeling, arrogant behemoth that it has become over the years, treating policyholders like third-rate citizens, whose pockets are available to be picked remorselessly.
In the face of growing policyholder discontent, the industry has started bringing new and better - but still nowhere near perfect - products to the market.
The biggest step forward so far is Old Mutual's announcement this week that it will repay, in the form of enhanced retirement annuity (RA) maturity values, some of the penalties it whacked off the retirement savings of many people who were unable to maintain their premium payments.
Hopefully, other life companies will follow suit and also pay back money to members of their RA funds.
For some time, I have been a firm critic of Old Mutual, because of the many complaints Personal Finance has received from Old Mutual policyholders and because of my own experiences in dealing with the company.
However, in recent months, following meetings with senior people at Old Mutual, I have detected an acceptance that many of the practices historically adopted by life assurance companies are no longer acceptable and that changes must be made.
Old Mutual's latest move demonstrates that these intentions to do better are genuine.
I have also been a long-time critic of the surrender penalties that life assurers levy on policies with an investment component, particularly as the penalties do very little to stop the massive churning of policies. The main reason for the unacceptably high level of churning is the practice, in the case of most policies, of paying commissions upfront and basing them on the premiums that you could be paying 25 years from now.
So every few years, some unscrupulous financial advisers encourage you to take out a new policy and cancel the existing one. The result is that the life assurer penalises you, by confiscating your accumulated savings, for not sticking to the premium contract on the existing policy while, at the same time, you incur a whole new set of costs on the new policy. The life assurance company records the churn as new business, and both the life company and the adviser laugh all the way to the bank at your expense.
However, there are cases where it is in your interests to switch policies. But these cases normally involve
getting cheaper risk cover for death and disability.
No one can predict what will happen in the future, least of all a financial services company. It is therefore ridiculous to tie you into long-term contracts and then penalise you because, as a result of losing your job or some other event, you can no longer afford to pay the premiums.
While Old Mutual's latest move, albeit still very fuzzy on details, to pay back some of the penalties it has levied on existing policies is laudable, it does not deal with the underlying problem: the upfront commissions.
I am told that the Life Offices' Association (LOA), which represents most life assurance companies in South Africa, is working at moving to system where commissions will be paid only as and when you pay a premium, as is the case with unit trust funds.
However, it seems that not all the life companies are prepared to adopt such a system voluntarily. Some companies are hoping to make a quick buck by maintaining the upfront system as a sop to bad advisers.
My view is that the Financial Services Board (FSB) should simply regulate a new pay-as-you-go system in consultation with the LOA and other interested parties.
It is also wonderful to see the FSB taking a more active role to protect your interests by investigating these confiscatory penalties.
The penalties seem to have been arbitrary and, even worse, to have been used to make profits, as Sanlam confessed (I think unintentionally) in its prospectus when it became a listed company a few years ago.
In the meantime, you should refuse to accept an investment product where upfront commissions are paid on recurring premiums. There are life assurance investment products that allow for as-and-when commissions. Old Mutual was first to offer this option when it launched its Max range last year.
Unfortunately, when it comes to risk assurance against death and disability, the life industry seems to be standing firm on recurring premiums, knowing that it owns the market on risk products. Here the FSB must intervene to force the life companies to at least offer products that give you an alternate option on how commissions will be paid.