In 2005 a series of rulings against life insurance companies by Pension Fund adjudicator Vuyani Ngalwana in favour of aggrieved members of retirement annuity (RA) funds threatened to do irreparable harm to the industry.
At the heart of the confrontation were allegations that charges levied by insurers when RA fund members stopped paying or reduced premium payments were unjustly high.
The industry faced two choices. It could stand its ground, which it was legally entitled to do in terms of policy contracts with customers.
However, this was an option that would have involved lengthy and image-damaging court hearings.
The second choice was the path of reconciliation and the one the industry wisely chose to follow.
In a landmark meeting in December 2005, finance minister Trevor Manuel and the industry, represented by the Life Offices' Association (LOA) signed a statement of intent, a document that has radically altered the face of the industry.
WHAT IT MEANS
 Radical change to the face of the industry
R3bn fund to enhance policies affected
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In the statement of intent the industry set out to redress grievances and limit the reduction of values of RAs and endowment policies as well as some preservation and provident fund policies when policyholders make contractual changes.
The agreement also extends to certain whole life policies.
The essence of the statement of intent is that as from December 1 2006 minimum values now apply when policyholders make contractual changes.
For instance, the value of an RA fund policy where the premiums of the policy are reduced will never be less than 70% of the fund value before the premium reduction.
Similarly, people who surrender endowments will receive at least 60% of the fund value before surrender.
As part of the statement of intent the life insurance companies also set aside about R3bn to enhance the values of RA fund policies, endowment policies and some preservation and provident fund policies that had been subject to contractual changes between January 1 2001 and December 1 2006.
The enhancements are funded exclusively by shareholders and will not in any way affect existing policyholders.
The statement of intent represents a radical change in approach and one in which the South African industry is at the forefront worldwide, says LOA chair Lizé Lambrechts.
Moves in the same direction are now only starting to be seen in Europe, she adds.
Change was inevitable, says LOA CEO Gerhard Joubert.
In the past, early termination of or amendments to RA fund or endowment contributions were not common; now they are. This, he says, has in many instances been brought about by socio-economic change that has led to job security diminishing and a greater number of self-employed with incomes subject to fluctuations.
"In some instances early termination charges were harsh on people such as these," adds Lambrechts.
Insurers have been quick to take the initiative, launching products embracing the statement of intent's spirit of transparency.
"We have given people what they want," says Joubert. But it is also of key importance that people understand that staying with an RA or policy they select is the best route to follow in the long-run. "Switching still costs money," he stresses.
But implementing the statement of intent is not without its challenges.
"It is placing pressure on margins," concedes Lambrechts.
Part of the answer lies in cutting costs and improving the quality and volume of new business, says Jannie Venter, Metropolitan Life's chief product development actuary.
In combination with its newfound transparency, Venter believes the industry is positioned to regain market share lost to competitors, especially unit trusts.
