Member Article

In a decision given on the 8th of August 2024 with respect to the case ASF 013/2024, the Arbiter for Financial Services (hereinafter referred to as the ‘Arbiter’) rejected a complaint filed against a Life Insurance Provider regarding a life insurance policy with an investment element which the complainant had purchased from the Life Insurance Provider in the year 2000.

The complainant claimed that the said policy had matured to a significantly lower amount than what he alleged was initially promised upon its purchase. More specifically, the complainant asserted that he bought the life insurance policy as he believed that its maturity value would be more than Lm10,000 (€25,000) yet at maturity, the Life Insurance Provider had offered the sum of €16,053.85. The complainant argued that this amount did not correspond to any one of the estimated maturity values provided in the quotations given by the Life Insurance Provider. Consequently, he requested that the Arbiter orders the Life Insurance Provider to pay him the sum of €23,000, arguing that this was the sum he expected to receive after making an investment of €12,671.80 over 20 years.

The Life Insurance Provider argued that the complainant’s request for the sum of €23,000 was based on two quotations which provided different estimated maturity values calculated using the bonus rates declared by the Life Insurance Provider at the time of the policy’s purchase. These quotations outlined three potential estimated maturity scenarios by providing three estimated maturity values, each including a reversionary bonus, calculated at three different rates, namely 3%, 5% and 7%. Additionally, the complainant was also given Important Notes (hereinafter referred to as the ‘Notes’), together with the quotation, wherein it was explained that whilst the revisionary bonuses were guaranteed once declared, the Life Insurance Provider was not obliged to declare the said bonuses every year, but it was in its discretion to do so. Such rates were dependent on the profits of the fund comprised of the investment premium of this life insurance policy and that of other policies of the same nature and the Notes explained that the policy included an investment element. The quotation also provided three further estimated maturity values which incorporated a terminal bonus of 2%, such that the estimated reversionary and estimated terminal bonuses collectively amounted to Lm8,276 or Lm10,383 or Lm13,116.

The Life Insurance Provider argued that by including different rates, namely 3% or 5% or 7%, meant that it anticipated that the rate could vary and that the fact the quotation included three “Projected Maturity Values” based on three future rates meant that these were clearly indicative that these were not guaranteed amounts. The quotation also included practical examples showing that the average reversionary bonuses had decreased along the years, and other disclaimers which specifically indicated that the rate could vary. Additionally, the quotation also stated that the terminal bonus rates are likely to be highly volatile and very dependent on the Life Insurance Provider’s performance investment performance.

In light of the above, the Life Insurance Provider argued that it had acted in good faith and met all its contractual obligations since the estimated maturity values provided in the quotation were not guaranteed but rather were intended to provide an indication of the policy’s performance which remained subject to change in the future. The Life Insurance Provider argued that the difference between the estimated maturity values provided in the quotation and the actual maturity value reflected the shift in performance of the investment markets during the term of the Policy, and therefore such difference is not attributable to any fault of the Life Insurance Provider.

The Arbiter noted that both the documents presented, and the witnesses’ statements made it clear that there was no guarantee that when the policy matured, it would have a value of Lm10,000. The Arbiter emphasised that the fact that the quotation included three different estimated maturity values based on different rates was more than indicative that these figures were merely intended as estimates rather than guarantees.

The Arbiter also considered that the overall performance of the policy was satisfactory given all circumstances and also considering that the capital invested as well as the declared profit were substantially guaranteed, in addition to the insurance cover over the complainant’s life applicable from the first day of the policy.

The Arbiter determined that since the quotation was based on three different estimated maturity scenarios then the complainant should have not expected that he would necessarily receive the highest estimate. Rather, the Arbiter reasoned that the inclusion of a number of different estimates indicated that none of them were guaranteed, not even the lowest estimate.

In view of these considerations, the Arbiter felt that the complaint was neither equitable nor reasonable and, thus, it was not upheld.

The Life Insurance Provider was represented by Dr Jeanine Mallia Schembri.

This document does not purport to give legal, financial or tax advice. Should you require further information or legal assistance, please do not hesitate to contact Dr Veronica Grixti and Dr Jeanine Mallia Schembri.

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