Heads they win

14 July 2011


Does JSE listed insurance giant Santam hold a stake in Censeo, a small, recently-formed company retained to conduct “merit assessments” on suspicious claims? And is there an incentive arrangement whereby Censeo and Santam both profit if these claims are reduced or rejected?

These sensitive questions are posed by Stuart Woodhead, a former loss adjuster who now works for Commercial Claim Services, a company assisting the insured with claims against insurance companies. A gamekeeper-turned-poacher, one might say.

Last September there was a fire at the factory of Multi Plastics Recycling CC, a small business in Springs run by Anton Rothman. A claim totalling R4.7 million was lodged with Santam, holder of 22% of South Africa's shortterm insurance market. Because this was clearly a case of arson, the file was passed to the company's Complex Claims Unit. Which in turn passed the matter for investigation to the Pretoria-based claims assessment and verification company Censeo.

Censeo investigators suspected Anton Rothman of starting the fire. Rothman in turn claimed that a cheque book containing signed cash cheques had been stolen from his office and the fire had been started by the thief to cover up the theft. Cash cheques to the value of R65,000 had been cashed, said Rothman.

Noseweek does not attempt to go into the various and conflicting claims about who lit the fatal match. This is about Santam's slow-to-admit-to relationship with Censeo — and the startling claims and tactics of Stuart Woodhead.

On February 4 this year, five months after the fire, Woodhead wrote to Santam's attorney at Deneys Reitz, Tony Hardie. “Notwithstanding every attempt by Censeo to come up with information that will allow Santam to reject this claim, they have failed, after about five months of messing around, to find a single scrap of evidence implicating Anton Rothman in the arson at his factory. To say that Anton would have benefited financially by this fire borders on the ridiculous and is the only way Censeo can hope that Santam will reject the claim in order that Censeo can justify their actions plus their fee.”

Woodhead adds: “Every week I am told that by the end of this week the matter will be resolved one way or the other... Little wonder short-term insurance has such a bad name.”

To put piessure on Santam for settlement, Woodhead then makes a threat of public censure: “If I can get the insured to allow me to do an article about this whole debacle, I will see to it that the general public are made aware of Censeo and Santam's actions by referring the matter to Noseweek," he wrote. "This I told you was not a threat, but a promise.”

Santam finally accepted liability for the claim in May this year when it settled for R2.2m.

But Woodhead's suspicions regarding Censeo had intensified. On May 9 he emailed Santam's Complex Claims Unit senior executive Louis LaCock: “Please advise, does Santam have a financial interest in Censeo? Also, are the investigators at Censeo working on a commission basis for either ensuring that the claim is rejected or reduced in value?”

He added: “I can agree that any claim merits investigation, but such investigation must be undertaken expeditiously and must be based on sound facts. Not a lot of nonsense, supposition and circumstantial evidence that never had a chance of being accepted in a court of law.”

Censeo told me at the outset that they intended recommending strongly to Santam that the claim be repudiated, even though they did not have a scrap of factual evidence against the insured.

“Not only is Anton Rothman told that he burnt down his own business, but it then takes some eight months before his insurer finally concedes that there is no evidence to prove his involvement.”

That email was copied to LaCock's colleague in Complex Claims, Brian Lambourne, and to Tony Hardie of Deneys Reitz. None of them replied to Woodhead's questions about Santam's relationship with Censeo — which only increased his curiosity.

A week later Woodhead sent another email to LaCock and Lambourne. He thanks them for settling the building, stock, plant and motor vehicle claims but points out that R369,177 is still due to the insured, as ICW (Increased Costs of Working).

“By the way,” wrote Woodhead, “You have not reverted regarding Santam's possible ownership of Censeo, nor whether Censeo are paid a commission by Santam to reject or reduce claims.” Again, no reply to these questions. )

Noseweek, not knowingly is then mentioned as a direct publicity threat. On May 26 Michael Gaines, Woodhead's Durban-based partner in Commercial Claim Services, informs Theuns Kotze, head of specialist claims services at Santam, “You have seen fit to dismiss our open-handed approach, and whether this is just corporate arrogance or a lack of integrity, you have left us with no choice but to engage you publicly. We are today being interviewed by Noseweek and will be discussing all the issues that we raised with you in two recent claims, both of which you have simply dismissed out of hand. Perhaps once you realise that we are serious in our efforts to engage you in a proper format, we can revisit the situation.”

Noseweek had indeed that day met the abrasive Stuart Woodhead in Johannesburg. Woodhead offered us his Multi Plastics Recycling file, made some remarks about Noseweek's woeful ignorance of insurance matters, and announced that he naturally would require to see any story before publication.

Not so fast!

Mulling through the correspondence in the file, we felt uncomfortable that Woodhead had used the threat of exposure in Noseweek — which many would construe as blackmail — in an attempt to extract a financial settlement from Santam. The Editor considered spiking the story. Four days after the meeting, Woodhead emailed: “I know that you told me you would not let me have a preview of the article... but I still feel that before you go into print I should have a look at it merely to confirm that there are no glaring errors.” On the same day, his colleague at Commercial Claim Services, Michael Gaines, emailed Santam's Theuns Kotze: “Unfortunately it is now too late to stop the publication and we have made available to Noseweek all our correspondence and needless to say have expressed our view as clearly as we can.”

It takes eight months before the insurer concedes that there is no evidence

“We are also concerned about the manner in which you are investigating claims that you ‘feel’ need closer scrutiny,” wrote Gaines. “It seems that you have taken a commercial interest in a private investigating firm, Censeo, staffed primarily by ex-policemen, and there is concern that you are in fact paying them a bonus for every claim which they successfully repudiate.”

Regarding the Multi Plastics claim, Gaines wrote: “It is not that the merits did not lend themselves to investigation, it is the jackboot manner in which these investigations were carried out that is of concern.., an insured is a commercial customer of yours rather than a potential criminal that needs to be subjected to incompetent police-type investigation.

Perhaps it may be appropriate for me to make an anonymous call to your managing director's wife and make all sorts of unfounded allegations and encourage her to engage Censeo to prepare a docket of innuendo and unsubstantiated rumours designed to condemn your managing director. Hopefully, once you have seen the Noseweek publication, you will realise that we take our role seriously and this may encourage you to consider our submissions more objectively.”

What of Woodhead and Gaines's claims about a surreptitious mutuallybeneficial link between Santam (51% jump in headline earnings to R1.5 billion last year) and Censeo?

Censeo (Pty) Ltd began business on June 8 last year, operating from offices at Corporate Park, Irene, Pretoria. Noseweek called Johan Nel, its executive who ran the Multi Plastics investigation, hoping to learn more.

Is Censeo an independent company?

“Sir, with all due respect, I know exactly which case you're talking about and there is an attorney firm appointed to handle these matters,” dodges Nel. “To be honest with you, I wasn't the assessor appointed on the claim, not at all. I was just overseeing reports and stuff and just basically did a simple clarification of the incident. Nothing else. Nothing more.”

Santam's chief financial director Machiel Reyneke is initially equally evasive.

What is Censeo's status? Is it an independent company?

“It's a legal entity and it's got different shareholders and we've got an outsourcing arrangement with them to assist us in what we call a merit claim assessment," replies Reyneke. "That's the status. Why the question?”

Noseweek: “I understand Santam has noseweek July 2011 an interest in Censeo.”

Reyneke (after a pause): “We've got a minority shareholding.”

Noseweek: “I think it's described as an indirect interest. What does that mean?” Reyneke (agitated): “Who described it as indirect?”

Noseweek: “Your 2010 annual report.” Indeed, tucked away in small print on page 158 of Santam's latest annual report for 2010, in Notes to the Consolidated Financial Statements, there's an analysis of investments in subsidiary and associated companies. Under the latter, with a heading “Indirect”, eight Ptys are listed. Number 2 on the list is Censeo (Pty) Ltd. Proportion held by company: 37.5%. A note states that Censeo owes Santam R2m.

Noseweek repeats the question: Can Reyneke explain what a 37.5% indirect interest means?

Reyneke is surprised that Santam's executives didn't reply to Woodhead

The chief financial officer has clearly decided to come clean. “What it means is that Santam has a wholly-owned subsidiary which is used as an intermediate holding company,” he says.

What is that subsidiary called? “It's called Swanvest 120. We hold a lot of our investments in that company. There's nothing sinister. I think in accounting terms, that (indirect) is the correct way of describing it.”

Reyneke, who sits on the Censeo board of directors (he represents Santam on the boards of all group and associated companies) says he's surprised that Santam's executives did not reply to Stuart Woodhead's questions about Censeo's ownership and those alleged incentive payments to scupper claims.

“We hold an interest in Censeo as a shareholder and we've got a service level agreement in place, a contract of arrangement between Santam and Censeo, whereby Censeo does merit assessments for Santam,” Reyneke explains. “So there's a formal contractual arrangement in place and there is a remuneration structure in place.”

“There are very strict quality controls, processes and procedures in place to ensure that the service level agreement is followed.” If Censeo investigates a suspicious claim, makes a recommendation and the claim is repudiated, would they benefit financially? “The structure as I know it is there's a fixed fee per merit assessment,” replies Reyneke. “I can check on that.” It looked as though Stuart Woodhead had got it wrong. Yes, Santam does have a (37.5% ) investment in Censeo which they clearly don't like to advertise. But there's a fixed-fee system in place, no additional incentives for outwitting fraudulent claims. No funny business. Two days later, however, Santam's financial chief Machiel Reyneke is back on the line. Censeo, he explains, “do the bulk of our so-called merit assessment work. Those are the claims where it's not a simple case of paying when a claim is lodged. In a case like this (Multi Plastics) for example, there was alleged arson. So then you need to do a bit more investigation.”

And incentives?

I said it was a fixed-fee basis. There's a detailed service level agreement whereby, when these investigations are done by our outsource partner, if the recommendation is that we should repudiate, then there's a forum where that's discussed. At that forum, Santam decides whether we repudiate or not.

“In terms of remuneration, I have confirmed that it's mainly a fixed fee. But there is a variable component. The variable component is volume- and performance-based. I can confirm to you categorically that the investigators at Censeo are not working on a commission basis.” He's obfuscating. But what does volume and performance basis mean?

“Censeo's total fee is predominantly fixed,” replies Reyneke. “Then there is a variable component, which is both volume and performance based." Good griefl To repeat: "What do you mean, performance based?”

We finally get it.

“There is a level of compensation to the extent that claims where we would have been defrauded, for example, where they have shown up that the policy-holder claimed where he should not have claimed.”

There you have it. After all this ducking and diving, Santam admits what it's already tucked away deep in its annual report — a 37.5% indirect investment in Censeo. And, when it comes to remuneration, if the Censeo investigators can muster evidence of a fraudulent claim, there's extra “compensation” paid for “performance”.

Noseweek asked Barry Scott, chief executive of the South African Insurance Association, whether all this is ethical and above-board. Scott dodges the question and passes it to Viviene Pearson, SAIA's projects general manager.

Pearson gives the usual meaningless waffle: “Should a policy holder have reason to question the decision regarding the non-payment of a claim by an insurer, the policy holder have (sic) many avenues of recourse...” (blah blah, bullshit, bullshit).

Stuart Woodhead was right all along. And, as it transpires, it was a great idea to bring the story to Noseweek. If you want the truth, that's where you'll find it.