The FAIS Ombud will ask the FSCA to investigate whether a broker, her supervisor and the key individuals of AIK Brokers are fit and proper to act as FSPs after her office found that the broker knowingly provided an insurer with false information when a vehicle policy was taken out.
Advocate Nonku Tshombe also ordered AIK to pay the complainants R52 100, plus interest of 7% a year, from the date of the determination to the date on which final payment was made.
The complainants, a mother and daughter (who paid the premiums), took out a comprehensive insurance policy with Momentum on a BMW in December 2017.
They told the FAIS Ombud that they had instructed the broker to apply for an open driver policy and had not instructed her to add the mother as the regular driver.
The vehicle was involved in a collision in February 2018 while it was being driven by a friend of the family.
When Momentum investigated the claim, it discovered that the mother was not licensed to drive and that she did not know how to drive. It concluded that if it had been provided with the correct information during the underwriting process, it would not have accepted the application for cover.
The insurer rejected the claim on the basis of material misrepresentation. It also voided the policy and refunded the complainants the premiums it had collected from inception.
The Ombudsman for Short-term Insurance upheld Momentum’s decision.
The complainants told the ombud they had been charged R11 000 for towing and storage after the accident. The vehicle had been sold for R3 000, and the daughter said she could not afford to pay the outstanding R8 000.
Change the information, lower the premium
According to the FAIS Ombud’s determination, the broker, during her communications with Momentum’s sales representative, knowingly provided false information in order to reduce the initially quoted premium.
During these interactions, the broker told the representative that:
- The first complainant’s son had an EB licence, whereas his licence – a copy of which was in her possession – showed he had a C1 licence; and
- His licence had been issued when he was 20, whereas it had been issued when he was 22. The son was 24 when the policy was taken out, therefore implying that he had been licensed for four years.
As a result of these changes, the premium was reduced from R1 784 to R1 621.
After enquiring about the impact on the premium if the mother was the regular driver, the broker informed the sales representative that the mother, not her son, drove the vehicle more often.
Tshombe found that despite the sales representative’s “distinct warning to steer clear of providing incorrect information to the insurer, because the insurer will diligently investigate whether any information provided to it during the quotation or underwriting stage was correct, the broker remained resolute and insisted that the first complainant be recorded as the regular driver”.
As a result of making the mother the regular driver, the premium was reduced to R672.90.
‘Broker was dishonest’
In her determination, Tshombe states: “The broker was not honest when rendering the financial service. She wilfully supplied information that was not true and pretended that the information had been received from and/or verified by the first and/or the second complainant. The broker also did not treat the complainants fairly.
“She did not inform the complainants that she had unilaterally asked that the first complainant be recorded as the regular driver when the ‘client mandate and advice record’, as well as the information first offered by the broker when she was asked by the insurer during the quotation call who the regular driver of the vehicle would be, point to the fact that [the son] was to be recorded as the regular driver.
“The complainants were requested to submit a copy of [the son’s] driver’s licence, which they did and were seemingly under the impression, or reasonably should have been aware, that the respondent would rely on this information to source the requisite cover.”
The sales representative had been careful to explain the consequences at claims stage of providing false information. But, based on the “client mandate and advice record”, it did not appear that these consequences were relayed to the first complainant, despite the broker’s obligation to do so in terms of section 7(d)(i) and (iii) of the General Code of Conduct, the ombud found.
Who is liable for the loss?
AIK said despite the finding that it breached the General Code, this did not automatically make it liable for the complainants’ loss. It held that the claim would have been rejected in any event, once Momentum discovered that the family friend, not the son, was the regular driver. AIK maintained it was the complainants who had misrepresented who the regular driver was.
The ombud’s office asked Momentum how the claim would have been settled if the application for cover had been approved with the son as the regular driver.
Based on Momentum’s response, Tshombe said it was “more than likely than not” that the insurer would have accepted the claim even if the vehicle had been driven by the family friend at the time of accident.
As such, the ombud was satisfied that, based on the facts, AIK was the legal cause of the complainants’ loss.
Tshombe said the conduct on which the finding of liability has been made was such that it “raises questions about the character of the representatives implicated in the decision”: the broker, her supervisor and the key individuals.
“I am of the view that their conduct warrants an investigation [by the FSCA] to determine whether they remain fit and proper to act as FSPs.”