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Nonku Tshombe V3

FAIS Ombud warns FSPs about four areas of non-compliance

The FAIS Ombud has warned that complaints about the rejection of homeowner’s insurance claims will be referred to the FSCA for investigation if she believes the disclosure at inception is wanting.

This was one of four “problem areas” red-flagged by Advocate Nonku Tshombe in her 2020/21 annual report.

Tshombe was referring to complaints where insurers rejected claims on the basis of wear and tear, gradual deterioration, lack of maintenance and/or defective workmanship.

She said the issue was not unique to the 2020/21 financial year, but “it now requires attention”.

The ombud said despite the prevalence of these complaints, either to her office – which refers them to the Ombudsman for Short-term Insurance (Osti) – or to the Osti, it does not seem that the way in which these policies are sold has changed or improved.

Consumers do not always know or understand the material terms and conditions in their policy documents.

She drew attention to Treating Customers Fairly (TCF) and the General Code of Conduct for FSPs:

  • TCF outcome three requires that customers are provided with clear information and kept appropriately informed before, during and after the point of sale.
  • Sections 7(1)(a) and 7(1)(c)(vii) of the General Code of Conduct states that customers must be provided with concise details of any special terms, exclusions or instances in which cover will not be provided.

When her office receives these complaints, it will interrogate the disclosures made when the financial service was rendered and how the financial service was rendered.

“Where it is noted that no effort is being made to improve the sales process in respect of these products, referrals shall be made to the FSCA for further investigation.”

Funeral policies where child dependants turn 21

Tshombe is also unhappy with FSPs not taking steps to mitigate the negative outcomes experienced by policyholders where child dependants who turn 21 no longer qualify for child dependant status unless they are full-time students. They must be either noted as an extended family members on the policy or provided for on a separate policy.

She said although this is disclosed at the inception of the policy, no further attempt is made to notify the client thereafter, except for “a cursory mention” in the annual renewal letter, which is a standard template not specifically directed to any client.

The policy continues as normal once the dependant turns 21 unless the client remembers and specifically asks for the policy to be changed. Premiums continue to be collected, with the situation only rearing its head when a claim is submitted in respect of the dependant’s death.

Tshombe said the technology exists for FSPs to alert clients that the age threshold has been reached, so they can be contacted and provided with suitable advice to ensure that they remain appropriately insured.

She drew FSPs’ attention to TCF outcome three and to section 11 of the Code of Conduct, where a provider must effectively employ the resources, procedures and appropriate technological systems that can reasonably be expected to eliminate, as far as reasonably possible, the risk to clients.

A related issue was FSPs collecting premiums for child dependants over the age of 21. Unless a claim is submitted, this goes unnoticed, and premiums are being collected for a benefit that will never be provided.

“This is contrary to treating customers fairly, and a matter that shall be brought to the attention of the FSCA when identified.”

Using risk analyses against complainants

Many FSPs rely on generic risk-profiling questionnaires that indicate whether a client has a conservative, moderate or aggressive approach to risk. This is used to justify the selection of a specific portfolio in line with the established risk profile.

Tshombe said a “troubling” issue that is increasingly raising its head is that the answers or selections are being used against clients in response to complaints received by the FAIS Ombud.

Not only is this questionnaire positioned as a risk-profiling exercise and not a fact-finding exercise, but clients are not informed that the information they provide can be used against them if they lodge a complaint with the ombud.

She said FSPs who do this are not acting in good faith or treating customers fairly.

Failing to make a recommendation

Tshombe said it was frequently the case that when her office asked why a product was deemed to have been appropriate to the complainant’s needs and circumstances, it was told that the complainant was provided with a range of options and selected the one that provided, for example, the lowest premium or the highest level of income.

Alternatively, the response is that the FSP provided the complainant what he or she had asked for.

“This contrary to the provisions of the General Code and not acceptable by this office. When a prospective client approaches an FSP, there is an expectation that they will receive advice that is appropriate to them; not for an FSP to simply leave it up to the client to make up his or her own mind, or to simply provide the client with what they request,” Tshombe said.

She drew FSPs’ attention to two sections of the General Code of Conduct:

  • Section 8(1), which requires FSPs to obtain information to conduct an analysis to identify the financial products that will be appropriate to the client’s risk profile and financial needs; and
  • Section 8(4)(c), which provides that where a client elects to conclude a transaction that differs from that recommended by the provider, or otherwise elects not to follow the advice furnished, the provider must alert the client as soon as reasonably possible of the clear existence of any risk to the client and advise the client to take particular care to consider whether any product selected is appropriate to the client’s needs, objectives and circumstances.

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