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Insurance switching – The devil is in the detail

“Short Term Insurance complaints remain the highest number of complaints received by this Office”. This is the view of Marc Alves of the FAIS Ombud’s office. In a recent FAIS Ombud newsletter he shares that one of the most significant causes for complaints received by the FAIS Ombud, is the replacement of short-term insurance policies, which are based primarily on obtaining the same level of cover or more benefits for a lower premium.

In today’s worsening economy and many households struggling to manage their finances, insurance switching is one of the practices that have seen an increase, especially with all the attractive advertising that consumers are exposed to.

Alves mentions that the nature and extent of a policy excess structure has a significant effect on the premium payable, and he warns consumers that they need be weary that the reason that they are able to obtain a more affordable policy, in replacement of an existing insurance policy, is not as a result of the nature and extent of the basic excess, or as a result of a more comprehensive number of additional excesses.

There is also a requirement placed on the Financial Services Provider (FSP) during the application stage and the conclusion of the transaction. Excesses payable for example are therefore material terms of a contract that a FSP must not only disclose to ensure that their clients are in a position to make an informed decision, but also to ensure that the proposed excess structure is appropriate to the prospective clients’ needs and circumstances.

Alves expands on this with evidence from a settled complaint received by the FAIS Ombud.

An overview of the case of Mrs M

Mrs M purchased a new motor vehicle during 2014.
She approached a FSP to obtain cover for the vehicle.
The new vehicle was to replace the existing vehicle on her insurance.
Rather than adjusting the existing policy, the FSP recommended that she applies for new insurance with another insurer.
Her son, aged 25, was the nominated driver and he was involved in an accident.
At claim stage she was shocked to be informed that she would be paying double the excess as a result of additional excesses.
Mrs M was not aware of the insurer’s imposed extra excesses:
The driver was younger than 30.
The loss occurred within the first six months of inception of the policy.

The complainant was of the view that she would not have been liable for the additional excess charges, had it not been for the actions of the respondent (the FSP), and so she approached the FAIS Ombud Office for assistance.

The FAIS Ombud’s office requested the respondent to show compliance with the provisions of the General Code of Conduct and that its representative had clearly disclosed the implications and consequences of the proposed replacement transaction. The respondent was also asked to provide documentation in support of the needs analysis conducted, especially when the nominated driver was clearly indicated as her 25 year old son. The rationale behind the new policy that would see an additional excess applied within a 6 month period, was also questioned.

The outcome of the case was that the respondent approached the complainant to compensate her for the additional excesses charged, which she accepted.

FSPs are therefore reminded that their clients need to be placed in a position to make an informed decision. Share all the implications and consequences. At the end it should not just be a saving for the client – be sure that it will not bite you in the butt.

The Ombudsman for Short-Term Insurance also recently commented on excesses. Click here to read their media release.

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