The FAIS Ombud indicates the following concern in her 2015/2016 annual report:
“One of the areas that the FAIS Ombud still has to contend with is the misconception… that the FAIS Act does not apply to financial services providers in the short-term insurance business.”
She points out that half of the 24 determinations issued in the 2015/2016 financial year involved short-term insurance products.
Below we take a closer look at some of the determinations and settlement agreements which highlight recurring trends.
Failure to disclose material terms
Case 1: Following the rejection of a claim for failure to install a tracking device, the complainant stated that he was never advised by the respondent of this requirement. Although the respondent claimed the information was obtained from the complainant via the telephone, the respondent failed to provide a record of the telephone conversation, which was in violation of section 11 of the General Code. The Ombud ordered the respondent to pay the complainant R317 500 with interest.
Case 2: When one of the complainant’s trucks was hijacked, a claim was submitted to the insurers in the amount of R1 417 930, which was rejected on the basis that the vehicle was not fitted with an approved tracking device. The complainant denied ever being informed of this. The respondent claimed that this was indeed disclosed and that the complainant was provided with a policy schedule subsequent to the inception of the policy and consequently should have been aware of the requirement. The Ombud requested the respondent to provide documentation to support its claims that the complainant was informed prior to the conclusion of the transaction of this material term of the contract which would have allowed the complainant to make an informed decision. The respondent was unable to provide such proof and provided an offer of R800 000, (the limit of the Ombud’s jurisdiction), which was accepted by the complainant.
Failure to keep proper records
In one instance, a complaint for failure by the adviser to submit a claim on time was upheld as the adviser was unable to provide documentary proof that he did in fact submit the claim. In the first case cited above, the complainant had signed only partially completed proposal forms. An employee of the respondent subsequently completed the remainder of the details in the proposal form, including the security features (indicating to the insurer that the vehicle had been fitted with a Netstar tracking device when this was not the case). Although the respondent claimed the information was obtained from the complainant via the telephone, the respondent failed to provide a record of the telephone conversation, which was in violation of section 11 of the General Code.
Inadequate provision for client’s needs
A rejected claim on a credit life policy to cover an outstanding bond led to a finding against the insurer.
The respondent claimed that the representative had been a member of its home loan department and as a result was not required to provide advice and that the representative had provided the complainant with all the factual information regarding the product.
This Ombud maintained its view that a financial service provider (FSP) cannot recommend such a policy without providing the required advice, the least of which would have been to ensure that the policy recommended would have provided the required level of cover to meet the client’s needs.
This could of course have dire consequences for any product where the underwriting is done at the claims stage – editor).
In almost every determination and settlement case, respondents claim that they sent the schedule to the client, and that the client is obliged to read it and refer questions to them.
The Ombud’s view on this differs:
A policy schedule is an outline of the cover provided, and will show details of the policyholder, the cover provided and the relevant limits, sums insured, excesses etc. Policy schedules are however issued at the conclusion of the transaction, and are subsequent to the advice provided. As a result, the Ombud is unable to consider the provision of a policy schedule, or indeed any other post facto documentation as proof that the required disclosures had been made to the complainant.