Our article on Monday was based on the contents of an FSB media release. We were unable to verify the facts against the actual Enforcement Committee order as the FSB website was unavailable for most of the day. We have since studied the formal document, and need to share some further thoughts on the matter.
We commented on the fact that, under the mitigating circumstances, it was found that “…There is no evidence of any prejudice resulting from the contraventions…”
A further mitigating factor, listed in the actual order, states: “With reference to the contravention of section 3A(1)(b)(i) of the General Code of Conduct, all the quotations were available to the clients on request.”
We find this very strange. Our understanding is that the whole purpose of disclosure is to enable the client to make an informed decision. By not making all the facts available to the client at the point of sale, you are not enabling him or her to do so, are you? It is difficult to see how this can be regarded as a mitigating factor.
To take this point further: when does the client discover the salient facts relating to his contract? When he receives his contract, and hopefully reads and understands it, or when a claim arises? Surely this obligation lies with the person providing the advice?
How is a call centre operator equipped to advise a client on the difference between the products from various companies, given the brief training they receive? Hippo, according to its website, provides clients with quotes from 17 different product providers. Many advisors, with years of experience, battle to fully understand the products of one or two companies to the extent that they can clearly convey the pros and cons to their clients.
Another question that arises concerns the fact that call centre operators are incentivised on sales. Was this not possibly the reason for the problems at Hippo? This problem was raised many years ago by the late Charles Pillai in his annual report, and it appears that not much had been done since then to curb it.
Are other direct insurers not practicing in the same manner? Will this be investigated, in the light of this finding, or does a complaint have to be laid first?
Finally, the media release stated that Hippo paid all costs incurred by the FSB in this investigation. What it did not say is that this came to R500 000.
R1.5 million is a substantial amount of money, and we are sure that the respondent in this case will be very careful in future, but will it act as a deterrent to others? This will possibly depend on how much money they make if they keep operating in this manner, and how long it takes before it is uncovered.
A closing thought: J Arthur Brown was fined 10% of what Hippo had to cough up. Some would argue that it may be wiser to throw yourself on the mercy of the court, than face the Enforcement Committee.