Insuring a vehicle can be an easy process. In South Africa we have many options available. We are overwhelmed by advertisements by different brands trying to win over the market.
In many cases however, the reality of insurance only hits home at claim stage when a consumer realises that his claim value is less than what he anticipated – in many cases due to bargaining for a lower premium or in general not understanding and/or reading the T&Cs.
One of the latest examples of such an instance is a case study featured in OSTI’s (Ombudsman for Short Term Insurance) Quarterly Briefcase. Mr N submitted a claim to the insurer in respect of the theft of his vehicle, which occurred in 2018. The insurer authorised the claim, but paid out an amount much less than what Mr N anticipated.
The policy, claim and complaint
The policy incepted on 4 October 2018 and the insured vehicle, a 1994 Toyota Conquest 1300, was insured for retail value. The insurer’s Plan Schedule was sent to Mr N. According to the cover letter accompanying the schedule, the policy document gave the insured details of what he was covered for, the premium breakdown and confirmation of his personal underwriting details. The cover letter also informed Mr N to download the Insurer Plan Guide (guide) for a ‘comprehensive guide’ of the benefits provided.
Mr N argued that the schedule did not define the term ‘‘retail value’’, and therefore, its ordinary meaning should apply. Mr N further submitted that the average policyholder understood retail value to mean the average of retail prices actually charged in the open market and not the value listed by TransUnion.
He stated that the average advertised price, in terms of an Automart mobile app, for five 1994 Toyota Conquests was R46 580. In the Western Cape, three older model Toyota Conquests were advertised for an average of R36 165.
On this basis Mr N made a counter-offer in the amount of R35 000 to the insurer. The insurer did not accept the counteroffer and maintained its original offer of R17 000. In its response to the complaint, the insurer pointed out that the term ‘’retail value’’ was in fact defined in the guide.
OSTI’s response
OSTI mentioned that they will always hold the insurer accountable where it falls short of its obligations in drafting its policy documents or at sales stage. They further appreciate the challenges faced by consumers and is well placed to determine what is fair in relation to the circumstances of each particular case.
With that said, considering that the policy explicitly set out how it will calculate the retail value, OSTI argued that they cannot overlook these terms simply because Mr N did not read policy documents which were made available to him before the cover incepted. Mr N was required to read the policy documents as they contain important information applicable to the contract of insurance.
The definition of retail value in the guide was suitably set out, and OSTI was satisfied that the sub-heading was given appropriate prominence in the text. The policy document also goes on to detail how the insurer calculates the retail value. These policy documents were given to Mr N before the cover incepted.
The insurer’s decision under the circumstances of this case was therefore standard in the insurance industry and was in line with the underlying purpose of short-term insurance, being to indemnify the insured. The price of a vehicle on a dealer’s floor is adjusted to make a business profit. If the insurer were required to settle the claim on this price, Mr N would be unjustifiably enriched. The retail value as it is defined and calculated effectively indemnifies Mr N, placing him in the same financial position that he was in prior to the incident.
OSTI’s view was that the insurer was justified in its reliance of the definition of retail value set out in the guide and accordingly the values set out in the Transunion guide. As such, the insurer’s settlement offer was upheld.
OSTI also pointed out that the policy was undertaken by an independent financial advisor/broker representing Mr N. They advised that if Mr N wished to contest the advice given by this broker at sales stage, he would have to approach the FAIS Ombudsman. OSTI shared that they do not enjoy jurisdiction on matters relating to the conduct of an independent broker or intermediary.
A general rule of thumb for financial advisors is to always unpack the requirements with their clients. Case studies are also a good way to bring the reality closer to home.
Click here to download the case study that specifically shares the definitions of the different cover options and that further sheds light on the matter.
It is the job of the FSCA, OSTI, Insurers and Brokers alike, to look after clients in terms of what TCF expects from us.
Insurers nowadays do cover for Retail value, which is good. However, some old time good Insurers like Santam, Old Mutual Insure, Hollard, Bryte etc, will still have the actual Monetary Sum insured on the policy schedule, which is looking after the client as per TCF.
However, a new phenomenon is sticking its head out with some more modern day Insurers where they put in the words ” Retail Value” on the schedule, which is NOT looking after the client and where they found a legal loophole to not adhering to TCF, as in this case, in my opinion- such Insurers should be forced to do 2 things namely to put in an actual monetary value in the policy and have the client pay premium upon that value and secondly, be forced to replace the client’s vehicle rather than pay out the sum insured- in this way they will abide by both TCF as well as the definition of Insurance.
My opinion is that both the FSCA as well as Osti must urgently jump in here and close this loophole.
Very interesting view, Andre. I would like to use this as a topic for new article, if you don’t mind?