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Client engagement

The client’s right to know

Last week, we reported on the Phoshera judgment by the FSB Appeal Board where it concurred with the view of the FAIS Ombud that the rejection of a claim was warranted on the basis that the vehicle did not comply with the required terms and conditions of the prescribed roadworthiness of the National Road Traffic Act.

The Board was not impressed with the fact that the client was never informed of the change of insurer, though.

“In our view, the practice in the industry which seems to derive from an interpretation of Rule 7.3 of the PPR, permitting for unilateral decision-making with regard to the terms, including changes made regarding the parties to this policy contract without as much as informing Mr. Phoshera, cannot stand. As already mentioned, it is out of sync with other applicable legislation. It is particularly untenable in a legal dispensation such as ours where a supreme constitution in its Bill of Rights and Responsibilities guarantees and protects fundamental human rights and freedoms which include the right to freedom of association, the right of access to information and the right to be treated with human dignity.”

“That indeed suggests more than just the need for knowledge of the change of insurer and/or underwriter. Bhekukwenza Hlela strengthens the notion that when a new binder agreement is entered into it is critical that the insured be appropriately notified so as to grant her/him the opportunity to exercise the choice to stay, alter and or opt out of the policy contract.”

“Indeed, that right to choose in the context of the conclusion of a policy contract amounts to consent in line with Section 106 (4) of the National Credit Insurance Act of 2005 and Section 48A of the STI Act read with the General Code of the Financial Services Providers.”

In this particular instance, the underwriting manager informed the client’s broker of the new binder agreement, but the broker failed to convey this to the client. Failure to advise a client of changes to material terms of a contract is a serious matter, and can lead to regulatory action against the broker.

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