Further to the article above, we would like to add a few thoughts to the debate on what is really an important issue for us.
The Jerrier/Outsurance judgement created a major problem for the industry. It places the onus on the consumer, rather than on the insurer, for ensuring that all relevant facts are at the disposal of the insurer at all times. This appears to be in conflict with the goals of consumer protection, and upfront disclosure, which is what FAIS is all about.
Treasury appears to be concerned that insurers will now start underwriting at the claim stage, rather than when the application is received. This may be more prevalent where direct insurers are concerned, but the judgment certainly opens the door for such decisions by all and sundry.
Clients will be confused by this verdict. What do they need to report, and by when, to ensure that a legitimate claim is not refuted as a result of the court’s decision? Does the fact that your mother-in-law’s cat peed on your Persian warrant reporting, as it could affect your future risk?
A further issue that now arises, concerns the practice of no claim bonuses, which is an inducement to clients to refrain from claiming for small amounts. This does, in fact, create a conflict of interest for the client, who has to weigh up the cost of willingly forsaking a real loss to ensure a possible no claim bonus. After the Jerrier/Outsurance judgment, this now needs to be reported, with the ironic outcome that your premiums may be increased for saving the insurer money by not claiming! If you do not report the incident, you run the risk of having your claim refuted in future. Damned if you do, and damned if you don’t.
What this judgment has done, is to increase the pressure on the Regulator to implement further consumer protection measures. We expect renewed focus on the Twin Peaks model, and its crown prince, Treating Customers Fairly.
Clients may begin to see self-insurance as a realistic option. Their distrust of insurance will be fuelled by this verdict. They will, of course, not remember that this was a DIY case, costing the client plenty more than he thought he had saved by not using an advisor.
The reaction from Treasury raises further questions:
- Is it correct to address issues, which is not yet legislated, with product providers? The Twin Peaks model, and TCF, is yet to be implemented. While the general guidelines allow the industry to prepare for it, it is difficult to see how the authorities can dictate conduct on general proposals.
- In the absence of an intermediary, the onus rests on the product provider to disclose material terms of the contract to the client, in terms of the FAIS Act. The FSB, as custodian of this Act, should investigate this possible transgression. While it is commendable for national treasury to allay public concerns, the individual transgressor, rather than the industry in general, should be put under the spotlight.
- Should the rules applicable to the industry in general, not also apply to direct insurers? Why do they receive different treatment, when the aim of regulation is protection of the consumer?
- Whatever action follows, there is still a client who had sustained a substantial loss. No matter what the facts are, the general public is likely to take the view that the size of the claim, rather than the facts, led to the claim being declined. The cost of this perception, to the industry, is immeasurable.