FAIS Ombud determinations : Short-term brokers be aware

In these two following by the FAIS Ombud , Mr Charles Pillai, pictured right.

OMBUD FINDS AGAINST BROKER WHO DID NOT INFORM CLIENT ABOUT VEHICLE TRACKING DEVICE

An insurance broker who neglected to inform his client that it was compulsory for a tracking device to be installed in his vehicle for theft cover to be effective has been ordered by the FAIS Ombud to pay his client R87 300 towards the loss of the vehicle.

Charles Pillai, the Ombud for Financial Services Providers, found that Gideon Bosman of Tectum Portfolio Services (Pty) Ltd in Alberton had been negligent in rendering financial services to the Complainant, J P H Victor, a businessman from Glenvista.

In September 2005, Mr Victor insured his 2005 KIA K2700 Workhorse vehicle for business purposes with ABSA Insurance Company Limited (ABSA).

About a year later the vehicle was stolen and Mr Victor submitted a claim for compensation. The value of the vehicle at the time it was insured was stated to be R135000.

However, ABSA repudiated the claim on the grounds that Mr Victor had failed to abide by a policy condition which excluded cover in respect of theft until Absa Insurance Company has been provided with the necessary tracking device certificate.

Mr Victor then lodged a complaint with the FAIS Ombud, claiming he had not been informed about the exclusion clause in the policy.

Mr Bosman, on behalf of the Respondent, Tectum Portfolio Services (Pty) Ltd, said when Complainant approached him to have the Kia insured, several quotes were obtained from different insurers including one from ABSA. He said the quote did not have a proviso that a tracking device must be installed for theft and hijacking cover.

He said the Complainant was happy with the quote and a proposal form was completed and forwarded to ABSA by him.

He said the proposal form mentioned that only a gear lock was installed in the Kia while a tracking device would be installed in an Isuzu vehicle which was also to be insured. He was puzzled why the tracking device was stated as a condition for insuring the Kia when that this was not mentioned in the proposal form.

He added that the Respondent always informed its clients in writing to read through the policy schedule and see if it met with their approval.

Mr Bosman was then asked by the Ombud to pertinently deal with the issue that the policy schedule sent by ABSA to the Respondent for onward transmission to the insured clearly set out the endorsement regarding the tracking device.

No Response was received by the FAIS Ombud from Mr Bosman.

In his determination, Mr Pillai said when the Respondent received the policy schedule, it was incumbent upon it to ensure that it was in accordance with its client’s instructions.

“Where the insurer included additional terms or conditions for cover or for any specific type of cover, it was essential that the Respondent bring this to the attention of the insured within a reasonable time.”

He said Section 7 of the General Code of Conduct for Authorised Financial Services Providers and Representatives states that a provider must give a reasonable and appropriate general explanation of the nature and material terms of the relevant contract or transaction to a client, and generally make full and frank disclosure of any information that would reasonably be expected to enable the client to make an informed decision.

The Ombud said the Respondent had failed to prove that when the endorsed schedule was received from ABSA, it was brought to the attention of the complainant.

“It was incumbent upon the respondent to pertinently draw the complainant’s attention to the requirement endorsed on the policy schedule which was not included in the quotations so that he could make ‘an informed decision’ on whether he was prepared to accept the term added by the insurer.

“The Respondent’s failure to properly and timeously inform the Complainant of the insurer’s requirement ultimately led to the repudiation of the theft claim by the insurer,” Pillai said.

The Ombud ordered the Respondent to pay the Complainant R87 300, which amount Absa Insurance said it would have paid if it had admitted the claim.

Click here to read the full determination (PDF file 76kb)

OMBUD CAUTIONS BROKERS AGAINST CONFIRMING INSURANCE COVER WITHOUT SIGNED AUTHORITY

The FAIS Ombud has cautioned insurance brokers against providing immediate confirmation of interim cover without the client’s signed application.

He said it may be common practice in the insurance industry to provide instant confirmation of temporary cover, especially when motor vehicles were purchased.

“However, in the current regulatory environment, it certainly is not prudent, nor desirable, to provide confirmation of cover without first having obtained at least a signed application or proposal form,” Charles Pillai, the Ombud for Financial Services Providers, said in a determination.

Mr Pillai’s warning to insurance brokers is contained in his ruling on a dispute between Ismail Slamang of Rondebosch East, Western Cape and Harnack & Associates (Pty) Ltd, an authorised financial services provider of Cape Town.

Mr Slamang complained to the FAIS Ombud that he had suffered financial loss because his insurance broker, Harnack & Associates (Pty) Ltd, had failed to insure his R85 000 motorbike. The motorbike fell off a trailer while it was being transported by the Complainant from Mossel Bay to Cape Town and was damaged beyond economic repair.

The Complainant said when he submitted a claim, which was forwarded by his broker to Auto & General Insurance Company (A&G), A&G repudiated the claim because the motorcycle had not been insured.

He alleged when he purchased the motorbike, he was told insurance cover was required before the motorcycle could be delivered to him. He said he approached A&G (with which he had an existing short term insurance policy) for a quote on the motorbike. He said a quote was provided but he found it too expensive.

The taped conversation between the parties and which was examined by the Ombud provides a different picture. It was the respondent who approached A&G, which in turn contacted the Complainant.

The Ombud’s investigation revealed that on 4 March 2005 before the Complainant took delivery of the motorbike, he spoke to Ms Leigh Fredericks of the Respondent.

She provided a quote from New National Insurance Company which the complainant found acceptable. Fredericks had also informed complainant that if he added motor vehicle and household contents cover on the New National policy, the premium for the motor cycle would be cheaper.

The Complainant requested Fredericks to inform A&G to cancel his policy with them.

On the same day Fredericks sent a fax to the motorcycle dealer as well as a copy to the Complainant confirming that cover was in place with New National. However, this arrangement was subject to the Complainant thereafter submitting a completed and signed application form.

The Complainant failed to return the completed and signed form. Fredericks, aware of the implications of having issued confirmation of insurance and now faced with the failure of Complainant to return a completed application form, decided not to cancel Complainant’s existing A&G policy as she was told to do by him.

Instead, she handed over the file to the Respondent’s compliance officer, Stuart Collins.

Mr Collins said he spoke to complainant who confirmed that he had not returned the completed and signed application forms.

Mr Collins said he advised Complainant that as he wished to take immediate delivery, he (Mr Collins) would contact A&G and insure the motorcycle under the complainant’s existing policy instead of cancelling it.

The Complainant was apparently very happy with the arrangement and Mr Collins immediately contacted A&G and gave instructions to insure the motorcycle.

However, the Complainant subsequently did not accept the quote provided by A&G.

In dismissing the complaint, Mr Pillai said the Complainant did not mention that he had failed to complete and return the proposal form for the motor cycle to be insured with New National even though immediate cover was arranged to enable him to take delivery of the motorcycle.

“He in fact pertinently denies receiving the form whereas Respondent has provided this Office with proof of having faxed them to complainant.

“He also refused the cover offered by A&G.

“It is disingenuous of the complainant to claim to have been under the impression he was insured with New National. The fax confirming cover was subject to the completion of a proposal form which was faxed to him. He failed to complete and return the form.

“The Respondent clearly acted in good faith when it provided confirmation of cover before receiving the completed form from Complainant. Complainant was expected to reciprocate. He failed to do so.

“It is clear from the tape recordings that complainant authorised the Respondent to place the risk with A&G but changed his mind when he was quoted a premium which he found to be too high.

“Given all these facts I am of the view that the complaint cannot be upheld and falls to be dismissed,” Mr Pillai ruled.

Click here to read the full determination (PDF file 68kb)