FAIS Ombud lambastes short-term insurance industry
What happens if your car is stolen and you cannot prove the installation of a suitable anti-theft device? This question pops up in far too many motor vehicle theft claims. And – whether the insured has installed an appropriate device without proof – or has installed an inappropriate device with proof – the result is usually the same. The insurer will reject the claim. The FAIS Ombud had cause to rule on this typical short-term insurance event when one Marinus De Jong (the complainant) lodged a complaint against Insurance Maintenance Planning CC (the respondent), an authorised financial services provider.
A checklist for changing insurers
The complainant insured a 1995 VW Jetta with the intermediation of the respondent. The policy was placed with Santam, effective 1 February 2005. In June 2006 the respondent transferred the Santam policy to Mutual & Federal (M & F) with cover taking effect from 1 July 2006. The vehicle was stolen on 29 July 2006. At claims stage it became apparent that the two insurance policies had different vehicle security requirements. Santam required the vehicle be fitted with a VESA approved immobiliser, while M&F required that an ABS approved gear-lock be installed within 14 days of policy inception. M&F rejected the claim on the basis that no ABS-approved gear-lock had been installed.
The complainant immediately lodged a complaint against M&F with the Ombudsman for Short-term Insurance (OSTI). This consumer protection body ruled in favour of the insurer – prompting De Jong to approach the FAIS Ombud. De Jong alleged that neither change of insurance policy nor the resultant variation in security requirement had been communicated by his insurance intermediary.
Unpacking the facts!
The Ombud sets out the facts in his usual meticulous manner. His first point of business was to determine whether the complainant was advised of the change in insurer from Santam to M&F. According to the respondent it complied with both requirements, adding that it was the “complainant’s duty to familiarise himself with the requirements of the M&F policy!” The Ombud then considered whether the claim would have been honoured had the insurance policy remained at Santam.
There is also disagreement in this case as to whether Santam required a VESA-approved gear-lock as a minimum. The insured had signed a form dated 20 January 2005 which states that vehicles under R100 000 in value be fitted with a VESA-approved gear-lock. In its papers the respondent alleges the vehicle would thus not have been covered had the policy remained with Santam, because the security system was NOT VESA approved. The complainant believed his factory-fitted alarm would have satisfied the security conditions imposed by the previous policy. This dispute was resolved by Santam. The insurer indicated it would have honoured the claim provided “the vehicle manufacturer confirmed in writing that the immobiliser agreed with the VSS standards!
The final fact under investigation was the respondent’s claim – again contested by the complainant – that the policy change was necessitated by the complainant’s poor claims record at Santam.
Insurance body overrides the vehicle manufacturer
The Ombud concludes that “on the evidence presented, no schedule was forwarded by respondent to complainant and neither of the letters sent by respondent details the terms or conditions of the new policy.” He also notes the policy in question levied a 25% excess in the 14-day grace period should a gear-lock not have been installed. The issue of the vehicle alarm system bounced back and forth in the original (OSTI) case. Despite Volkswagen South Africa indicating that the vehicle in question was fitted with a VSS3 level security system, the OSTI ruled for the insurer after the South African Insurance Association (SAIA) indicated “that the alarm system did not comply with VSS requirements.” Referring to the OSTI decisions, the FAIS Ombud notes that M&F was – in any event – entitled to reject the claim due to the lack of gear-lock.
Is this the end of problematic security requirements?
In determining the quantum of the loss, the Ombud turned to provision 28(b)(i) of the FAIS Act. This provision states: “The complainant may be awarded an amount as fair compensation for any financial prejudice or damage suffered.” The complainant’s initial insurance policy stipulated an excess (R500) and a theft hijacking excess of 10% of the claim (minimum R3 000). Thus the initial R49 600 insured value would have been reduced to R44 140. The complaint was thus upheld and the respondent ordered to pay R44 140, plus interest on the amount at15.5% calculated from 29 August 2006!
The Ombud reserved some harsh words for stakeholders in the insurance and motor vehicle security industries too. He was irritated that “on the one hand we have a major motor vehicle manufacturer confirming that the factory fitted alarm system meets applicable standards while SAIA, an industry body disputed that the vehicle met applicable standards.” He said the difference of opinion between motor manufacturers, SAIA and insurers was untenable. The case was referred to these bodies to find common ground to reduce this type of dispute in future.
Editor’s thoughts:
So much for keeping things simple. The arguments go back and forth through the FAIS Ombud’s 26-page determination. The irony is the insurance intermediary’s action – designed to assist the client – ended up costing it thousands of rand. Had the insurer left the policy with Santam the claim would have been paid! Have you experienced a security-related issue with a motor vehicle insurance claim? Add your comments below, or send them to [email protected]
