FAIS Ombud ruling: Do all your clients comply with the policy terms and conditions?
How much should a financial adviser pay in compensation for failing to fully inform a client about policy wording? According to FAIS Ombud, Charles Pillai, the adviser should compensate the client the full amount of the loss incurred. This is evident in his latest ruling in the case of J Victor, a businessman from Glenvista (the claimant), and Gideon Bosman of Tectum Portfolio Services (the respondent).
The facts of the case are fairly simple. A 2005 KIA K2700 was insured with ABSA Insurance Company on a business policy. One year later the vehicle (then valued at approximately R135 000) was stolen and a claim submitted. ABSA repudiated the claim based on the policy wording which required the insurer to supply documentary evidence that the vehicle was fitted with a tracking device before a theft claim would be entertained. But who was to blame for the oversight?
Policy wording must be communicated
The complainant lodged a claim with the FAIS Ombud based on the fact he had not been informed of the requirement to install a tracking device in the vehicle. Before we examine the Ombud’s findings, let’s pause for a moment to consider how this vital information should have been communicated. The bottom line is obviously the policy document, which both insurance broker and insured should have read. The insured thus has some responsibility to ensure he has attempted to enlighten himself as to the wordings of the document he has just signed.
The broker should also make sure the various important exclusions are drawn to the insured’s attention. This should happen during the sales and policy implementation process. But there is another party so often overlooked by the regulators – namely the product supplier. If the service provider did not receive a tracking device certificate with the initial policy application why did they not follow up with the broker – it is a partnership afterall.
How was the policy documentation set out? Is vital policy requirement/s set out clearly (not hidden beneath longwinded endorsements). It is clear that product providers must simplify policy documentation and wordings.
The insurance broker shoulders the blame
We think it is fair to say that all parties to this transaction could shoulder a portion of the blame. The product supplier, financial adviser and insured could all have done more to ensure that the requirement for a tracking device was met. But the FAIS Ombud determination places the full responsibility on the insurance broker. He points out that the broker must ensure that the policy schedule is “in accordance with the client’s instructions.” Pillai further notes that the tracking device requirement is clearly endorsed in the policy schedule forwarded by ABSA to the broker for onward transmission to the claimant. “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,” said Pillai.
Further to this, Section 7 of the General Code of Conduct for Authorised Financial Services Providers clearly 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.” Notice thought that in this instance the insurance broker (and not ABSA) is viewed as the provider...
Pay the claim in full
Pillai continues: “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.”
The Ombud assigns 100% of the blame for the incident to the insurance broker and orders him to pay the full amount ABSA Insurance would have paid had the claim not been repudiated – a total of R87 000. If we were in the insurance broking business we’d be doing a full audit of our books, making sure each client is fully apprised of the details in their policy schedules!
Editor’s thoughts:
Regulators in the financial service industry place emphasis on the terms ‘fair’ and ‘equitable’. Do you believe the Ombud is being fair and equitable in forcing the insurance broker to shoulder the entire financial burden in this case? Should the client and product provider not share some of the blame? Send your comments to [email protected] or simply submit them at the end of this article.
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