FAIS Ombus urges government to fix insuers' motor alarms short circuit
The FAIS Ombud has called for urgent top-level government intervention to help untangle the mess of crossed wires blocking payouts when insurers reject factory-fitted vehicle security systems.
Charles Pillai, the Ombud for Financial Services Providers, has urged Minister of Finance Pravin Gordhan, the Financial Services Board, motor manufacturers and the SA Insurance Association to jointly thrash out the differences of opinion between motor manufacturers, SAIA and insurers themselves, whether a factory fitted alarm/immobiliser complies with a particular insurer’s requirements.
The Ombud described as “an untenable situation” that the consumer pays the premium in good faith and in the belief that he or she enjoys indemnity, and then only to find that one is embroiled in a dispute when a claim arises.
“It is not fair that the consumer should be faced with a possible rejection and an unexpected delay in the finalisation of a claim.
“This defeats the whole purpose of short term insurance. It is fundamental to short term insurance that there should be certainty.
“There should be standardised, uniform and published information between insurers and their stakeholders about the security requirements and applicable devices, such as alarms, immobilisers, gear-locks and vehicle tracking devices and tracking contracts.
“All this uncertainty is not good for the consumer or the integrity of the short term insurance industry.”
Mr Pillai’s criticism and comments on the issue of whether a factory-fitted alarm/immobiliser complied with a particular insurer’s requirements are contained in his ruling when Marinus de Jong of Springs in Gauteng complained about the lack of advice received from Insurance Maintenance Planning CC of Benoni, represented by Ms Lizelle Bester.
De Jong had insured his 1995 VW Jetta A3 CLI Executive with Santam Limited through the intermediation of the respondent effective from 1 February 2005.
During June 2006 the respondent transferred the insurance to Mutual & Federal Insurance Company Ltd (M&F) and cancelled the Santam policy. The transfer was effective from 1 July 2006.
The vehicle security requirements in terms of the Santam policy were that the vehicle be fitted with a VESA approved immobiliser.
M&F’s security requirements differed in that it had an endorsement on the policy, which required an ABS-approved gear-lock to be fitted within 14 days. The basis for this was that according to M&F, the immobiliser fitted to the vehicle did not comply with M&F’s minimum security requirements.
The vehicle was stolen on 29 July 2006 and the claim repudiated by M&F on the basis that no ABS-approved gear-lock had been installed.
A complaint was initially lodged with the Ombudsman for Short-Term Insurance against M&F. The complaint was not upheld. A complaint was then lodged with the Office of the FAIS Ombud.
The essence of De Jong’s complaint was that the change in insurer and attendant variation in security requirements were not communicated to him, and as such he did not effect the required security measures.
When asked to comment, the respondent maintained that sufficient notice was given of the shift in insurers and the additional security requirements imposed by M&F.
According to the respondent, it was the complainant’s duty to familiarise himself with the requirements of the M&F policy.
The respondent contended that had complainant remained with Santam, the claim would have, in any event, been repudiated as the vehicle was supposedly not fitted with a VESA approved immobiliser, in spite of the complainant being aware of this requirement.
M&F’s position was that the factory-fitted alarm system was not VESA-approved and hence its requirement that a gear-lock be fitted.
The complainant said the factory-fitted alarm system met the requisite standards.
In his ruling on whether appropriate notice of the change of insurers from Santam to M&F was given to complainant by the respondent, the Ombud found that amongst the documents submitted in defence by the respondent were two letters sent to the complainant pertaining to the switch from Santam to M&F.
The first dated 22 June 2006 simply states that from 1 August 2006 the insurance cover was going to be placed with M& F.
The second letter dated 29 June 2006 states: “…..You will also see that on your schedule which has been posted to you from Mutual and Federal....”
“It is clear that respondent’s own correspondence makes no reference to the policy schedule being forwarded by it to complainant.
“Quite simply 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,” the Ombud said in his determination.
The Ombud said M&F’s requirement of a gear-lock as an additional security feature was such a material change as to require that this term be explicitly brought to the complainant’s attention.
On the question of whether, had complainant remained with Santam, the claim would have been honoured, the Ombud said in order to deal with this issue, one had to establish whether the immobiliser complied with the applicable VESA standards.
This was initially considered by the Ombud for Short Term Insurance (OSTI) when it was informed M&F required the gear-lock because they were not satisfied that the factory-fitted immobiliser met these standards.
In correspondence between M&F and the OSTI dated 30 November 2006, M&F stated that they had approached the South African Insurance Association (SAIA) to establish whether the system could be regarded as approved by them. In response thereto they were apparently advised by SAIA that the system could not be regarded as approved.
To this the OSTI responded by pointing out that the manufacturers (Volkswagen South Africa (Pty) Ltd) themselves had indicated that the specific device complied with the VSS system. The OSTI was, therefore, of the view that the insurer did not suffer any prejudice.
Subsequently, the issue was discussed between the OSTI and SAIA and the latter’s view of the matter was that the alarm system did not comply with VSS requirements.
The complaint was thereafter dismissed by the OSTI.
The FAIS Ombud said whilst it did appear that the essence of the dismissal was based on the opinion of SAIA, it must be borne in mind that in terms of the policy, the lack of a gear-lock in any event entitled M&F to repudiate the claim.
“What is cause for concern, however, is the fact that, while we have a major motor vehicle manufacturer confirming that the factory-fitted alarm system met applicable standards, we have SAIA, an industry body, disputing that the vehicle met applicable standards.
“In contrast, and in response to enquiries from this Office Santam provided the following comment: ‘If the manufacturer confirms in writing that the immobiliser does agree with the VSS standards, we would accept the claim’.”
The FAIS Ombud found that the respondent’s lack of attention to detail evidenced throughout the matter led him inescapably to the conclusion that respondent was negligent.
“Quite simply, the respondent either neglected to advise complainant of the additional security requirements or more likely failed to notice them in the first place.
“In the present instance and having considered the evidence, particularly Santam’s statement that they would accept the motor manufacturer’s assurances that the system met the requisite standard, I am of the view that had the policy remained with Santam it would have paid out as expected.
“I find that the respondent, when it transferred the risk from Santam to M&F, failed to alert complainant to M&F’s additional security requirement of a gear-lock in clear contravention of the FAIS Act and the General Code.
“As a consequence, complainant did not install an approved gear-lock, and the claim was repudiated on this basis.
“There is thus a clear causal link between respondent’s failure to carry out its responsibilities and the financial loss suffered by complainant as a consequence,” the Ombud said in his ruling.
The complainant’s vehicle was insured for R49600 by the respondent. An excess of R5460 was applicable. The respondent was ordered to pay De Jong R44140.
A copy of the determination has been sent to the CEO of SAIA, to the Financial Services Board, the National Association of Automobile Manufacturers of South Africa as well as the Ministers of Finance and Trade and Industry.
“I deem it appropriate that the lawmakers are made aware of the anomaly surrounding vehicle security systems for insurance purposes so that they can deliberate on the desirability of legislating to curb this unhealthy practice.
“To this end, I am sending a copy of this determination to the Minister of Finance and, in so far as it may relate to the recently enacted Consumer Protection Act, to the Minister of Trade and Industry.” the FAIS Ombud said in his ruling.
“The present case is a perfect example of the quandary in which many consumers find themselves at the stage that they lodge a claim in relation to an insured event.
“Insuring motor vehicles is probably one of the single biggest businesses of the short term insurer in South Africa.
“Unfortunately, we have got to a stage where at claim stage, the consumer has no way of knowing whether the insurer will accept the claim or repudiate it.
“This then calls into question the very purpose of insurance and the consumer could very well ask: Where is the point of having insurance when you are not sure whether your claim would be paid or not?”
