Incorrect information provided by a broker
Every piece of information, specifically in policy wording, is critical in the insurance world.
In this determination by the Financial Advisory and Intermediary Services Ombudsman (FAIS Ombud), a broker acted dishonestly and willfully supplies information that was not true.
The first complainant is Mrs Vemilla Govender. The second complainant is Ms Candis Govender. The first and second complainants are mother, and daughter, and the second complainant has locus standi as a complainant because she was the premium payer for the policy in question. The respondent is AIK Insurance Brokers.
The issue at hand
In December 2017, the first complainant applied for a contract of insurance to insure a 1998 BMW 316. The complainant was assisted by a broker employed by the respondent, Pinky John who responded, on behalf of the first complainant, to the questions asked by the insurer during the underwriting process.
One of the questions asked by the insurer was who the regular driver of the vehicle was. In response, the broker informed the sales agent that the first’s complainant’s son, Mr Damelin Ruthman was the regular driver. The broker was also asked if Mr Ruthman was licensed to drive, what the license code was and when the license was first issued. The broker advised that Mr Ruthman is licensed to drive, holds a Code 10 or C1 driving licence and though she was initially unable to confirm when the first date of issue was, the broker later advised that the license was issued when Mr Ruthman was 20 years old. At the time of the application, Mr Ruthman was 24 years old.
On the basis of the information received from the broker, the insurer advised that the premium payable on a comprehensive vehicle insurance policy would be R1 689. The broker remarked that the quotation was expensive, and the sales representative indicated that the factors which had the most impact on the premium were the fact that Mr Ruthman had no history of insurance and had a C1 driver’s license. The broker asked how the premium would change if Mr Ruthman had an EB driver’s license and the sales representative advised that the premium will be cheaper.
The broker asked that the details of the driver’s license be changed from C1 to EB even though she indicated that she did not know if Mr Ruthman in fact has a C1 driver’s license. The premium, however, did not change much and the broker asked if the premium will be cheaper if the policy is issued in the first complainant’s name. Although the broker could not say with any certainty how old the first complainant was when she applied for the license, she informed the insurer that the first complainant obtained the license when she was 34 years old. Because of the broker’s uncertainty, the sales representative asked if they should keep the response as is and if the broker would later confirm this. The broker responded ‘ja, just leave it’. The insurer advised the broker that ‘its very important that you update this right’ and the broker responded ‘okay’. The details were, however, never updated.
After changing the details of the regular driver from Mr Ruthman to the first complainant, the insurer recalculated the premium and the premium decreased to R672. The broker accepted the cover, with the decreased premium, on the complainant’s behalf. The policy incepted on 21 December 2017.
On 20 February 2018, the second complainant contacted the insurer to report an accident that occurred involving the insured vehicle and to lodge a claim. The second complainant reported that at the time of the accident, the vehicle was being driven by a family friend, a Mr Denzel Govender to refuel the vehicle at a petrol station down the road [from the first complainant’s home]. According to the second complainant, a pedestrian who was carrying a child ran across the road and Mr Govender swerved the vehicle to try avoiding hitting the pedestrian and the child. The second complainant states that the vehicle collided with a vehicle that was travelling in the opposite direction and that the vehicle the driver collided with was a marked police vehicle. At the time of the accident, the second complainant’s husband was also in the car.
Validating the claim
After the accident was reported and the claim lodged, the insurer appointed an investigator to validate the claim. During the investigation, the insurer learnt that the first complainant was not licensed to drive and that she did not know how to drive. The insurer concluded that if the correct information had been provided to it during the underwriting process that the application for cover would not have been accepted and rejected the claim on the basis of material misrepresentation. The insurer also voided the policy from inception and refunded the complainants the premiums it had collected from inception of the policy.
On receipt of the insurer’s decision to the claim, the complainants lodged a complaint with the Ombudsman for Short Term Insurance (OSTI). In its investigation of the complaint, the OSTI was provided with a copy of the recording of the sale and having considered same, upheld the insurer’s decision to reject the claim on a preliminary basis. The OSTI found that the first complainant’s broker misrepresented that the first complainant ‘was in possession of a valid driver’s license, which induced the insurer into contracting with the insured where it would not have done so had the insured’s broker disclosed the correct information’.
In the complaint, the complainants confirm that the fist complainant was never licensed to drive, did not know how to drive and that the driver at the time of the incident was the regular driver of the vehicle. The complainants claim that the broker was instructed to apply for an open driver policy and was never instructed to add the first complainant as the regular driver of the vehicle.
The extent of the respondent’s response is that the first complainant’s claim was rejected because the nominated driver was not driving the vehicle at the time of the accident and because the insurer had established that Mr Govender was the regular driver of the vehicle.
FAIS Ombud’s stance
According to the Office, the respondent did not deal at all with the fact that its representative had amended the details of who the regular driver would be and the allegation that it did so of its own accord and not consequent to an instruction received from the first complainant.
The FAIS Ombud stated that the broker was not honest when rendering the financial service. She willfully supplied information that was not true and pretended that the information had been received from and/or verified by the first and/or the second complainant. The broker also did not treat the complainants fairly. She did not inform the complainants that she had unilaterally asked that the first complainant be recorded as the regular driver when the ‘client mandate and advice record’, as well as the information first offered by the broker when she was asked by the insurer during the quotation call who the regular driver of the vehicle would be.
The Ombud is satisfied that on the facts, the respondent is the legal cause of the complainant’s loss. The respondent is ordered to pay the complainants the amount of R52 100 plus interest. The Ombud is also of the view that their conduct warrants an investigation to determine whether they remain fit and proper to act as financial services providers. That is an investigation that falls outside of this Office’s purview but within the mandate of the Financial Sector Conduct Authority (FSCA).
Read the full determination here
Writer’s thoughts
The broker acted dishonestly and willfully supplied information that was not true. When we consider the requirements for FSPs in terms of the FAIS Act you cannot help but think what the respondent was thinking. What do you think? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
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