Ombud ruling sparks conversation around broker communication
A recent FAIS Ombud decision struck a chord with FAnews readers, highlighting just how critical broker communication practices have become.
A burning issue
A rejected vehicle theft claim - due to a missed policy update - led to a R680?000 liability ruling against the broker, highlighting key risks for intermediaries. At issue was a tracking requirement that the client says he wasn’t told about. The broker claimed notice was sent, but to an outdated email linked to the client’s ex-spouse - and no follow-up was made. The Ombud found the broker negligent for failing to update contact details and properly communicate the policy change.
This case raises critical questions about adequate client communication, broker liability, and the role of Professional Indemnity (PI) insurance. We spoke to experts about the broader implications for brokers and compliance.
The professional standard expected of brokers
Simon Colman, CEO of The Liability Company, sees the ruling as a wake-up call for intermediaries.
“This determination reinforces a fundamental truth: brokers carry a duty of care that goes far beyond placing cover - it includes maintaining up-to-date client records and ensuring that material changes are properly communicated,” Colman explains. “In this case, a missed update and lack of follow-up became a professional liability issue. It's also a strong reminder that brokers are increasingly being held to the same professional standards as lawyers or accountants.”
While his firm doesn’t currently offer broker Professional Indemnity (PI) cover, Colman says this case reinforces the need for tailored protection: “We believe in brokers, and we believe they deserve cover that recognises the complexities of what they do.”
Can PI cover respond in cases like this?
Both Colman and legal risk experts Fatima Ebrahim, Executive Head: Claims, Risk & Compliance and Shrivar Chendip, Claims and Legal Advisor at Leppard and Associates confirm that PI insurance would typically respond to such a scenario, subject to the usual terms and exclusions.
“In most instances, yes,” says Colman. “A well-structured broker PI policy would generally respond to a negligent failure to provide professional services, such as notifying a client of a material policy change.” However, he cautions that policy response depends on the exact wording and whether “the broker followed processes that could reasonably be expected of a professional.”
Nadia Shiba, Specialist Claims Manager at iTOO Special Risks, agrees. “Yes I believe it would be subject to compliance with the terms & conditions of the policy.”
Ebrahim and Chendip also support this view, noting that standard PI or broker liability cover typically applies where a claim arises from a negligent act or omission, results in financial loss, and does not involve wilful misconduct.
“Brokers should ensure that all notification obligations are strictly complied with under their PI policy,” they caution. “Failure to report potential claims timeously may prejudice cover.”
The legal duty to communicate and keep records
Ebrahim and Chendip highlight the legal standards underpinning a broker’s duty of care and diligence.
“The FAIS Ombud’s ruling underscores a broker’s duty of care and diligence in both communicating material policy changes and ensuring that client records, particularly contact information, are accurate and up to date,” they explain.
They reference the General Code of Conduct for Financial Services Providers, which requires brokers to:
- Act honestly and fairly in the interests of clients (Section 2);
- Inform policyholders of all material risks and obligations (Section 3(1)(a)(iii));
- Provide appropriate advice based on current and accurate information (Section 8(1)(a–c)); and
- Maintain proper client records (Section 3(2)).
“In this case, the broker’s reliance on an outdated email address (linked to a former spouse) and failure to follow up did not meet the obligations present in the above-mentioned sections,” say Ebrahim and Chendip. “This negligence resulted in prejudice to the policyholder, which made the broker liable.”
They caution that brokers carry a continuing duty post-policy inception to advise on amendments or endorsements that may materially affect cover.
Shiba also reinforces this legal consideration, stating, “A determination such as this reinforces the obligation on insurers to call an insured's attention to changes in their coverage. The enquiry will be whether the insurer sufficiently notified an insured of any changes in the cover at the time of policy renewal, which is a question of law and which is to be determined by the relevant courts or tribunals.”
The role of insurers and the question of shared responsibility
While brokers are in the spotlight, Ebrahim and Chendip emphasise that insurers also carry regulatory responsibilities under the FSCA and Policyholder Protection Rules (PPR).
“In terms of the PPR, the insurer has an obligation to inform the policyholder in writing of any changes to the policy that result in a change to the policyholder’s rights or obligations before the changes take effect,” they explain. Even if this obligation is operationally delegated to a broker, the insurer remains ultimately responsible.
“This also aligns with the Treating Customers Fairly (TCF) framework whereby policyholders should be given clear information and kept appropriately informed before, during and after the time of contracting,” they add.
The broker's role and potential apportionment of liability
Ebrahim and Chendip highlight that a broker’s liability may also be influenced by the nature of their mandate.
“In determining the broker’s liability, it is essential to consider the nature of the broker’s role - specifically, whether the broker serves merely as a conduit of information between insurer and policyholder,” they say. “The mandate or appointment documentation between broker and policyholder should clearly define the broker’s role and responsibilities. This contractual document is key in allocating obligations.”
They further note that in certain cases, the policyholder’s own actions - or inaction - may influence the outcome.
“If the policyholder failed to update their details (e.g., using an outdated email belonging to a former co-policyholder), it could be considered unreasonable to expect the broker to BREAK have known of the change unless explicitly informed,” they explain. “This issue could factor into a potential apportionment of liability.”
Practical steps: what brokers should be doing now
The experts agree that brokers must treat communication as a key risk management function. Here are the consolidated best practices:
- Keep client information and contact details current, especially after life events like divorce, marriage, or a move.
- Confirm and document contact details at every renewal and maintain accurate records of advice, communications, and client acknowledgements.
- Clearly communicate material policy changes and conditions using multiple channels (email, phone, SMS, portals).
- Use CRM systems or similar tools to track updates, communications, and acknowledgements.
- Train internal staff on compliance processes, particularly around renewals and changes in cover.
- Ensure governance and adherence to the General Code of Conduct and TCF principles, including proper internal communication and continuous legislative awareness.
- Conduct annual client reviews to assess evolving needs and ensure all obligations are met.
Industry-wide takeaways
The case has wide-reaching implications across the insurance value chain. Ebrahim and Chendip stress that brokers must guide clients, not just transact - FAIS obligations require more than simply issuing documents. Brokers should clearly explain policy changes, especially for high-risk products like motor insurance.
They also call on insurers to flag material endorsements and ensure brokers understand and communicate them. For critical changes, signed client acknowledgements may be necessary.
Shiba adds that the Ombud’s ruling should prompt a review of industry processes, referencing Victor vs Tectum Portfolio Services as a key precedent. The core questions remain: are clients properly informed of material terms, and are internal communication systems up to standard?
Writer’s thoughts
As liability risks continue to rise, clear communication and meticulous record-keeping are no longer just best practices—they’re essential to protecting both clients and professional reputations. This case serves as a timely reminder that sound processes are as important as sound advice. Do you agree? Please comment below, interact with us on X at @fanews_online or email me your thoughts at [email protected].
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