Sloppy administration hits broker hard
More than five years after the implementation of the Financial Advisory and Intermediary Services (FAIS) Act 2002 financial services providers are still falling foul of the legislation due to poor administrative processes. This fact was again illustrated by the Deputy Ombudsman for Financial Services Providers’ determination against XXXX Brokers CC and the company’s key individual, XXXX.
On 6 January 2009 Noluntu Bam determined that the respondents’ failure to comply with “an important provision of the General Code of Conduct for Authorised Financial Services Providers and Representatives (the Code) framed under the FAIS Act” had culminated in the complainant’s loss. She ordered the respondents to pay the complainant, Marlon van Dorsen, an amount of R113700 plus interest at 15.5 per cent per annum from 14 July 2007. This to compensate Van Dorsen for the loss of his 2003 Volkswagen Golf 4 which was written off following an accident on 13 July 2007.
Insurance broker got it wrong
So where did things go wrong? To find out we need to consider the events as they took place. From 1 June 2005, Van Dorsen’s vehicle was insured with Auto & General. Two years after the policy inception, A & G increased the premium and Van Dorsen contacted Y Barnard (a receptionist/administrative clerk at the respondent) to shop around for a better rate. Barnard obtained quotes from Santam and Quicksure, and Van Dorsen verbally accepted the Santam quote, dated 4 June 2007. This quote was sent to Van Dorsen again on the 20 June with the request: “should you wish to [accept] please [sign] and fax back to our office along with your updated banking details, copy of ID and drivers license.” A week later, after another reminder, Van Dorsen authorised Barnard to switch from A & G to Santam, informing her that the deduction could be made from his bank on the first day of each month. No problem as yet.
Less than an hour after Van Dorsen’s instruction, Barnard sent an email to Ansie van Tonder of C & F Outsource Management (an administrator for Santam) in which she says: “Herewith attached please find quotation for client Mr Van Dorsen. Please could you arrange for policy to be on cover as from the 1st of July 2007.” This correspondence was copied to the complaint and Bam believes the content of this email created the impression (certainly in Van Dorsen’s mind) that he was comprehensively insured from that date. Bear in mind that Van Dorsen had not provided the required documents (or signed quotation) at this stage. This was still the case when he reported the accident on 19 July 2007. By 31 July Van Dorsen was informed that his claim would not be entertained as he was not on cover.
Did the insurer make any noise?
In this case the insurer (through its administrator) had communicated the documentary requirements for insurance applications as recently as 29 May of that year. The correspondence read: “Please take note on all NEW POLICY APPLICATIONS we need the following:
- Signed Proposal Form or Signed Quotation Form
- Signed Debit Order Form
- Registration Number – Vin Number – Engine Number
- Correct Security on Premises and Vehicles
- Vehicle Tracking System Certificate (to qualify for discount)
- Valuation Certificates for Jewellery
- Copy of ID of Insured.”
Thus the determination hinges on the failure by the brokerage (and its staff) to comply with Section 3 (1) of the Code. In her ruling Bam finds that the brokerage failed to communicate to Van Dorsen that he would enjoy no cover unless he complied with all the requirements of the insurer. According to Bam: “It is abundantly clear that the respondent through its registered provider, XXXX had a duty to clearly and unambiguously inform the complainant that he would not be insured until such time as all the requested information and documents were supplied.”
Bam also questioned why the complainant’s insurance with A & G was cancelled prior to confirmation that a new policy was in place. She concludes that Barnard must have believed the complainant was insured from the date of her email to C & F Outsource Management too!
Advice from appropriately qualified persons
Bam was also confused as to why all the correspondence in this matter was handled by a member of staff who was not a registered provider in terms of the FAIS Act. “I should mention my grave concern at the fact that although certain correspondence (including the letter in terms of section 27(4) of the FAIS Act) was addressed to XXXX as the managing member and Key Individual of the respondent, all responses were received from Barnard, who, as I said earlier is a receptionist/administrative clerk of the respondent,” said Bam.
Editor’s thoughts:
Hundreds of accidents occur in the first few days after policy inception. For this reason short-term insurance brokers should have administrative processes in place to ensure that all conditions for their clients’ cover are met. Do you believe the FAIS Ombudsman finding for the complainant in this case is correct – or should the insurer have taken a softer stance? Add your comments below, or send them to [email protected]
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