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08 July 2019 Jonathan Faurie

Life insurance cases can often be cut and dry, but they can also become very complex, particularly when there is poor advice involved. FAnews received the following press release from the office of the Financial Advisory and Intermediary Services (FAIS) Ombudsman, which highlighted a recent case that was settled without the need for a determination to be handed down.

Unfortunate timing

The complainant was the executor of the estate for the late Mr H. 

Upon his passing on 13 April 2018, the complainant, whilst finalising the affairs of the estate, discovered that the deceased’s existing life insurance policy had been cancelled and replaced with a new policy with another insurer. 

The complainant subsequently submitted a claim to the new insurer, which was rejected as the insured had passed away prior to the inception of the policy. 

On further investigation, the complainant determined that the application for the replacement policy had been completed on 20 February 2018, and that there was correspondence dated 14 March 2018 from the respondent instructing the deceased to cancel his existing policy. 

This letter was signed by the deceased and forwarded to the existing insurer. However, the replacement policy, at that time, had not yet incepted. 

The replacement policy was supposed to begin on 1 April 2018. However, during the underwriting process, there were concerns surrounding the results of the deceased’s Body Mass Index (BMI). 

The results of the deceased’s BMI resulted in the new insurer issuing an acceptance of offer letter, which saw the inception date of the policy extended to 1 May 2018. As a result, when the deceased passed away on 13 April 2018, there was no policy in place. 

The complainant was of the view that the deceased had not been correctly advised to cancel the existing life insurance policy before the application for the new policy had even been accepted, let alone the new policy having incepted. 

The complainant therefore held the respondent liable for the losses incurred as a result. 

Not in the best interest

The Ombud agreed with this view and the fact that the respondent had not acted with the required due skill, care and diligence, in the best interests of the deceased as required in terms of Section 2 of the General Code of Conduct for Authorised Financial Services Providers and Representatives. 

This was communicated to the respondent, who accepted responsibility for the losses incurred by the complainant and provided the complainant with an offer of R1 million, the cover amount, in full and final settlement. The offer was accepted by the complainant. 

While the facts surrounding this matter would appear to have been rather straight forward, and highlight the additional duty of care that a financial services provider must exercise during the replacement of an existing life assurance policy, the significance of this matter lies in the respondent’s willingness to resolve the complaint for the total loss incurred; despite this amount exceeding this Office’s R800 000 jurisdictional limit. 

Common sense prevails

The Rules on Proceedings of this Office do restrict the jurisdiction of the Ombud to the investigation of complaints, where the losses incurred do not exceed R800 000. Any matter received that exceeds this limit would require that the complainant confirm in writing to forgo any amount in excess of R800 000. 

However, the rules do provide that this jurisdictional limit may be exceeded should the respondent agree to it in the interests of proceeding with the investigation. 

During this time where there is a heightened focus on Treating Customers Fairly, it is refreshing to note that the respondent chose to not only acknowledge the negligence that resulted in the losses incurred but was also willing to resolve the matter in full. 

It is this type of collaboration between industry and an institution such as the Ombud that will contribute further towards increasing the integrity of the financial services industry. 

Editor’s Thoughts:
Proper advice, be it from advisers or from insurers, is the cornerstone of the sustainability of the financial services industry. It is encouraging to see that the respondent in this case agreed to settle, lets hope that this continues into the future. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

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