Will the insurers ever take responsibility?
Following our newsletter on the recent FAIS Ombud determination that brokers are responsible for reviewing the insured’s motor vehicle value on an annual basis we were inundated with responses from our readers. We encourage you to read the full newsletter on our website and add your views to the growing debate.
The consensus is that the annual review of values on a short-term policy is standard practice; but that doesn’t mean the ruling was welcomed by all. We’ll take a look at some of our reader responses and ask a few questions of the FAIS Ombud and the insurance industry as a whole. Colin says he was astounded by the ruling. “I cannot believe the Ombud laid the blame at the FSP without any mention of the insurer,” he says. “The insurers know damn well that Joe Soap has no idea what the market value of his car is at renewal. They conveniently leave thesum insured as isand accept apremium which they know is in excess of the risk they carry.” The insurer and not the broker pockets the additional cash paid by the insured. Another reader, Michelle feels that it’s “time the client starts taking some responsibility instead of blaming everyone else. Shortly we will be responsible for making sure their vehicles are serviced too!”
A suggestion that makes real sense
Apart from letting the insurer off the hook and waiving the insured’s accountability the FAIS Ombud has missed an opportunity to go for the heart of the problem. He can choose, as he has, to punish individual brokers and place the responsibility on the client to make a claim through an exhaustive complaints process – or he could have set in motion a process whereby the insurance company is required to make annual adjustments to all the vehicles on their books. That would ensure that all insured people receive fit and proper financial service – and remove unnecessary administrative chores from the short-term broker. It’s a proactive step that would eliminate the possibility of poor financial advice at broker level!
Colin thinks this solution would be easy to implement. “The insurers have expensive and complex information technology systems – so how is it that they cannot look up the market value of the car at renewal and print this and its reduced premium as part of the renewal invitation?” he asks. To force the broker to revalue each vehicle on his books on an annual basis “is a waste” of administrative resources – an absurd practice given that “the insurer could so easily make it part ofthe automated renewal process.” Another question the FAIS Ombud should consider is the long-term implications his rulings have in the direct insurance market. As the direct insurers gobble up more market share one has to ask who the FAIS Ombud will tackle when their clients run into difficulties with cover. Colin wonders whether the “direct insurers automatically adjust the sum insured every year?” It’s time that the FAIS Ombud holds the insurer up to the same scrutiny as the insurance broker – after all, they are financial services providers too.
Blame the broker
Brokers and other client-facing financial services professionals are becoming increasingly frustrated with the direction that regulatory determinations take. We thought the following ‘tongue-in-cheek’ comment from Mike perfectly illustrates the sentiment: “I hear there is talk of legislation being passed which will force brokers to hyphenate all multi-syllable words in their written correspondence to clients!”
“No matter what anybody says, we as brokers seem to carry all the risk in decision making,” says Eddie. He notes that the client is seldom (if ever) held liable for disputed short-term claims. “We insure all our client’s vehicles for the retail value (NOT market value) as this is what it would cost to replace the car. Market value has too many variables to be able to give an accurate value.” Eddie believes that “brokers need to stand together and dictate certain terms and conditions to ensure their survival…” Why not get together and demand that insurers automatically adjust policy insured values?
His view is echoed by Louise who says “a collective effort between the underwriter, broker and other industry players needs to increase, with a view to educating the consumer about obtaining the correct products and services as per the policy wording. This cannot only be left up to the broker.”
The current system works; but it could be so much better
Karen writes that although she automatically adjusts vehicle values on an annual basis, the determination “works against the broker – once again laying all the responsibility at their door.” And she raises an interesting question. If the broker had adjusted the values without the clients knowledge and the value insured turned out to be inadequate “would the client then have laid a complaint saying the broker wasn’t authorised to [change the value]?”
Until the insurer steps up to the plate, brokers are going to have to go the extra mile. Elna suggests that you get written permission from your client to adjust values at the time the renewal notice is sent out. That way you cover all bases.
In the end it can also be simple – at the inception of the policy, ask the insured whether he would like his vehicles’ value automatically adjusted at the end of each year – if the answer is yes, the administration system is flagged with a ‘yes’ and this process becomes automatic. If the insured opts for a ‘no’ the value is left unchanged unless an instruction is received from the insured in writing, this will cover low mileage, additional accessories as well as condition of the vehicle which adds to the value of the vehicle.
We could open another can of worms and ask – does everyone agree that the basis of using the Mead & McGrouther book for values is the correct way to go?
Editor’s thoughts:
We’d love to find out what the insurance companies think of implementing an annual vehicle valuation on their systems. The suggestion makes a great deal of sense and would certainly free up a great deal of time for brokers. Would you support a call for the insurers to process a mandatory value adjustment to all motor vehicles on their books? Add your comments below or send them to [email protected].
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