Insurance Ombudsman could go 2x on recoveries from 2024?
The ongoing consolidation of financial services ombudsman schemes came up for discussion during the media launch of the third combined Annual Report for the Ombudsman for Long-Term Insurance (OLTI) and Ombudsman for Short-term Insurance (OSTI). Outgoing Long-term ombudsman, Judge Ron McLaren, introduced proceedings in the context of the report theme, ‘shaping our tomorrow’.
Insurance ombudsman plus two makes four…
It turns out that the three-year-long amalgamation OLTI and OSTI into a combined Insurance Ombudsman scheme is just the start of a journey that will eventually see the scheme join forces with the Ombudsman for Banking Services and Credit Ombud, creating a unified financial services ombudsman scheme. These reshufflings are a small but necessary tweak to deliver on the broader twin peaks framework for financial sector regulation. Judge McLaren explained that during 2022, the OLTI and OSTI were both recognised as industry ombudsman schemes in terms of section 194 of the Financial Sector Regulation (FSR) Act.
“The more recent important developments are set out in a joint amalgamation progress report, which the four participating [ombudsman scheme] officers submitted at a meeting with the Ombud Council and the National Treasury on 13 December 2022,” Judge McLaren said. Per this report:
“The former voluntary schemes, namely the Credit Ombud; Ombudsman for Banking Services; OLTI and OSTI started meeting to discuss the often-mentioned amalgamation of their schemes even before the work of the World Bank diagnostic team started in 2020. For a period, the four schemes suspended their discussions as we awaited the recommendations of the experts from the World Bank team. [The report] was received in June 2021, and the schemes and our respective boards and councils agreed with most of its recommendations”.
Clawing back millions of rand for consumers
The boards and councils of the respective offices have already agreed a mandate for the amalgamation of the schemes into a single National Financial Ombudsman; though the name is not yet set in stone. In fact, Judge McLaren revealed that many of the physical and practical considerations around the four-into-one amalgamation have already been discussed. “The proposed start date for the National Financial Ombudsman is 1 January 2024; we have all presented our plans to our respective boards and councils and receive the go head, so unless there are any unforeseen obstacles or instructions to the contrary from the Ombud Council, we will continue with the process,” he said.
Judge McLaren, and the incoming Insurance Ombudsman, Judge Margie Victor seemed confident that the combined ombudsman scheme will improve outcomes for financial consumers. Since 2020, when the OLTI and OSTI merged, the combined offices have received more than 90 000 complaints and written requests for assistance. “During the three ensuing years, the aggregate of the amounts recovered in lump sums for OLTI complainants and the rand value of benefits for OSTI consumers exceeded ZAR1 billion; and that is a telling amount of money,” Judge McLaren said. He then handed over to the Denise Gabriels, Assistant Ombudsman at OLTI, and Edite Teixeira-Mckinon, CEO of the Insurance Ombudsman to share the highlights from the life and non-life insurance segments respectively. PS, this article will delve into the headline numbers from each of the brief presentations, with a closer look at the handful of ombudsman determinations to follow soon.
Around 7 000 viable complaints
In the 12-months to 31 December 2022, the OLTI recovered ZAR220.8 million rand in lump sums for complainants with an additional ZAR857 544,00 granted “in compensation for material inconvenience, stress and loss as a result of an insurers’ errors, maladministration of poor service”. Gabriels pointed out that these totals excluded non-lump sum awards, such as future income payments [and] non-monetary awards, such as the reinstatement of lapsed policies.
There was some good news, in that “the number of cases were down in 2022 compared to the previous year, as stakeholders reported fewer COVID-19 related complaints and claims,” she said. In total, there were 16 476 requests for assistance in the period under review, compared to 17 379 the year prior. The OLTI onboarded 7 126 of these requests for assistance. Some 3 510 cases were finalised in the year, with 29% of cases being resolved in favour of complainants and the overall percentage of cases resolved wholly or partially in favour of complainants reaching 38%. PS, the difference between complaints finalised and onboarded derives from a large number of premature complaints that were transferred to insurers.
The 3 510 cases span the whole long-term insurance product universe to include life, disability, healthcare and funeral policies. The nature of complaints received are aligned with the Treating Customers Fairly (TCF) outcomes contained in the Policyholder Protection Rules (PPRs). For 2022, the top three causes of complaint were ‘claims declined due to policy terms and conditions not being recognised or met’ (45%); ‘poor communication, poor service or documents or information not received’ (34%); and lapsing (9%). “You will note that non-disclosure (5%) is not that large a percentage of the category of complaints that we receive; they do, however, evoke lots of media attention,” Gabriels said, before concluding that the OLTI made five final determinations against insurers during the period.
OSTI faced near 20% ‘spike’ in complaints
The OSTI saw a 17.8% ‘spike’ in registered complaints for 2022, with 11 542 new complaints compared to 9 797 in the prior year. Teixeira-Mckinon said that the office had dealt with the higher workload admirably, with 10 411 complaints closed over the 12-months with an average turnaround time of 122-days, just two days shy of the OSTI’s 120-day target. “As regards the list of complaints that have been outstanding for six-months or longer: we ended the year with 441 complaints, or 10.7% of the 4 131 open complaints at year-end,” she said. Major complaints ‘contributors’ in the non-life insurance segment were motor vehicle insurance (42.7%); buildings or homeowners insurance (23.3%); and other insurance and non-claim-related complaints (14.5%).
The OSTI noted that 65% of finalised motor vehicle insurance complaints related to accidents; 14% to mechanical breakdown and warranty; and 7% to hi-jacking and theft. “The primary reason for complaints under this category of insurance is claims rejected on the basis of an exclusion in the policy, and in particular, the prevention of loss or lack of due care exclusion,” Teixeira-Mckinon said. Using the case of an insurer repudiating a claim on the basis of the insured speeding, the OSTI noted that the insurer had to show that the driver was reckless in the legal sense and not merely negligent. The insurer must demonstrate that the driver foresaw the possibility of the loss or damage eventuating, but nevertheless courted the danger and failed to take reasonable steps to prevent it.
Beware, the proximate cause of loss
Turning to buildings and homeowners insurance complaints, the main contributors stood out as claims being rejected on the basis of a policy exclusion; gradual deterioration; lack of maintenance; or wear and tear. The OSTI commented that although an insured peril or event may have occurred, such as a storm, the proximate cause of damage was often due to a structural defect, lack of maintenance or a gradually occurring loss. For example, an insurer will argue that ‘but for’ the structural defect or the wear and tear, the home would have been able to withstand the storm. Again, the insurer must prove its rejection on a balance of probabilities.
Insurers will enjoy Teixeira-Mckinon’s comment on non-life insurers’ raison d’être: “Insurance covers damage that is caused by unforeseen, single and sudden events as listed in the policies and not damage that has occurred gradually over time”. This is something the OSTI has focused on through various consumer awareness initiatives that highlight the responsibility of homeowners to maintain their properties and ensure that their buildings are structurally sound.
Leaving the best for last, the OSTI said, “the recorded monetary benefit or value for insureds who approached the office for assistance amounted to just over ZAR109 million for 2022, with the majority of complaints resolved through conciliation without the office having to issue a formal recommendation”. One determination was issued against an insurer.
Writer’s thoughts:
The rationale for combining ombudsman schemes is unclear to this writer. Yes, there are some cost-savings relating to shared facilities and streamlined processes; but the specialised function of each office means we end up with fully staffed divisions under an extra management layer. Is the four-into-one National Financial Ombudsman going to improve consumer outcomes? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts [email protected].
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