OSTI claws back R197 million for consumers

The 2021 Ombudsman for Short-term Insurance (OSTI) Annual Report, which showed a near doubling in recoveries for complainants in 2021 compared to 2019, pre-pandemic period, suggests that insurers might be taking too tough a stance when rejecting claims. An assessment of 10879 formal complaints resulted in just over ZARR63 million being returned to personal lines policyholders, with ZAR134 million going to commercial insureds in the ongoing struggle for fair and equitable treatment of customers.

The bulk of complaints related to motor vehicle insurance disputes (43%), though complaints received in this category remained below pre-pandemic numbers. An alarming 22% of the complaints total came from the personal lines: buildings category; followed by complaints against commercial claims decisions (14%); and complaints about household contents claims rejections, at just 6%. We thought it useful to inform our growing readership of the key issues under each of these categories, so that you can avoid the same in your personal insurance interactions and / or in giving advice to your clients on the cover pitfalls to look out for going into 2022/23. 

The main motor cover failings

The OSTI recovered almost ZAR35 million on behalf of personal lines: motor insureds last year. According to the annual report, 65% of the complaints in the motor insurance discipline resulted from accident claims, compared to 14% due to issues with warranty and mechanical breakdown claims decisions and 7% due to theft or hijacking. The rising trend among non-life insurers to reject accident-related claims on the grounds that drivers failed to exercise reasonable precautions or due care was singled out as a major concern. We covered this trend extensively in a recent newsletter titled: Is this a reckless debate?, which triggered a flood of comments. 

We will not go into too much detail in the following paragraphs, except to note that the OSTI “considered a total number of 369 complaints relating to accident claims that had been rejected on the ground that the driver failed to exercise reasonable precautions or due care during 2021”. The OSTI further commented that 47 such rejections were overturned, with a surprising eight formal rulings issued under this heading. One such rejection was apparently overturned because the insurer relied on an inaccurate and / or incomplete report from an accident reconstruction specialist concerning the calculation of the speed and how it contributed to the accident. 

“Even when an insurer has satisfied the office that the driver was speeding, a rejection of the claim may be overturned because it failed to establish the legal requirement to prove that the driver acted recklessly,” noted the OSTI. “Essentially, this requires proof that the driver knowingly courted danger, with reckless abandon and in disregard of the reasonable possibility of the loss eventuating, and then failed to take reasonable steps to prevent it”. This writer must confess to a wry smile at this comment, because it introduces just enough subjectivity and uncertainty to the contractual terms and conditions set out in the contract between insurer and insured. Given this construct, similar behaviours could be declared reckless or not, with no clear way of determining the outcome. 

The home is where the storm hits

Almost half of the complaints against claims rejections in the personal lines: homeowners’ or buildings sections resulted from claims following damage due to acts of nature, mainly storm related. “We have continued to draw attention to the insured’s responsibility to make sure that their buildings are structurally sound and properly maintained; because most homeowners’ insurance policies specifically exclude damage arising from structural defects, lack of maintenance or normal deterioration,” commented the OSTI. In this writer’s experience this type of claim rejection is a bit of a hit-and-miss too, depending on which insurer, insurance broker or loss adjuster the insured encounters at claims stage. 

The OSTI goes on to warn that claims rejections on the ground that “the loss or damage resulted from defective construction and / or maintenance” increased from 47% in 2020 to 53% in 2021. They urged insureds to register a complaint with the office if they disagreed with their insurer’s decision to reject a claim on these grounds. A typical investigation into this type of complaint would include gathering and reviewing all the evidence used to reject the claim, to determine whether the insurer had sufficient grounds to rely on the policy exclusion as well as whether this was fairly done. Of interest is that one-in-10 homeowners’ claims complaints were resolved in favour of insureds, with more than ZARR9 million recovered. 

Big action in the commercial insurance segment

It might be the focus of media coverage, but many think of the OSTI as a complaints resolution mechanism for individual consumers only. In fact, the OSTI has limited jurisdiction over commercial policies that saw it recover ZAR134 million for commercial insureds through 2021. We calculate the aggregate award of around ZARR360 000,00 across the 375 resolved cases in this area. “2020 saw a surge in the number of commercial insurance complaints considered by OSTI when compared to previous years due to COVID-19-related business interruption (BI) claims; there was a delay in the finalisation of these disputes as the industry sought clarity on the question of whether the direct cause of the business interruption was the government-imposed lockdown or COVID-19,” noted the report. 

Insurance brokers take note: the majority of complaints considered by the OSTI under commercial building and motor vehicle insurance concerned claims that were rejected on the ground that the insured did not comply with the conditions of cover. For example, building insurance cover may have been accepted on the condition that certain security and / or fire regulations are met. In the event these are not met, the insurer has the right to reject the claim. There were also frequent issues around the roadworthiness of commercial vehicles; whether or not such vehicles were being driven by drivers with valid professional driver’s permits; and whether or not such vehicles met security requirements. 

Service delivery constrained during another tough year

“2021 was a year of struggles, continued resilience and hope for a brighter tomorrow,” said Edite Teixeira-Mckinon, CEO of the Office of the OSTI, in a media release accompanying the report launch. “Going through two years of a harrowing pandemic has taught us that just surviving is not enough; we need to reshape ourselves for the future”. Pandemic was partly to blame for the OSTI not meeting two of the operational targets set for 2021, namely an average turnaround time of 120 days or fewer, and ensuring that the number of complaints outstanding for six months did not exceed 10% of the number of open complaints. It ended the year with an average 138 days and with 332 complaints outstanding for six months instead of 300. 

Despite this, Teixeira-Mckinon acknowledged the dedication and hard work of the office’s staff during an exceedingly difficult period. “There is a sense of rebuilding and returning to a former state of being, including returning to a normal state of health, mind and strength, and, at the same time, adjusting to a new and different way of life,” she concluded. 

Writer’s thoughts:
The top-line ‘recoveries’ number suggests that the Ombudsman for Short-term Insurance (OSTI) is doing a stand-up job; but the fact that claims still take 120 or more days to finalise is an affront to the concept of fair treatment of customers. Seriously: four months of back-and-forth between client, insurer and ombud in the digital age seems a trifle silly. Have you or one of your clients challenged a short-term insurance claim rejection to the OSTI? And were you happy with the outcome? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts [email protected].