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A record 2009 for the short-term ombudsman

12 April 2010 Gareth Stokes
Gareth Stokes, FAnews Online Editor

Gareth Stokes, FAnews Online Editor

The Office of the Ombudsman for Short-term Insurance (OSTI) launched its 2009 Annual Report on 26 March 2010. “For the first time in its history, the office experienced a decline in the number of complaints received, in relation to the previous year of operation,” announced Ombudsman Brian Martin.

Putting money back in consumers pockets

The Ombudsman recovered a record R136 400 147 on behalf of complainants last year. This tops the R113 186 182 of the previous reporting period and “represents a significant achievement on the part of the Office, reflecting not only a more thorough examination by its professional staff of each and every complaint received by the Office, but also a greater appreciation on the part of the industry of the principles applied by the office when considering disputed claims,” said Martin. On the negative front, the complainant is growing old while waiting for the wheels of justice to turn. An ‘average’ turnaround time of 233 days is unacceptable!

Complaint statistics reflect a struggling short-term industry

The record recoveries come on the back of 12 316 complaints – compared to 12 476 complaints in 2007 and 12 898 in 2008. “The decline in the number of complaints received is difficult to explain,” said Martin. Martin observed that complaints to the FAIS Ombudsman – the body tasked with handling complaints about financial advice – shot up by 30% year-on-year 2009. And that begs the question: Why are complaints in the short-term insurance space in decline?

One possible explanation is the high number of policy lapses and cancellations in over 2008/9. Insurance claims fell in sympathy with the recession-linked declines in insurance business. Martin added: “The office noticed a significant increase in the incidence of complaints involving the payment of premiums, indicating that consumers often found themselves unable to maintain their payment obligations to insurers, or did not fully realise the dangers of ‘churning’ cover from one insurer to another in an endeavour to save premium.”

Although the OSTI received 5% fewer complaints the staff were kept extremely busy. They closed an impressive 12 792 files and dealt with more than 100 000 incoming calls over the reporting period.

Second time lucky

The latest short-term complaints statistics suggest the insurers are taking more chances than before. Martin reported an overturn rate – complaints resolved in favour of the insured after initially being declined by the insurer – of 38.44% (up from 37% previously). According to Martin: “This slight increase may be a reflection of the increased attention paid to detail in the assessment of individual complaints, the greater application of the principle of proportionality, whether there was intentional conduct on the part of the insured, and the increased enforcement of the Policyholder Protection Rules.” Consumers should definitely consider the OSTI route if there is any uncertainty over the ‘fairness’ of their insurers’ initial decision.

In most cases the insurer and insured settle the complaint based on the Ombudsman’s initial recommendation. But there are cases where the OSTI has to make a formal ruling. In 2009 the Ombudsman made a single formal ruling, “a reflection of the ongoing efforts made by the office to engage, at all levels, with insurers to promote a better understanding of the approach followed by the office to many common problems experienced on a daily basis.” A number of ‘high volume’ complaints appear to have been resolved too – especially issues relating to professional driving permits

Tough times for personal lines insurers

Numerous challenges lie in wait for short-term insurance stakeholders in 2010. The biggest will probably be the introduction of the Consumer Protection Act (CPA). “There is a perception that many parts of the sector have been exempt from the provisions,” said Martin. This is incorrect! “The sector has been afforded a ‘window’ in which to align to the principles contained in the Act.” He said. The OSTI will apply the principles and provisions contained in the Act in decisions and rulings from the effective date!

“The South African economy lost 771 000 jobs in the 12 months to September 2009,” said Martin. “This significant loss in the number of formal jobs in the economy, and the knock-on effect that this would have had on disposable incomes, no doubt had a significant impact on the personal lines insurance market.” Short-term insurance remains a grudge purchase, and one of the first to be ‘sacrificed’ during times of financial hardship.

Editor’s thoughts: Time is money – except in the world of short-term insurance dispute resolution… Short-term insurance complaints are taking an average of 233 days to resolve, over and above the time consumed by the insurer during initial claim rejection. Who is responsible for the appalling turnaround time at the Office of the Ombudsman for Short-term Insurance? Add your comment below, or send it to gareth@fanews.co.za

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Added by yolande, 12 Apr 2010

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