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Increased claims are a sign of the times

04 June 2019 Jonathan Faurie
Advocate Deanne Wood

Advocate Deanne Wood

Over the past three years, the South African economy has faced tough times. This has filtered down to the financial services industry where policyholders are feeling the pinch of the economic environment; these effects are being felt by the financial services industry where it is a case of business unusual as opposed to business as usual.

In 2018 the Ombudsman for Short Term Insurance (OSTI) closed 9 474 complaints out of 9 779 formal complaints and 4 026 preliminary matters received. They recovered more than R87 million in favour of consumers. This was roughly in line with 2017’s statistics where 9 962 complaints were closed and just over R87 million was recovered. 

In an exclusive interview with FAnews, Advocate Deanne Wood, the Ombudsman, discussed the impacts of the economic climate on the insurance industry as well as some of the trends that the Osti reflected on in its 2018 Annual Report. 

Is there a correlation between a tough economic climate and the industry’s claims statistics?

Yes, we are noticing that there is a correlation between a tough economic climate and the frequency of claims. 

Policyholders are now finding themselves in positions where they will claim for the small stuff as well as rethinking their position of holding off claims in order to qualify for a no claims bonus. The frequency of claims is increasing and has been doing so for the past three years. 

We are also seeing instances where policyholders are becoming more aggressive when it comes to claims settlements and will voice these concerns with insurers if they feel that their pay-out was insufficient. 

What are some of the common trends that the Osti has found in the industry?

As expected, most cases in 2018 related to motor vehicle claims which made up 48% of all complaints submitted to the OSTI. The nature of most of these motor vehicle claims relates to the settlement amount that the insurer offers the policyholder. 

What is interesting is that matters of misrepresentation have decreased by 22%. This means that policyholders are taking disclosure very seriously and are being open and honest with insurers at policy inception. 

What is concerning is the fact that matters of due care have risen by 48%. Insurers are increasingly using this to reject a claim because they can prove that the policyholder showed blatant disregard during a claims incident and intentionally caused danger through their actions. An example of this is driving a motor vehicle following a serious accident which would cause more damage to the vehicle or would cause danger to other vehicles on the road. 

The second highest number of claims related to homeowner’s insurance. In 2017, we saw a lot of complaints being forwarded to us that were weather related events. In that year, the industry had to deal with the Knysna Fires and the KwaZulu-Natal floods. 

In 2018, there was a significant shift. Most claims referrals to the Osti in 2018 related to wear and tear. These are cases where policyholders cannot afford to maintain their houses and then suffer a loss. This is a further sign of the tough economic times that they must deal with. They simply cannot afford to maintain their homes. 

What are some of the biggest challenges we as an industry are currently facing?

There are several challenges that the industry is facing, but I will focus on one. 

There are a lot of regulatory changes that BREAK are taking place in the industry which is changing the way that insurers are doing business. This also means that there are a lot of changes when it comes to brokers, and certain brokers (who are in the minority) often do not take the time to fully discuss the implications of understanding policies with clients and the intricacies related to it. We are seeing this in some of the cases that are being referred to us and some policyholders do not always fully understand the mechanics of their products. 

This is not necessarily because of poor advice. An insurance contract is a bi-lateral contract which means that there is a responsibility on the insurer and the insured to fully understand how a product works. In the future, the Financial Sector Conduct Authority (FSCA) is going to get tough when it comes to advice and its appropriateness. Compliance will be a major issue in the future. 

Editor’s Thoughts:
If the OSTI feels that there is an increase in policyholders not understanding their policies, surely this is a warning to the industry and an indication that brokers have a greater role to play. Once again, you are an important industry role player.  Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

Comments

Added by phyllis gallagher, 04 Jun 2019
there's none so deaf as those who do not wish to hear. Clients do not want to sit in long discussions about their cover they just assume that there policies cover every event which could possibly take place and wonder why their claims are not paid to their expectations. Even if you send a letter they do not have time to read the letter!!!
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