OSTI ‘nails’ insurer

One of the biggest challenges in the financial services industry is to curb the cases of insurance fraud. While there is now increased protection given to policyholders, with the implementation of Treating Customers Fairly (TCF), this protection given to policyholders means that product providers find themselves on the back foot and must improve their communication with policyholders to ensure their own protection.

Open and honest communication has often been a criticism of the insurance industry for some time. Policyholders often feel hard done by when insurers rule in a certain way, while insurers may be completely justified in their rulings.

However, there are times when the insurers rule incorrectly and find themselves answering to industry regulators after policyholders seek restitution. And when insurance companies have to appear after negligence on their part, regulators are often unsympathetic in their findings.

Engage with the policyholder

This was the case with an incident highlighted in the recent newsletter by the Short-Term Ombudsman.

The complainant was involved in a motor vehicle accident on 3 June 2012. The accident occurred while he was attempting to overtake a large truck on the R51. A claim was submitted to the insurer, who repudiated the claim based on a policy exclusion which states that no cover will be provided in circumstances where the insured vehicle is not in a roadworthy condition at the time of the loss.

At the time of registering the claim, the insurer appointed an assessor to assist with the validation of the claim. The assessors could not find the certificate of roadworthiness among the e-Natis documents provided in respect of the vehicle. The insurer argued that the vehicle was deemed to be un-roadworthy in terms of the applicable legislation and for the purposes of the claim. According to the insurer, because the roadworthiness certificate was not available, it was unable to determine whether there had been any defects on the vehicle prior to the loss.

The insurer, further argued, that the vehicle had suffered extensive damage after the loss and this made it difficult for their assessor to review the components of the vehicle in order to determine whether it had been in a roadworthy condition or not at the time of the loss.

The insurer concluded that, from the complainant’s incident description, the possibility existed that the loss had been the result of a defect on the vehicle. The responsibility is then on the policyholder, in this instance, to prove his/her innocence by forwarding a copy of the roadworthy certificate to the insurer.

The Ombudsman’s view

The Ombudsman was of the view that the policyholder had demonstrated that an incident covered by the policy had taken place. In these circumstances, the complainant was not in breach of any clearly defined obligation of the policy.

As the insurer sought to rely on a policy exclusion to repudiate the claim, it was the insurer’s responsibility to establish the existence of the exclusion which they relied on. The insurer had to prove that the complainant’s vehicle was in fact not in a roadworthy condition at the time of the loss.

The absence of a roadworthiness certificate was not sufficient to prove that the vehicle was in an unroadworthy condition at the time of the loss. This could only be established by a physical examination of the vehicle. The Short-Term Ombud felt that the conclusions drawn by the insurer lacked justifiable grounds. The insurer argued that the complainant may have lost control of the vehicle due to either the steering, braking or suspension of the vehicle not being in a roadworthy condition. The insurer, however, failed to provide this office with any evidence to substantiate these assumptions.

It was also pointed out that the complainant’s vehicle had undergone an inspection on 24 April 2012 at the insurer’s insistence prior to the inception of cover. The inspection certificate recorded no damages to the complainant’s vehicle and its general condition was noted as good.

The Ombudsman overturned the insurer’s repudiation of the claim. The insurer then made an offer to the complainant, to settle the claim in full.

The role of the broker

Surely the insurer had to know that the inspection which they asked the policyholder to undertake on 24 April 2012 would have served as evidence enough to prove or disprove roadworthiness. Why would this not have been brought to the attention of the policyholder when the insurer knows that the Ombud will be consulted in cases such as this?

In terms of TCF, which came into full effect on 1 January 2014, the insurer is obliged to give the policyholder as much information as possible in order for him/her to be fully informed on his/her policy, possible exclusions and the types of documentation that will prove or disprove exclusions. Is this dealt with at the stage of policy inception or at the time of a possible claim?

If it is at the time of policy inception, then it is the responsibility of the broker to inform the policyholder accordingly. Encouraging policyholders to retain vital documentation is vital, as cases which are taken to the Short-Term Ombud does not cast the insurer in a favourable light.

But what happens in instances where wear and tear on a vehicle after the policy is undertaken affects the vehicles roadworthiness? In this case, should Government not be asking policyholders to undertake regular safety inspections on their vehicles as this will offer the financial services industry more protection?

In December 2012, the South African National Department of Transport published legislation for comments on 8 June 2013 on a regular regime of safety testing. The proposed amendments to the National Road Traffic Act, if it moves successfully through the legislative process, will see all vehicles older than 10 years being tested every 2 years from a date to be determined.

This will have a significant impact on the South African market. In an article published by FAnews in 2011, the Retail Motor Industry Association revealed that 45% of vehicles on South African roads are older than 10 years, and that many of these vehicles are not properly maintained, making them a hazard on the road. More than 20 000 un-roadworthy vehicles, including several buses and mini-bus taxis, were discontinued from use between October and December 2010.

This would see South Africa make significant strides towards similar legislation in Europe whereby higher registration fees are charged to vehicle owners who own cars over a certain age.

Editor’s Thoughts:
When the Financial Services Board (FSB) launched its plans for TCF, insurers and intermediaries asked the FSB what would be done to ensure that their interests are also protected according to the principles pointed out by TCF. Perhaps this needs to now go to the highest law makers in the country before the industry faces an untenable situation. Please comment below, interact with us on Twitter at@fanews_online or email me your thoughts [email protected].

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