Short-term insurance ombudsman cracks the whip
It has always amazed me how long it takes to resolve disputes in the short-term insurance space. When I perused the Ombudsman for Short-term Insurance (OSTI) 2011 Annual Report the average turnaround time to resolve complaints was a staggering 223 days. E
The OSTI has also reduced the number of complaints that remain unresolved for periods longer than six months from 1309 (year-end 2011) to 522 at 30 September. With a bit of luck – and a lot of hard work – the organisation could clear this backlog in time for their next annual report. The rand value of complaints resolved by the OSTI in favour of consumers jumped by R1 million to R88 million over the first nine months of the year. There was a slight decline in the total number of complaints received, to 7210, over the period. Even so, there is more than enough of a complaints backlog to keep the schemes’ employees engaged!
The age-old ‘missed premium’ rejection
As soon as I receive the OSTI quarterly update I turn to the case study section. I enjoy discovering how the insurer and insured resolve difficult complaints with the Ombudsman’s guidance, and in some cases persuasion. The case I examine today deals with the rather common rejection of a claim due to a missed premium. A claim was submitted under a personal lines insurance policy for a vehicle which was involved in an accident on 4 November 2011. After declaring the vehicle a write-off the insurer rejected the claim on the ground that the insured did not meet his premium payment for the month in which the incident occurred and was therefore not on cover at the time. Was the insurer justified in rejecting the claim?
Before we reach any conclusion we must consider the facts. The agreed deduction date for the insured’s premium was the 15th of the month and the relevant policy wording, provided here courtesy the OSTI, reads as follows:
“General Conditions:
3. Continuation of cover where premium is payable by debit order:
a) The premium is payable in advance. The insured will have the choice of 3 bank debit order dates for premium payment, namely the first working day of the month, or the 8th day of the month (or the first business day after this, should this day not be a business day), or the 15th day of the month (or the first business day after this, should this not be a business day)
d) Where the insured’s debit order date choice is the 15th of the month, there will be no further debit order presented if the first attempt is returned by the bank, and there will be no cover for that month”.
This plain and simple policy wording seems clear enough. So what went wrong? And how did a dispute arise? You will no doubt be intrigued by what follows.
Insured did not pay post-accident premium
“The insurer was of the view that as the premium was not received on 15 November 2011, there was no cover for the loss which occurred on 4 November 2011,” notes the Ombudsman. “The policy wording clearly stated that should the insured elect the 15th day of the month to pay his premium, he would then not qualify for a grace period and no further attempts to collect the premium would be made by the insurer”. Although the insurer’s reason for rejection seems disingenuous, we must consider that the mid-month premium deduction is actually to pay for cover for that month. In terms of the policy wordings the insured was therefore off risk due to his non-payment.
The insurer changed its tune slightly after the complaint was lodged with the OSTI. They considered the insured’s extenuating circumstances (more on that in a moment) and offered to settle the claim on an ex-gratia basis by paying two thirds of the claim with the insured liable for the balance. The insured was apparently hospitalised for three days immediately following the loss event and had to return to the hospital for treatment on 14 November 2011. The Ombudsman notes that the insured rejected this offer. “The vehicle was still financed and the insured was not able to pay the shortfall to the finance house as he was not deriving an income at the time,” he notes.
Balancing opposing views
An important fact is that the insured paid the outstanding premium, albeit late. In his complaint to the OSTI he indicated that he was of the view that his cash deposit directly to the administrator on 18 November 2011 would ensure uninterrupted cover for the month in question. He also indicated that he depended on the motor vehicle to earn a living. How would the Ombudsman untangle this mess?
At the outset the insurer was requested to provide an explanation as to why an ex-gratia offer was made to settle two thirds of the claim. I guess the Ombudsman wanted to understand why the insurer would make an ex-gratia payment at all. Their response: “The acceptance of two thirds of their liability was not based on any specific aspect / proportion but rather due to the insured’s inability to meet his obligation to pay his premium due to his incapacity to generate an income following the accident”. They concluded that the insured should bear a third of the responsibility for the loss.
Enter the Policyholder Protection Rules (PPR).
The OSTI believes that the insurer’s policy wording was in breach of the PPR “on the ground that the insurer elected the 15th day of the month as the deduction date”. Why? How could this possibly place the insurer in breach? PPR Rule 7.5 reads: “Periods of Grace. An insurer shall ensure that a policy contains a provision for a period of grace for the payment of premiums not less than 15 days after the relevant due date: Provided that in the case of a monthly policy, such provision must apply with effect from the second month of the currency of the policy”.
The insurer’s defence of the PPR breach was disingenuous. They argued that by allowing the premium to be deducted on the 15th of the month they had already provided the insured with the required 15 days grace period. The OSTI was having none of it. “The insurer cannot rely on the fact that by allowing an insured to elect the 15th of the month as his deduction date he or she is already granted a 15 days grace period,” he said.
It is amazing how quickly a ‘cut and dried’ decision – based on simple policy wordings – can be dragged through the mud. Not surprisingly the insurer was requested to, and agreed, to settle the claim in full. “The insurer’s policy wording was in breach of the PPR and as the insured had paid his premium by making a cash deposit on the 18th of November 2011, he had in fact paid his premium within the 15 days grace period and was therefore entitled to cover,” concludes the OSTI.
Editor’s thoughts: A quick look at South Africa’s National Credit Regulator report confirms that many consumers are in deep financial trouble. A consequence of this is that many insured miss premiums. Do you often encounter problems at claims stage due to missed premiums? Please add your comment or send it to [email protected]
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