Moonstone: Keeping Clients Informed
The Stunden determination, issued on 12 September 2013, reiterates the importance of understanding your business, and keeping your clients informed of material changes.
A client requested cover on a new property in June 2004, months before the FAIS Act became effective. At the time, the client had burglar guards in front of all the ground floor windows, and an alarm and armed response facility for the top story of his dwelling. This was, in the view of the broker, in line with the product provider’s requirements.
In July 2009, the insurer advised the broker of new security requirements, in the light of an increase in burglaries. With effect from 1 September 2009, “…the security measures in Knysna area will be burglar bars and security gates, holiday homes still require linked alarm.”
The wording in the policy schedule reads:
“…burglar bars be fitted to all windows including louvers that can be opened, security gates fitted to all exterior and sliding doors and a linked alarm system is installed in a private residence which is connected to a 24 hour control room of a security firm”.
A claim arose in June 2010. Burglars gained entry by means of ladder through a top floor window. The alarm was triggered, but they still managed to escape with goods to the value of some R46 000.
The claim was repudiated on the grounds that the client did not comply with the security requirements. The Short-term Ombud agreed with the insurer, but a complaint was laid with the FAIS Ombud on the grounds that the advisor did not convey the new requirements to the insured.
From the notes provided by the Ombud, it seems that the broker misinterpreted these requirements. It appears that he missed the point that ALL windows should have burglar guards. The fact that the insured was of the same view indicates that the real requirements were not conveyed to him.
The first point that I would like to highlight is the fact that a short-term policy is an annual contract. This was confirmed when the Ombud rejected the broker’s claim that the business was concluded before the FAIS Act became effective. Apart from the legal obligation to make regular contact with the client, one is also required to convey material changes such as those outlined above.
Secondly, one should make sure that you understand the contract, as well as any changes that are made over time. The broker sent the client a renewal schedule once a year, requesting details of any changes to the schedule. What he did not do, was to explain the material changes applicable from September 2009. This was possibly due to the fact that the broker misinterpreted the new requirements, and was therefore not in a position to convey it to his client.
The third lesson from this determination is that you need to convey material changes to the client in a manner which will enable him to determine and evaluate the impact therof on him or her. What is very important is that such communication should pass the “reasonable man” test.
Very importantly, you need to keep a record of such communication. The first prize is of course to convey such information to the client personally, or at least get written confirmation of receipt and understanding of the contents of the letter. A “Read receipt” in respect of communication via e-mail will also do no harm.
Much as many people hate it, effective record keeping is an essential survival tool in the modern jungle we operate in.
Please click here to download the determination.
