The regulator must intervene sooner to save consumers from skulduggery

“What if the insurance company you’re paying your premiums to every month is just pretending to be an insurance company, treating clients’ premiums as pure income – going through the motions of claims approval – and then just not paying?”

This question was posed by consumer journalist Wendy Knowler in an article highlighting the shocking treatment of its clients by Pinetown-based Model Insurance. She says that the company has been operating since 2011, “offering low premiums and incentivising existing clients to refer new clients to them.”

According to at least six clients the insurer (sic) had no problem giving the go-ahead for repairs to accident damaged vehicles; but failed to follow through on payments to panel beaters and towing companies once the repairs had been completed. In cases highlighted by the media two consumers are still waiting for payments on claims submitted and authorised in February and May 2012 respectively.

This means that as many as 884 clients countrywide have been paying insurance premiums totalling around R250 000 per month arguably without cover. It has since emerged that Model Insurance, owned by Pieter de Wet, was trading without the required license from the Financial Services Board (FSB).

De Wet, meanwhile, alleges that the company is just five months from receivership which would make Model Insurance another in a long line of financial services failures to rock South African consumers.

“The experiences that clients have allegedly suffered at the hands of Model Insurance are wholly unacceptable,” says Barry Taylor, Chair of the Short Term Insurance Executive Committee at the Financial Intermediaries Association of Southern Africa (FIA). But he warns that such incidents are on the rise in a market where consumers increasingly transact for low cost motor vehicle insurance products without the benefit of financial advice.

“While we applaud attempts by both insurer and insured to reduce the cost of their motor insurance premiums we would urge both parties to make sure they understand the terms and conditions – including exclusions – in their policy wordings,” he says.

“The first line of defence for a consumer transacting for short term insurance is to transact with an FSB-licensed insurer, preferably a member of the South African Insurance Association (SAIA) – and from an FIA perspective we would urge consumers to transact with the assistance of an FIA-member broker.”

Could the entire debacle have been avoided with tighter enforcement? In FAnews, August 2013, the FIA pleaded with the FSB to consider how regulation, shifting compliance deadlines, rising compliance costs and a pending remuneration review would impact the country’s risk and financial advisors.

The organisation observed that current regulations offered more than enough protection to consumer, intermediary and insurer – provided they were properly policed. “What is at issue, once again, is that a company has been allowed to trade for lengthy periods without having the proper licenses in place,” concludes Taylor.

“While we commend the FSB for promising swift enforcement action today, that action is two years overdue for the clients that have been religiously paying their insurance premiums while patently uninsured.”