Best of A Short-Term Innovation Too Far

01 November 2012 Gareth Stokes, FAnews

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Dismantling illegal inducements

In A Short-Term Innovation Too Far, 17 October 2012, we reported on a dispute between one of the latest entrants to the personal lines space and the Registrar of Short-term Insurance.

The Registrar referred a case against Discovery Insure to the Enforcement Committee of the Financial Services Board (FSB) following an alleged contravention of Section 44 of the Short Term Insurance Act (STIA). A penalty of R50000 was imposed.

Several mitigating circumstances were factored in. "We were satisfied that Discovery acted on the basis of legal advice; co-operated with the Registrar’s investigation; and that no policyholders were disadvantaged as a result of the contravention,” concludes Jonathan Dixon, Deputy Executive Officer: Insurance at the FSB.

What went wrong?

"As part of the product vision to encourage better driving, Discovery Insure offered exciting incentives to clients based on their driving behaviour,” says Anton Ossip, CEO of Discovery Insure. "These incentives included cash back on fuel purchases as well as discounts on travel and retail spend”.

The "Travel” and "Card Cash Back” benefits offered as part of the product were simply not legit. "These benefits did not form part of the policy benefits, nor did they directly relate to the risks being insured,” said the FSB. They determined that these benefits were an inducement to clients to enter into and continue short-term policies with Discovery.

"The test applied is that the benefits being offered may be considered an inducement if they do not form part of the policy contract or if they do not relate to the risk being underwritten,” adds Dixon. "In this case certain benefits such as the discounts offered on flights with partner airlines failed the test”.

Already fully compliant

Discovery has already removed the contravening benefits and restructured the product to simplify and enhance benefits for all of its policyholder. "We pride ourselves on the highest standards of governance and compliance,” says Ossip. "We changed the product structure on 1 August 2012 by removing the offending incentives and instead boosting the incentives that were deemed appropriate”.

The bottom line is that instead of fuel "cash back” incentives and discounts on travel and retail spend, current and future Discovery Insure clients will receive higher fuel cash backs incentives for good driver behaviour only.

We asked our readers if they could think of other "practices” that the Registrar may wish to investigate. Most of their concerns centred on the inducements offered to clients to sign up with a particular insurer (direct or intermediated) or broker.

Gifts for new policyholders

The TomTom navigation device offered to new policyholders by Dial Direct is one… Another is the on-going R400 ‘cash back’ paid out in the event Outsurance cannot match a consumer’s existing motor insurance premium.

Retention strategies at the country’s largest direct insurer are also under fire. "One of our clients was quoted a better premium than his existing Outsurance premium,” writes a reader "He accepted our quote with the condition that he installs a Level 3/4 immobiliser”.
"Outsurance’s retention department subsequently offered to pay him the R1500 that he spent on the immobiliser and he decided to stay with them on that basis”.

Not in clients’ best interest

An even worse example of business-linked inducements was the direct insurer’s decision to settle a claim only after the insured shopped around for a better premium! "Is either action in the best interest of these clients?” asks a reader. "In each case the client ends up with less cover, higher premiums and higher excesses because of a once-off inducement made to them!”.

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