From TGIF to OFIF IN 60 SECONDS

The quick "hold covered" late on a Friday afternoon, based on solid relationships you have established over many years, could just transform TGIF into OFIF.

It is 16.30 on Friday and you are looking forward to a drink before going home. Just one with Peter of Bellville Ins. Co. The phone rings and you almost instinctively know it is a motor dealer wanting 'proof of insurance'.

Indeed, it is a motor dealer, informing you that your client is on his way to the dealership to take delivery of his new Saturn 4 by 4. Of course, the dealer needs proof of insurance on the purchase price of R1.2 million.

Tough decisions

Well, the insurers have closed shop for the week, but you do have an authority to place the Paris Ins. Co. on risk for any vehicle up to R300 000. You know that the Bellville Ins. Co. have facilities to insure vehicles with a value up to R1.5 million, but the representative, Peter, has knocked off work already and is waiting for you at the local pub.

So what do you do? You tell the dealer that the client did not tell you about his new purchase and that it is too late to get cover confirmed. The dealer mentions that your client instructed him to phone another broker if you cannot assist, one which has been after his business for some time. You have only retained the account due to your relationship with the client and the fact that you have looked after him successfully for years. He spends over R1 million in premium and is still expanding.

How many choices?

Now what do you do? You have only one option, but you think that maybe you could have two options. The correct option is to phone Peter of Bellville Ins. Co. and get him to 'hold covered'. But you decide that since your client has not had a motor claim in all the years you have known him, you will confirm cover and fix things on Monday. But just to make sure that you have covered your back, you phone Peter on his mobile phone and tell him to 'hold covered', even though Peter, who has already had a couple too many, is only interested in meeting you at the pub.

So everything seems OK. You fax a 'hold covered' confirmation to the dealer, noting that the Saturn 4 by 4 is insured by the Bellville Ins. Co. for R1.2 million.

Reality check

On Monday morning you receive a fax stating that the Saturn was involved in a bumper bashing with a small car on Saturday morning. The small car, however, in turn bumped a Rolls Royce. The cost for replacing the Saturn's bumper is R100 000.

You try to contact Peter, who is now on leave and his mobile phone is switched off. You contact the claims department of the Bellville Ins. Co. who are sympathetic but have no record of any 'hold covered' on a Saturn 4 by 4 for your client. No worry, Peter will be back in one week to sort things out.

Nightmare starts

On the Wednesday, the client phones to say that the small car owner has phoned to say that the car is a write-off, but her policy was cancelled due to non-payment. She is demanding payment as well as a replacement car while the claim is being settled. On Thursday, the owner of the Rolls Royce, XYZ Weddings, confirms that the cost of repairs is R50 000, which must be done within a week, since it is booked for a wedding.

Crisis deepens

When Peter gets back to work, his total 'un-winding' week away is destroyed. His boss calls him into his office, demanding to know why he accepted the risk. Peter denies acceptance on the basis that he was at the pub and that it was after 17.30 when you phoned. He can't remember much of the conversation. There was some mention of a Saturn 4 by 4 vehicle, but he does not remember holding covered. He will check his notes and revert.

Now this boils down to 'one word against another'. As a valued broker to Bellville Ins. Co. Ltd. you expect them to support you and settle all the claims. As for Peter, you expect him to agree that he did in fact 'hold covered'.

In this case everything works out fine. Bellville Ins. Co. settle the own damage to the Saturn 4X4, the 20 days car hire, the small car write-off and the Rolls Royce repairs, via the other insurer. A close shave, but what you would expect of a reputable insurer dealing with an honest broker.

Loss ratio: the pivotal point

But if the Saturn was a write-off costing a million rand more, and not just a bumper replacement, how accommodating would Bellville Ins. Co be? It may well boil down to the broker's loss ratio and what a claim of this size would do to it. Loss ratios of 50% to 65% would not usually be a problem, but push these up to 65% or 80% and the insurer's attitude is likely to change to negative assistance. Now, add a claim of R1.3 million and watch the loss ratio hit the 'no can do' button. This would then convert into a PI claim which the PI insurer would not be happy to accept.

The only right way

To protect yourself in this scenario, the following should have been done:

1. Get Peter to confirm the 'hold covered' acceptance via an SMS.
2. Download the SMS and print a copy.
3. Copy this to the dealer for the finance house's records.
4. Copy it also to the insurer so they have a copy for their records confirming who agreed to 'hold covered'.
5. On the Monday, firm everything up, by finalising the terms, including the premium and excesses, and arrange for the policy to be issued.

Remember that the 'hold covered' provisions normally require that the details be firmed up and finalised at the first business day opportunity, not sometime in the future.

Do your employees know?

Brokers are not insurers and therefore have no right to confirm insurance coverage for anything that the insurers have not mandated them to accept on their behalf. A copy of this mandate should be given to every staff member or representative in terms of FAIS, so everyone in the office is completely aware of their authority.

Christmas is fast approaching and expensive presents may still be purchased. Finance houses will still need 'proof of insurance' before allowing the seller to release the goods, be it a vehicle, boat, motor cycle, jet ski, quad cycle or jewellery.

So TGIF is a good saying, but be warned that sometimes it could turn around and become Oh Blast It's Friday (OBIF) or OFIF which is different from First In First Out.