Annual review of short-term policy essential
The latest FAIS Ombud determination is another victory for the consumer. In finding for the complainant, Anthony Naidoo against Absa Brokers (Pty) Ltd, Ombudsman Charles Pillai once again underlines the level of ongoing financial service required when ‘managing’ a client’s short-term insurance portfolio.
Setting the scene
The facts of the case are simple. In May 1999 Naidoo entered into a contract for short-term insurance with Absa Brokers as the intermediary. The policy was jointly underwritten by Mutual & Federal Insurance Company and Santam. Four years later, in July 2003, Naidoo added a new vehicle to this policy. His Toyota RunX RSI was valued at R200 000 at the time. What followed is typical for a short-term insurance policy. In March 2004 and March 2005 Naidoo received renewal letters for the policy. Each renewal letter contained a paragraph which reads: “In your own interest it is necessary to update the sums insured at regular intervals to avoid the negative effects of underinsurance. The omission of regularly revising the value of insured property to take account of the increasing rate of inflation, VAT and the diminishing value of the rand is having an adverse effect on the adequacy of sums insured.” That seems sensible enough. But the question arises: “Who is responsible for updating the vehicle’s insured value?”
In this case the insured’s vehicle was kept on the policy at its original value. Naidoo continued paying monthly premiums on R200 000 through 2004 and 2005, despite having had the opportunity to ‘lower’ the insured value on the vehicle at the policy renewal date in each of these years.
A moment of clarity
In February 2006 Naidoo contacted Absa Brokers with the view to adding another vehicle to his policy. During these discussions he realised that he was paying too much in premium for the Toyota RunX as the premium had never been adjusted for inflation. He instructed Absa Brokers to adjust the value, which they duly did. But Naidoo wasn’t prepared to leave the matter there.
He asked Absa Brokers three questions: First, why the vehicle remained insured for the original price from the date of purchase? Second, whether he qualified for any discount or reduction in the premiums already paid? And third, why the respondent didn’t alert him to such discount or reduction in premium? Their response was that “the onus of ensuring that the vehicle is insured for the correct yearly market value rests upon the complainant and not the respondent.” They also claimed that without full details of “accessories or modifications” to the vehicle they wouldn’t be able to determine a yearly value on the vehicle. This view was echoed by the insurance underwriters who referred the insured to the request to update insured values included with each renewal letter.
Unhappy with these responses, Naidoo then asked the underwriter why he shouldn’t receive a refund of the excessive premium paid between July 2003 and February 2006. When no response was forthcoming he took the case to the FAIS Ombud.
The insurance broker held to account
In their initial response to the complaint, Absa Brokers contend that the complainant “would have been duly informed of his obligations in terms of his policy, specifically with regard to ensuring that items insured under the policy were insured for the correct value.” They also maintained that the FAIS Act didn’t apply to this particular contract because it was taken out in 1999. The FAIS Ombud was unmoved by their defences.
He quickly dismissed the respondent’s attempts to escape the provisions in the FAIS Act. According to Pillai, “It is clear that upon renewal of the policy after the FAIS Act came into operation a new contract arose once again and the respondent had to comply with the Act’s provisions including the one that he must at all times act in the interests of the client.” Pillai also had some hash words for the insurer: “The insurers conduct, also does not inure to the principles of fairness, consumer protection or the integrity of the financial services industry. I am confident that the regulator will take appropriate steps to prevent this type of conduct occurring in the future.” The Ombudsman ordered Absa Brokers to pay the complainant R2 102.30, being the amount of excess premiums paid due to the vehicle value not being adjusted downward in 2005.
This determination outlines the level of service expected from financial service providers in the short-term insurance space. It’s not enough to simply forward an annual renewal letter to the client… Instead the broker should use this opportunity to communicate with the client, remind the client of the conditions on the short-term insurance policy and make sure the values on the client’s insured goods are correctly reflected on the policy schedule. Failure to do so is a failure to “render the financial service with due skill, care and diligence and in the interests of the client.”
Editor’s thoughts:
If you can learn anything from the latest FAIS Ombud determination it’s that you cannot ‘assume’ that your client knows anything – and you have to approach every aspect of your relationship on that basis. Explain the policy at date of inception and repeat every year until the client chooses to cancel it. Do you communicate with your client when his short-term insurance policy is up for renewal – or do you simply forward the policy renewal letter to the client? Send your comments to [email protected]
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