Compliance with the provisions of the Code

In the FAIS Ombud March newsletter, there was important information regarding the minimum-security requirements for motor vehicle insurance and all risks insurance which we thought would be interesting to share with our readers.

Case Study: CD v P
The Complainant had insured his Toyota Fortuner on 27 September 2021. On 01 April 2022, the vehicle was stolen, and the complainant filed a claim against his short-term insurance policy. The insurer, however, rejected the claim on the basis that the complainant did not comply with the minimum-security requirements as the vehicle was supposed to have been fitted with a tracking devise. The complainant’s vehicle was not fitted with a tracking device at the time of the loss.

The complainant claimed that he was never informed of security requirements for his vehicle or that noncompliance would result in him not enjoying cover in respect of theft and or hijacking. The complainant, therefore, approached the Office for assistance in having this matter resolved.

In its response to the Office’s initial correspondence the respondent claimed that it had submitted the revised policy schedule and product provider policy wording to the complainant via return e-mail on 28 September 2021, and that it had clearly reflected the Toyota Fortuner’s security details stating the presence of a tracking device and immobilizer.

The respondent argued that the policy schedule explicitly stipulated that the Broker must be informed of any discrepancies within 31 days after the print date of the policy schedule, after which the broker will not be liable for errors or omissions. According to the respondent, the information contained in the policy schedule and policy wording provided to the client at the time were clear and concise. The respondent did, however, admit that the specific security requirements had not been highlighted to the complainant, but remained of the view the policy schedule and policy wording sent to the client’s e-mail address was sufficient to ensure that he was aware of the requirement for a tracking device.

The matter was then escalated in terms of Section 27(4) of the Financial Advisory and Intermediary Services (FAIS) Act, and the Office responded that the respondent had not taken reasonable and diligent steps to alert the complainant to the tracking device requirements. This was even admitted to by the respondent, and despite its claims that the provision of a policy document/schedule was sufficient, the Office stated that merely providing the complainant with a policy wording does not comply with Section 7(1)(cii) of the General Code of Conduct for Authorised Financial Services Providers and Representatives (‘the Code’).

The ability to make an informed decision can only be made prior to the conclusion of the transaction, according to the Office, and can never be made post facto by sending a policy wording to a layperson and expecting that person to appreciate the implications of any material terms if those material terms had not even been raised by the FSP during its interactions prior to the conclusion of the transaction.

The Office recommended that unless the respondents show compliance with the provisions of the Code, they look to resolve the matter with the complainant. The respondent made a decision to resolve the matter in full and final settlement, for R644 000, which was accepted by the complainant.

Case Study: K v K

Upon arriving home, the complainant parked her vehicle and went inside to do a few things before she had to go to the chemist. When she went outside again, she saw the passenger door open and realized that her camara and camera bag were stolen. She further advised that that the camera bag with the camera had been on the back seat. The complainant then submitted a claim in terms of the All Risks Benefit of her policy as the camera was a specified item, for which she paid a separate premium. The complainant was then subsequently advised by that the claim had been rejected due to the items not having been concealed. The complainant, who is a freelance photographer was significantly prejudiced as a result of this as was unable to work and was upset that the cover which she had applied for to specifically provide for instances such as this, had failed her when she needed it most.

In its response to the Office, the respondent confirmed that the claim was rejected due to the fact that the complainant did not enjoy cover as the items were not concealed in an enclosed storage area of the vehicle. This is despite the fact that the camera had been specified on the policy. The respondent also confirmed that this is provided for in the policy wording, which states that there is no cover for items stolen from an unoccupied vehicle if the items were not concealed in an enclosed storage area such as the cubbyhole, boot or a retractable or removable boot cover. The respondent reiterated that it was evident from the complainant’s incident description that the items were not stored in an enclosed storage as the front and back seats of the vehicle cannot be considered as an enclosed storage area.

In response, the Office wanted the respondent to advise whether the complainant had been advised during the inception of the policy that no cover would be provided if items being specified are not concealed should the vehicle be left unoccupied. Section 7(1)(c)(vii) of the Code provides that concise details be provided of any special terms, exclusions or instances in which cover will not be provided. This is to ensure that a client such as the complainant is placed in a position to make an informed decision which itself is required in terms of Section 7(1) (a) of the Code. The Office was therefore of the view that this was a material disclosure as the expectation created by specifically specifying an item and paying an additional premium for it, is that it will be covered for any eventuality.

The Office stated that it is important that FSPs manage a client’s expectations by alerting them to exclusions such as this, to ensure that they are placed in a position to comply with the requirements of the policy and not be blindsided in the event of a claim.

The Office therefore recommended that unless the respondent was able to show compliance with the provisions of the Code, that it looks to resolve the matter with the complainant. The respondent reverted that it had made an undisclosed offer to the complainant in full and final settlement, an offer that was accepted by the complainant.

Valuable lessons learned

What were the lessons learned in case study one? According to the Office, compliance with the minimum-security requirements for one’s vehicle, such as the requirement of a tracking device or early warning system is vital to ensure that one enjoys cover in respect of theft and hijacking. In addition to installing an early warning system of tracking device, it is important to ensure that the unit is in working condition. A faulty unit that was not working at the time of the theft or hijacking will jeopardize the client’s claim.

What were the lessons learned in case study two? According to the Office, even if an item is specifically insured in respect of Specified All Risks cover, it does not mean that the cover provided is carte blanche, and that there will be instances where cover will be excluded. Secondly, the FSP must explain all instances in which cover may not be provided to the client. In addition, one must always take steps to ensure that he or she, as far as possible, looks to mitigate the risk of loss regardless of whether or not the item is provided for on the policy.

And lastly, when one specifically specifies an item on his/her short-term insurance policy, he or she should always ensure that he or she can provide proof of purchase together with a valuation certificate so that these can be provided should he or she need to claim.

Writer’s thoughts

There was valuable information from the case studies on minimum-security requirements for motor vehicle insurance and all risks insurance. Do you believe in both cases the respondents failed to comply with the provisions of the Code? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].

Comment on this Post

Name*

Email Address*

Comment*

 

Submit Comment