Insurer’s mishap shows importance of advisers

Myra Knoesen, FAnews Journalist

Dates, specifically policy date and effective date, in the insurance world are critical and insurers each have their own definitions of those terms in their policies which they follow. A misunderstanding of the policy terms can lead to serious consequences for both the policyholder and insurer and, as is the case in this determination by the Financial Advisory and Intermediary Services Ombudsman (FAIS Ombud), we are once again reminded of the important role financial advisers play in giving the client valuable advice.

Babalwa Molate, the complainant, claims she unknowingly accepted a later date as the date of inception of a life assurance contract covering her and her husband. She concluded the contract on 23 March 2015 with date of inception of the contract noted as 1 May 2015. However, before the life cover incepted, her husband was killed in a motor vehicle accident on 18 April 2015, just 26 days from the date of concluding the life assurance with the respondent, Discovery Life Limited. She claims she and her two children are now left with no financial means to support them, a situation she alleges would not have risen had she been appropriately advised.

Where it all began

Discovery Life’s records show that Molate had made an enquiry regarding life cover. This enquiry led to the call made by Discovery Life’s direct marketing division on 23 March 2015. Through the telephonic interaction, Molate concluded a life cover contract for herself and her late husband. She was the contract owner and first life assured while her late husband was the second life assured. She was informed during the call that the commencement date would be 1 May 2015. The agent advised Molate during the call that it was ‘a little too late’ in the month to begin the policy in April, a statement Molate accepted as a fact.

Sometime after the death of her husband, Molate called Discovery Life’s offices to lodge a claim. She was told by a claims administrator that her husband had no life cover because he had died before the policy incepted. The claims administrator apparently advised Molate that Discovery Life does offer Immediate Life Cover for the full amount chosen, suggesting that Molate could have had the life cover commence immediately.

On 8 June 2015, Molate received Discovery Life’s first letter of rejection. The letter reads, “Dear Mrs Molate, we have assessed the claim after the death of Lehlogonolo Abner Molate who passed away on 18 April 2015. The late Lehlogonolo Abner Molate applied for the above-mentioned Discovery Life policy on 30 March 2015 and on the application form selected a future start date of 1 May 2015 as the date of commencement of cover. Unfortunately, we have declined the claim under the Immediate Life Cover Benefit. The reason for the decline is because the life assured passed away before the selected future date when cover would have started. Immediate Life Cover does not pay out when a future date is requested.”

In her letter dated 21 September Molate responded, “I believe I was denied the choice to have full immediate cover due to incorrect information at the point of sale. I was ill advised by the sales consultant – as a result, I did not get the full pay out I would have if I had been given the correct information.”

The other side of the story

To assist call centre agents to meet the requirements of the FAIS Act, Discovery Life created a script to guide them during the course of rendering advice. This states: ‘If you sell a policy between the first and tenth of the month, please arrange Date of Commencement for the first of the coming month. If you sell a policy between the 11^th and 30^th/31^st of the month, you must arrange Date of Commencement for the first of the month after next. If clients want the Date of Commencement to be immediate please inform clients that they may be double debited if their application cannot be processed in time’.

The guidelines, according to Discovery Life, have been put in place to minimise prejudice to clients. Such prejudice could come from delays relating to medical underwriting and possible double debit for premiums.

A further point raised by Discovery Life was that Molate had neither objected to the date nor requested an earlier date even though the date was repeatedly confirmed during the course of the call. Discovery Life also submitted that its agent had informed Molate of the Immediate Cover Benefit and the payment of R400 000 in the event death were to occur while Discovery Life processed Molate’s application.

Discovery Life claims that Molate had ample opportunity to change the date of commencement of the policy during and after the sales call, but Molate chose not to do so.

Determing the matter

Molate seeks payment of R1 600 000, being the balance remaining from the amount of R2 000 000 life cover, after deducting the payment made by Discovery Life of R400 000. To bring the claim within the jurisdictional limits of the Office, Molate agreed to forego the amount in excess of R800 000, which brings the claim to R800 000.

According to the FAIS Ombud, Molate was not advised that she has the right to choose the date of inception, nor the right to object to the date given to her.

The Office says Discovery Life narrowed the problem to the question of dates and failed to take Molate’s circumstances into account when providing advice. As such, an order was made that Discovery Life pay Molate an amount of R800 000, minus the premium applicable for the months of March and April 2015 when cover should have incepted.

A final thought

Insurance can be confusing for clients. With this, we are reminded that financial advisers play a vital role when it comes to giving the most effective advice on cover for life-changing events.

Editor’s Thoughts:

With the above mentioned, one would think with all the records of advice and valid arguments stated, Discovery Life would have been upheld. This just shows, in advising, one can never be too careful. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts myra@fanews.co.za.

FAnews reached out to Discovery Life for comment and this is what Gareth Friedlander, Head of Research and Development for Discovery Life had to say: 

“We respect all determinations made by the FAIS Ombud. We remain committed to facilitating a seamless underwriting process for our clients, both providing them with optimal cover from the outset of our interaction and ensuring that their ultimate cover is a match to their unique needs. We will continue to streamline our processes to cater for the needs of our valued clients. We have already amended our product rules to ensures that our clients are covered for up to 30 days before their policy officially commences. It also reduces risk to our trusted financial advisers when assisting clients to select life policy commencement dates.” 

Discovery Life has paid a full policy benefit to Mrs Babalwa Molate – an amount over and above the sum determined for payment by the Office. During this first stage, Discovery Life provided Mrs. Molate with immediate cover of R 400 000 while the policy undergoes underwriting (and before the client has been formally accepted) which Mrs. Babalwa received. The insurer paid R800 000, with interest following the determination by the Ombud, to Mrs Molate and furthermore, decided to pay Mrs Molate a further R 800 000 over and above the amount directed by the Ombud, totalling to R 2 000 000 of cover applied for prior to her husband’s passing.