The insurance sector must ‘be fair’ to car owners
The High Court matter between Durban-based Sherwin Jerrier and Outsurance has caused quite a stir in the industry, and for good reason. The insurance industry appears in an unflattering light yet again to the consumer, and because the judgment in this mat
The implications of the Pietermaritzburg High Court judgment have broad ramifications and Treasury has requested an urgent meeting with SAIA to make sure customers won’t be adversely affected by this judgment. Treasury seems to feel that insurers can use this judgment as a stick with which to beat car owners and is appealing to the industry to ‘be fair’.
The facts of the matter
Sherwin Jerrier sued Outsurance because the insurer had repudiated his claim for damages to his Audi R8 Quattro that were incurred in an accident in January.
Jerrier had failed to disclose two previous incidents involving his vehicle, self-funding R15 000 for a wheel replacement in April 2008 and R200 000 in accident damages in April 2009.
He only mentioned these incidents when he was interviewed by Outsurance’s investigator with regard to the most recent accident, and this was in breach of his policy which read: “…you need to … inform us immediately of any changes to your circumstances that may influence whether we give you cover, the conditions of cover or the premium we charge … this includes incidents for which you do not want to claim but which may result in a claim in future”.
The interpretation of the judgment leaves one to understand that consumers must now report every single scratch or incident, however minor, or face having their claims repudiated by their insurers. “Such interpretations seek to shift the onus onto customers, away from the short-term insurers, who needs to examine whether these disclosure practices are fair to the consumer and not out of proportion to the risk-based approach that is necessary for the insurance industry to function efficiently,” Treasury said.
Apply TCF before it has been implemented?
The conduct of insurers is under the spotlight, particularly with regard to TCF. Treasury is of the opinion that insurers should incorporate TCF principles into existing policy contracts and business practices despite the fact that the new market conduct framework has not yet been established. But this sets an odd precedent.
What is clear is that the Regulator will need to consider how the Twin Peaks model and TCF should address a matter of this nature in the future. At the moment, though, the key issue here is whether Jerrier or Outsurance, or both, were remiss – did Outsurance neglect to explain the finer points of the contract to Jerrier, in terms of the FAIS Act, or was Jerrier remiss, or perhaps willfully omitting mention of the incidents for one or another reason?
Christelle Fourie, managing director of MUA Insurance Acceptances, says that clients are obliged to inform their insurers of incidents but many don’t because they know this will affect their premiums or even jeopardise their cover.
The value of an intermediary
Financial intermediaries will doubtless find the matter interesting because if Jerrier had gone the intermediary route he may not have been in such hot water. Barry Taylor, chair of the short-term insurance executive committee of the Financial Intermediaries Association of Southern Africa (FIA) has pointed out that the material non-disclosure finding of the High Court shouldn’t be misrepresented as an injustice to consumers. Instead, the lesson that insurance consumers can take from this case is that a registered, qualified intermediary can keep one fully informed regarding what should be reported to one’s insurer, among other things.
“Insurance brokers are an essential link in the communications process between consumers and insurers and possess the necessary skill and experience to advise consumers to disclose events that may have an impact on their insurance premium, whether from a claims history perspective or due to increased moral risk,” says Taylor.
Fourie adds that that brokers need to be cautious because they often complete application forms on behalf of a client and simply asks them to sign. “The message to brokers, following this court ruling, is to keep clients informed of their obligations when they sign,” says Fourie. “Use this court case as an example of what can go wrong.”
Editor’s thoughts:
This matter appears to highlight one of the dangers of direct insurance. Consumers tend to see ‘middle men’ as an unnecessary cost but intermediaries are better at cross-checking policies than consumers are and, as the FIA points out, sound financial advice could have kept this mess out of the courtroom. The worry is that this judgment will push consumers towards self-insurance rather than persuading them that they may need more protection from themselves as consumers of financial products. What do you think the ramifications of this matter will be? Comment below or email fiona@fanews.co.za.
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