The Financial Services Tribunal (FST) has ordered Discovery Connect Distribution Services (DCDS) to reconsider the debarments of two representatives whom it debarred for allegedly manipulating motor vehicle insurance quotes.
The Tribunal’s decisions bring to seven the reconsideration applications it has heard after DCDS dismissed 15 telesales agents for manipulating quotes to provide Discovery Insure clients with artificially low premiums in 2022.
According to an internal investigation, the manipulation affected about 1 200 policies, some of which were discounted by as much as 97%.
Last year, the FST dismissed four reconsideration applications brought by the agents implicated in the manipulation.
Read: Discovery Connect acts against sales agents who manipulated clients’ policies
In January this year, it set aside the debarment of another agent, faulting the decision on procedural and substantive grounds.
Read: Evidence of material bias in Discovery Connect debarment, says Tribunal
In the latest decisions, handed down on 22 and 23 April, the FST found that DCDS had failed to prove its case against the agents on a balance of probabilities.
In its review of the legal framework governing debarment, the Tribunal noted that the onus lies with the FSP to prove the facts it relies upon to debar its representative on a balance of probabilities.
Grounds for reconsideration
DCDS debarred the agents in August last year.
One of the agents, “RR”, who worked for Discovery from September 2010, allegedly manipulated 10 quotes between April and October 2022.
Counsel for DCDS told the hearing that the applicant’s actions cost the company R61 122.
The other agent, “GD”, who had been an employee from 2016, was charged with manipulating 19 quotes on policies activated from May to November 2022.
The Tribunal said it was “a concern” that whereas GD was charged with having caused DCDS to lose R94 929 a month, the respondent submitted before the FST that this was what her actions had cost the company in total.
The dismissed agents brought their reconsideration applications on the same procedural and substantive grounds. RR and GD submitted they were not given an opportunity to present evidence at their disciplinary hearing, and the chairperson was biased.
For her part, RR submitted that although she was charged with manipulating ten quotes, she was the main activator of only five of the ten policies, and she would not have prejudiced her career for five policies.
The Tribunal heard RR and GD’s applications on the same day. Neither of them had legal representation at their hearings, while DCDS was represented by an attorney.
Manipulation or system fault?
Discovery’s internal investigation identified two methods by which the 69 implicated agents were able to force the Discovery quoting system to calculate a “moderation discount”, resulting in lower premiums. A moderation discount is calculated within the Discovery premium calculation system, typically without any user intervention.
The first was by changing the voluntary excess and the second was by changing the licence details of the vehicle’s primary driver.
RR and GD said the incorrect licence details were entered because the system was faulty.
As RR explained to the Tribunal, the quotation form may be pre-populated, via TransUnion, with the client’s licence code and date of issue. Even where it is, agents are required to ask the client for this information. TransUnion provides the client’s most recent licence, and a client may have been issued with a licence for a different code before this. Clients are afforded the benefit of having their earlier licence entered in the system, so their premium is not adversely affected.
RR said that in 2022 the system would not accept a change in the information. The system persistently reverted to the incorrect year, resulting in her having to go back into the system repeatedly in an attempt to correct it. She made electronic notes “on most of the policies” to indicate the discrepancies.
RR said agents had been told that if the system would not accept the change, they must clear the cache, reload the details, and make notes of any discrepancies.
She advised her team leader or manager verbally and electronically of the faults and made notes of the problem. RR said she was told to work around the problem.
GD likewise submitted that she reported the same problem to her team leader and had also been told to work around it.
The Tribunal found it was common cause that the system had a fault, and this had been brought to the attention of DCDS management in April 2022. A fix – a manual management override – was only implemented in November 2022.
Regarding the changes to the excesses, the applicants said DCDS has flexible excesses, and these were adjusted at the request of the clients.
RR told the hearing the sales script required consultants to advise clients on the consequences of choosing a high excess. If the excess was more than 20% of the sum insured, they would be subject to underwriting.
Counsel for DCDS said although RR may have informed her team leader or manager of the problem, standard operating procedure required her to log the problem with IT, which she had not done.
RR contended it was not the sales agent’s responsibility to log the errors with IT, but that of the team leader or manager.
Counsel further submitted it was not changing the date on which the licence had been issued that constituted the manipulation but the repetitive entry of the date.
Once the date had been inserted, if it had not been provided by TransUnion, no further insertion of dates was required. If the system did not accept the date, the agent was required to log an error. The agent was not at liberty to insert the date repeatedly, causing the premium to drop.
At both hearings, DCDS initially sought to present additional oral evidence. However, it failed to provide an affidavit, as required in Rule 22 of the FST’s Rules. Consequently, DCDS did not persist with its request to present oral evidence.
Not dispositive of the matter
The Tribunal addressed the applicants’ submissions about the procedural irregularities.
DCDS did not provide the FST with the transcript of RR’s hearing. Therefore, no evidence was placed before the Tribunal to counter RR’s complaints of bias and that relevant evidence was disregarded.
In the case of GD, the Tribunal said the transcript did not indicate any bias by the chairperson.
But at both hearings, DCDS encountered difficulties in demonstrating to the Tribunal that it had proved the merits of its case.
RR provided the Tribunal with screenshots pertaining to the quotes in question, while DCDS provided it with entries from the IT system’s back-end relating to the same. The Tribunal said the evidence on which both RR and DCDS relied to prove their respective cases did not resolve the matter in favour of either party. This presented a greater difficulty to DCDS because it bore the onus of proof, the FST said.
The Tribunal found that DCDS’s submissions at best demonstrated that RR failed to follow standard operating procedure. However, RR was not charged with a failure to follow standard operating procedure but with deliberately manipulating quotes. A failure to follow standard operating procedure does not equate to being dishonest and lacking integrity.
In the case of GD, DCDS was unable to prove to the Tribunal the link between the policy it selected and the transcript of the sales call.
The Tribunal found that DCDS failed to make out a case on a balance of probabilities that RR deliberately manipulated the 10 quotes, and that GD intentionally manipulated the 19 quotes.
It set aside both debarments and referred the decisions back to DCDS for further consideration.
