FAIS Ombud’s report highlights pitfalls in client communication

The FAIS Ombud’s 2023/24 annual report, which was released last week, details complaints where the Office facilitated a resolution between the client and the FSP via conciliated settlement.

Read: Consumer settlements rise as FAIS Ombud sharpens complaint handling

Although the cases summarised in this article cover a range of different issues, they highlight recurring shortcomings in the nature of the advice provided. These are:

• Failure to disclose material information. The FSPs failed to provide clients with critical details, such as policy exclusions, retroactive coverage limitations, or additional cover options. This lack of disclosure left clients uninformed about significant limitations or risks associated with their policies or investments.
• Inadequate assessment of client needs and circumstances. Some of the cases highlight a failure to tailor advice to clients’ specific needs, such as recommending investment products inappropriate for a client’s financial situation or failing to assess whether a change in circumstances affected coverage. This resulted in product mismatches and coverage gaps that led to disputes.
• Poor execution of client instructions. The FSPs did not follow through on client requests, such as updating banking details or making requested policy changes, which led to rejected claims and unmet expectations.
• Lack of proactive communication. FSPs missed opportunities to communicate crucial information proactively. This includes failing to alert clients about critical changes, such as policy requirements for a tracking device, or the implications of a policy transfer. Advisers should anticipate and address potential client misunderstandings.

Lack of retrospective cover not disclosed

The complainant took out a professional indemnity policy that covered misappropriation of trust funds. When funds were misappropriated after the policy’s inception, the insurer denied the claim because the misappropriation occurred before the policy start date.

The complainant denied being aware or advised that the clause was not retrospective. The complainant’s previous policy with another insurer specifically provided for a retrospective period. The complainant submitted that the respondent was its representative for both the old policy and the new policy and should have advised him regarding the retrospective requirement.

The respondent submitted that the complainant did not complete or insert a date in the space provided in the “retroactive date” block. It further relied on the various standard clauses in the proposal form stating that no liability was accepted for errors. It further submitted that the complainant did not enquire regarding the retrospective effect of the policy at any time.

The FAIS Ombud found that the respondent failed to disclose the lack of retroactive coverage, which was a breach of section 8(1)(d) of the General Code of Conduct. The respondent settled the claim for R800 000, which was the Office’s jurisdictional limit until the end of June this year. On 1 July, it was increased to R3.5 million.

For more information about this case, read: FAIS Ombud highlights FSPs’ obligations when a policy is replaced

Client’s instruction not carried out

On 23 June 2022, the complainant’s vehicle was involved in an accident, leading him to submit a claim to his insurer. The claim was rejected because the bank reversed the last policy premium payment, which was supposed to be deducted on 22 June.

The respondent confirmed that the complainant had sent its representative a WhatsApp message on 19 May 2022 requesting changes to the policy, including a change of banking details. The representative made the required changes but did not see the change in the banking details request. Subsequently, two consecutive premiums were not paid: one on 1 June 2022 and the second on 1 July 2022.

The respondent argued that if it had received notification from the insurer about the non-payment of the first or second returned premium, it would have contacted the client to arrange for payment. The complainant confirmed that the insurer had not approached her about the first or second non-payment.

The respondent submitted that the insurer was liable for the loss.

The Ombud found that, in terms of section 3(1)(d) of the Code of Conduct, the financial service provided to a client must be rendered under the contractual relationship, and reasonable requests or instructions of the client must be executed as soon as reasonably possible and with due regard to the interests of the client, which must be accorded appropriate priority over any interests of the provider.

All the other changes communicated to the respondent via WhatsApp had been actioned, which confirmed that the instruction had been received but not actioned by the respondent.

Despite the insurer’s actions or omission, the Office recommended that the respondent resolve the complainant’s claim. The respondent requested all the invoices and bank statements regarding the vehicle’s repair from the complainant and settled an amount of R256 800.

Material change to policy

After amending his household insurance cover based on the respondent’s advice, the complainant was denied a claim following a robbery because the new address did not meet minimum security requirements.

The complainant submitted that the respondent did not advise him properly and failed to alert him about the minimum security requirements.

The respondent submitted that the minimum security requirements had not changed to the new residence, and the complainant had initially been made aware of these requirements. The respondent further submitted that the complainant did not inform it that the new residence did not have an alarm system or burglar bars.

The Ombud’s Office said the respondent’s representative had merely recorded the change of address and did not ask any further questions. A change of address was a material change to an insurance contract and required the respondent to determine the facts and advise the complainant properly. There was no evidence that the respondent had complied with its duties in terms of sections 2 and 8 of the Code of Conduct.

The respondent agreed to settle the complaint for R239 180.

Investment product was not appropriate

The complainant invested R700 000 with the respondent in an investment plan, expecting a monthly income. However, upon maturity, he received only R470 000, leading him to claim the balance of R230 000.

The respondent contended that when one considered the monthly payments the complainant received, alongside the surrender value, he had received a total of R793 673.91 from his capital investment of R700 000. The respondent stated that the complainant had not suffered a loss.

The Office noted that the complainant was 51 years old at the policy’s inception and the source of funds had been his retrenchment benefit. The complainant was unemployed at the time, and these were the only funds available to generate an income.

Considering all these aspects, there was a requirement first to secure the complainant’s capital. The Office would have expected that an FSP would have recommended a product, such as a Guaranteed Investment Plan with Income, that may have provided the complainant with a lower annuity income, but he would have retained his capital investment after five years.

There was a duty on the FSP to make a recommendation appropriate to the complainant’s needs. In this instance, there was no evidence of any advice or recommendation being made. The respondent’s representative merely provided the complainant with a product that paid the highest income possible. There was no evidence of the representative discussing the various products available and the possible benefits of each of them.

The respondent agreed to pay R103 301.89 to settle the complaint.

For more information about this case, read: FSP top ups maturity value after Ombud finds investor was not properly advised

Shortfall cover option not offered

The complainant’s vehicle was written off after an accident. The respondent settled the claim for the vehicle’s retail value. However, the amount paid was insufficient to settle the outstanding balance on the vehicle finance account.

The complainant submitted he was never advised of the shortfall cover option.

The FAIS Ombud found that the representative implied full coverage during the sales call but failed to explain shortfall cover. The complainant was not obliged to raise the issue of shortfall cover because specific product knowledge of this nature was within the representative’s knowledge and expertise, not the complainant’s.

The Code of Conduct requires an adviser to provide all the information necessary for the insured to make an informed decision. There was a high probability that the complainant would have accepted the shortfall cover, and the claim would have been paid.

The respondent settled the shortfall for R72 671.77.

Pre-existing condition clause

The complainant’s request for a hospital authorisation was denied because of a pre-existing condition.

The respondent submitted that the complainant’s symptoms started before the inception of the policy and progressed.

The FAIS Ombud’s Office noted that the policy clause referred to a condition for which care was recommended or received within 12 months before the policy commencement date. The complainant sought medical advice on 11 August 2020 and was diagnosed on 16 September 2020. With both dates occurring after the policy’s commencement, the respondent could not rely on the exclusion clause.

Furthermore, the policy clause did not state that symptoms that started before the policy’s inception could result in the exclusion of liability.

The respondent accepted the Office’s recommendation to settle the claim and paid the complainant R60 000.

Material condition not disclosed

The complainant lodged a claim with his broker after his vehicle, along with personal items, was stolen. He was informed that the claim would be paid, but there would be an additional theft excess because the vehicle was not fitted with a tracking device. The vehicle finance account would not be fully settled because the outstanding balance was more than the vehicle’s retail value. The complainant’s wife’s wedding ring would also not be settled because it was not listed on the policy.

The FAIS Ombud determined that the broker failed adequately to explain the material tracker requirement or alert him to this important requirement. Emailing a standard template was not reasonable or adequate to comply with the requirements of section 7(1)(a) of the General Code of Conduct. The respondent specifically needed to draw the complainant’s attention to the fact that a vehicle tracker was required.

As shortfall cover was optional and not a material term of a contract, the respondent was not held responsible for the complainant not choosing the product. The complainant did not specify the ring in the policy, so the respondent was not liable for this loss.

The respondent accepted the Ombud’s recommendation that it pays the theft excess of R45 012 plus interest of 11.75% a year from the date of the loss.

Policy changes

The complainant’s insurance policy was cancelled when the policy was transferred to another broker. The complainant was unaware of this change and suffered a financial loss.

The respondent submitted that its offices were “not properly informed of this particular policy” and blamed the underwriting manager for the errors made.

The FAIS Ombud’s Office, referring to section 2 of the Code of Conduct, said the respondent was required to apply its duty of care and discuss any policy changes with the complainant. The respondent’s dispute with the underwriting manager did not change its duties and responsibilities to the complainant in terms of the Code.

The respondent paid R26 418.95 to settle the claim.

Material fact not disclosed

The complainant was diagnosed with cancer and claimed against the dread disease benefit on his hospital plan. The claim was denied because he was above the maximum age limit.

According to the respondent, the dread disease cover stopped at the age of 60. The cover was initiated when the complainant was 60 years and 8 months old.

The Office submitted that a reasonable adviser would have brought this material fact to the attention of the complainant and not offered the cover.

The respondent refunded the premiums paid for the benefit, totalling R23 227.93.

Poor communication

The complainant was denied a funeral benefit after her stepfather died because the policy did not reflect him as a covered individual.

The respondent submitted the complainant had two burial policies with the policyholder. One policy included the stepfather, and the other policy did not. The respondent stated that the policyholder instructed its offices to merge the two existing policies into one policy. The merged policy did not reflect the stepfather.

The FAIS Ombud said the respondent was unable to provide any evidence that the policy document was provided to the complainant. The respondent was further unable to provide any evidence of the instruction to merge the policies. The representative had a duty to review the policy, confirm the policyholder’s contact details, and keep the policyholder informed about the policy.

The respondent settled the complaint with a payment of R4 960.

Funeral policy misrepresentation

The complainant claimed a funeral policy was issued without his consent. The agent assured him it was only a quotation, but he later found his account debited.

The respondent argued that the application form contained the complainant’s signature, indicating consent.

The respondent also submitted that the complainant received a message from his bank to validate the debit order. By agreeing to the debit order, the complainant indicated his willingness to take out the policy and have monthly premiums debited against his bank account.

The Ombud’s Office informed the respondent that it had noticed a surge in complaints against the respondent, all involving the same basic allegations of misrepresentation. It recommended that the respondent carefully consider these complaints.

The respondent agreed to refund the complainant as a goodwill gesture. The complaints were referred to the FSCA for further investigation.