A recent determination by the Ombud highlights a number of important issues when it comes to an advisor’s obligations towards clients.
The complainant enjoyed comprehensive cover with Zurich Insurance. On 8 April 2013, he requested the respondent to transfer his short-term insurance arrangements with the exact same cover and terms to Discovery Insure. This request was prompted by the attraction of added benefits and rewards offered by Discovery as the complainant had other existing financial arrangements with them.
Subsequent to the transfer of the policy, the complainant suffered a loss following an armed robbery at his residence, and lodged a claim with Discovery on 15 August 2013.
The loss was quantified at R141 521. During the processing of the claim, it came to the attention of Discovery that the complainant’s house contents were only insured for an amount of R100 000, reduced from R998 250 in the Zurich policy. This meant that the complainant was under-insured, leading the insurers to apply the condition of average, and the claim adjusted to the amount of R16 560.77.
The respondent stated that Discovery erred in capturing the home contents cover as R100 000 and not R1 000 000 as intended, and should be held liable for the loss. In support of this claim, he stated that:
- The correct information, including a copy of the Zurich schedule, was submitted to Discovery in order for them to issue a like quote;
- Discovery issued an incorrect quote to the respondents, which was forwarded by the respondents to the client;
- The complainant was requested to initial every page to ensure that the Information contained therein was correct, which he duly did and
- it was reasonable of them to assume that the information sent by Discovery was correct.
Discovery’s response
The complaint and the response were sent to Discovery for their input as an interested party in the matter. They admitted that their administrator erroneously captured the sum insured as R100 000 instead of R1 000 000. The incorrect quote was sent to respondent who, instead of verifying its correctness, simply forwarded the quote to the complainant.
Discovery did not deny that its administrator erred in preparing the quote but, are of the opinion that the respondent, as the financial services provider on record, was ultimately responsible for the advice rendered to the complainant. Its failure to confirm the quote amounts to negligence and a breach duty as a provider to render the financial service with the required ‘due care, skill and diligence’.
The Ombud states that the premium for house contents was charged at R634.53 for approximately R1 000 000 worth of cover by Zurich whereas Discovery charged R192 for a R100 000’s worth of cover. This is a drastic reduction in premium and should have raised alarm bells on the part of the respondent. It is not difficult to understand why he failed to pick this glaring reduction because on his own version, he never read the quote. Therein lies the negligence and violation of his duties as a provider in terms of the FAIS Act.
Replacement obligations
There is no dispute that this was a replacement of a financial product. No documents have been provided to demonstrate compliance with Part VII sections 8 (1) (d). There is further no evidence that respondents complied with section 8 (2) of the Code. These sections of the Code stipulate:-
‘where the financial product (the replacement product) is to replace an existing financial product wholly or partially, (the terminated product) which is held by the client,’ the provider must ‘fully disclose to the client the actual and potential implications, costs and consequences of such a replacement, including, where applicable, full details of-
‘(i) …………
(ii) special terms and conditions, exclusions of liability, waiting periods, loadings, penalties, excesses, restrictions or circumstances in which benefits will not be provided which may be applicable to the replacement product compared to those applicable to the terminated product.’ (emphasis supplied)
‘The provider must take reasonable steps to ensure that the client understands the advice and that the client is in a position to make an informed decision’.
Ombud Findings
- Respondents failed to act in line with the provisions of the FAIS Act and the General Code.
- Respondents failed to ensure that complainant was adequately insured for home contents.
- Respondents failed to ensure that the information contained in the quote was factually correct. Instead, they requested complainant to initial every page and sign it to confirm the accuracy thereof. In simple terms, respondents shifted their duty in terms of the Code to complainant.
- Respondents took no steps to ensure that complainant understood the cover they procured for him in replacement of the Zurich policy.
- Respondent failed to act with the required due skill, care and diligence and in the interest of the complainant.
For the reasons stated in this determination, the Ombud found that the respondents must be held liable for the financial prejudice suffered by the complainant.
Click here to download the full determination.
