Discovery Connect acts against sales agents who manipulated clients’ policies

The Financial Services Tribunal (FST) has heard three reconsideration applications by debarred sales agents who were implicated in the manipulation of Discovery Insure policies, which resulted in the insurer losing R1.3 million in premiums a month.

In 2022, Discovery identified inconsistencies between several clients’ premiums and their risk profiles. Representatives were told to inform Discovery Connect Distribution Services immediately if they found such discrepancies while rendering financial services to clients.

A subsequent investigation by Discovery Insure’s pricing and analytics team found that sales agents activated policies where clients’ premiums were 46% lower than they should have been, with some policies discounted by as much as 97%. The manipulation affected about 1 200 policies activated by some 15 agents.

Discovery Connect told Moonstone that it dismissed the 15 sales agents following internal disciplinary processes and initiated legal action to debar them.

Moonstone asked Discovery whether it addressed the issue with the affected policyholders.

“Discovery Connect Distribution Services has contacted every client who has been directly impacted by this incident to carefully explain what happened, as well as to provide significant detail regarding how the errors were detected and how this impacts the client’s personal risk profile.”

Discovery Connect said it requoted and approved all the policies that were incorrectly priced, and it retained all the clients who fell victim to the manipulation.

Immediately after the manipulation was identified, additional internal controls were implemented to mitigate against this happening again, it said.

“Additional training has been conducted with all call centre agents to explain the consequences of acting in this way, as well as to communicate the critical importance of honesty and integrity when advising clients. The training included highlighting the role these individuals play as Discovery personnel operating within the ambit of the FAIS Act,” Discovery said.

“Discovery Connect Distribution Services views these acts of fraud in a very serious light. We pride ourselves in providing clients with superior customer service that is honest and professional at all times.”

Driving the premiums down

According to the FST’s decisions, the agents repeatedly adjusted the clients’ type of driver’s licence and the excesses until the premiums were reduced to the desired amount. In all three cases, the policies were manipulated between July and November 2022.

One of the agents who brought a reconsideration application, “NM”, manipulated 93 policies. According to Discovery, in some cases, he reduced the clients’ premiums by 75%, resulting in Discovery incurring a financial loss of R92 635.

Where clients requested a maximum excess of R20 000, NM was supposed to refer the quote to underwriting for review. He did not do this and continued to activate the policies, Discovery said.

Another debarred agent, “SM”, manipulated 103 policies to reduce the premiums up to by 67%.

The third agent, “AM”, manipulated 105 quotes and sales. In one case, a client’s premium was reduced by 77% of the premium that should have been charged, Discovery said.

Discovery said the agents’ conduct exposed it to significant financial and reputational risk, as well as sanctions and fines.

Furthermore, Discovery may have had to repudiate the clients’ claims because they were allocated the incorrect risk profiles.

Discovery debarred the agents this year for non-compliance with the Fit and Proper Requirements – in particular, failing to meet the character qualities of honesty and integrity.

Chairperson’s integrity impugned

The agents brought their reconsideration applications on similar grounds, which centred on impugning the conduct of the chairperson of the debarment hearings.

For example, NM alleged, among other things, that the chairperson:

• provided false evidence and withheld key evidence;
• ignored the central charges against NM, despite constituting the primary focus of the proceedings;
• appeared to pursue a predetermined agenda, fabricated scenarios, and misrepresented evidence to fit the respondent’s preconceived judgment; and
• was not independent because he was employed by Discovery’s banking department.

Grounds are without merit

But in all three cases, the Tribunal found no fault with the debarment procedure followed by Discovery; it conducted the process fairly and appropriately.

Addressing NM’s contention that the chairperson was not independent because he was employed by Discovery’s banking department, the decision stated that, in terms of Discovery’s debarment policy, a chairperson of a FAIS hearing will be an individual within Discovery who is independent from the group compliance function and the business unit or department to which the representative belongs.

The person who chaired NM’s hearing was from the banking department and not the short-term insurance department, to which NM belonged. Thus, the appointment of the chairperson was competent.

Discovery twice provided NM with an opportunity to provide his evidence pack, but he failed to do so. The case was twice postponed by the chairperson to afford NM the opportunity to present his evidence, but he failed to provide any evidence.

Based on the record, NM accepted that he should have known better because he had three years’ experience in short-term insurance. He did not adequately explain why he made the changes, the Tribunal said.

In all three cases, the evidence on the record showed that the agents had manipulated the policies. This was dishonest and obviously offended the Fit and Proper Requirements regarding honesty and integrity, the FST found.

The Tribunal dismissed the reconsideration applications.