The Financial Services Tribunal (FST) has set aside the debarment of a sales agent who was debarred for allegedly manipulating motor vehicle insurance quotes to reduce clients’ premiums and excesses.
The Tribunal declined to remit the decision for reconsideration, saying there was evidence of material bias in how the debarment hearing was conducted.
Last year, Moonstone reported that an investigation by Discovery Insure’s pricing and analytics team in 2022 found that 15 sales agents activated about 1 200 policies where premiums were 46% lower than they should have been, with some policies discounted by as much as 97%.
The Tribunal dismissed three reconsideration applications filed by debarred Discovery Connect Distribution Services sales agents who were implicated in the manipulation of the policies.
Read: Discovery Connect acts against sales agents who manipulated clients’ policies
The Tribunal dismissed another reconsideration application filed by an agent implicated in the policy manipulation in late December last year.
But in a decision handed down on 29 January this year, the Tribunal found fault, on procedural and substantive grounds, with the debarment of another agent, “SM”.
SM was sent a notice of intention to debar in November 2022. The notice stated the investigation found he had, from June to November 2022, activated 25 policies where the quotes had been manipulated. The reduced premiums cost Discovery Connect R31 071 a month.
According to the notice, SM intentionally manipulated the system to adjust the client’s excess, which was not linked to the client risk profile. This allowed him to provide a client with a 66% discount to the quote he initially provided. He allegedly manipulated the system to decrease the client’s premium by changing the client’s licence type more than once.
SM also allegedly failed to follow underwriting procedures and report irregularities.
SM was given the option of attending a hearing or making written submissions. He elected the former.
The hearing was due to take place on 19 December 2022 but was cancelled. It was rescheduled for 10 January 2023.
SM resigned before this date and was under the impression that he did not have to attend the hearing. On 27 February 2023, Discovery Connect “disabused” SM of this impression and informed him, via email, that despite his resignation, it intended to proceed with the debarment.
In his response of 4 March, SM again chose to have an oral hearing, which was scheduled for 29 March. SM did not attend the hearing.
On 17 May, Discovery Connect informed SM that the debarment hearing was held on 14 April in his absence after he failed to attend the hearing on 29 March. He was also informed that the debarment forum had decided to uphold the recommendations by the chairperson of the hearing, including that SM be debarred.
No evidence of notification
The reason SM did not attend the hearing on 29 March was one of the procedural grounds on which the Tribunal set aside the debarment.
SM contended he was not informed of the date, time, and place of the hearing. Discovery Connect submitted that he was provided with this information.
The FST’s decision shows that Discovery Connect could not provide proof, in its submissions, that it had sent SM notification of the debarment hearing. The decision goes on to state:
“During the [FST] hearing, we afforded the respondent’s representatives an opportunity to provide us with proof that the applicant was notified of the hearing. One of the respondent’s representatives searched her laptop for the email with the notice attached. She was unable to locate it. […] Eventually, [the] respondent’s representatives conceded that the notice was not sent to the applicant.”
The Tribunal concluded that the hearing date was not communicated to SM, which meant the hearing was held without proper notice.
It also meant the hearing was held in contravention of Discovery Connect’s Debarment Policy and Procedure and was contrary to the letter and spirit of section 3(2)(a) of the Promotion of Administrative Justice Act (PAJA).
Guidance Notice 1 of 2019 states that a debarment decision by an FSP constitutes an administrative act and must therefore be exercised reasonably, rationally, and fairly per section 3(2)(a) of PAJA, the FST said.
Section 14 of the FAIS Act does not require that an oral hearing should follow a notice of intention to debar, but Discovery Connect’s debarment policy affords its employees the option of an oral hearing. “The applicant made his election, which was expressed to the respondent on more than one occasion,” the Tribunal said.
The FST said Discovery Connect’s debarment policy must be read in conjunction with section 14(2)(a) of the FAIS Act, which requires an FSP to ensure that the debarment process is lawful, reasonable, and procedurally fair.
It went on to note that the Debarment Policy and Procedure afforded SM the right to:
- challenge the evidence against him through cross-examination and by examining any documentation or electronic media pertaining to the case,
- present his case, and
- call witnesses to produce evidence that will substantiate his case.
“None of these rights were accorded to the applicant even after he indicated that he would like to exercise these rights,” the Tribunal said.
The FST panel also criticised how Discovery Connect presented its case.
“During the hearing, it was apparent that the respondent does not at all appreciate its default and the implications thereof given the serious nature of the allegations against the applicant and the admonition by the chairperson of the applicant’s purported delinquency in failing to attend the hearing. The manner in which the respondent presented its case before this Tribunal was rather casual and nonchalant. The evidence presented by the respondent for purposes of demonstrating that the applicant lacked honesty and integrity in itself lacks particularity and consisted of a total of four pages of cryptic screenshots,” the decision states.
‘Evidence of bias’
The procedural irregularities negated the need for the Tribunal to entertain the substantive issues. Yet, the FST went on to take issue with the merits of Discovery Connect’s case.
It said SM’s explanation as to why the clients’ licence details had been changed was “perfectly plausible”.
“It would appear that the […] electronic system where the information is recorded reduces the premium every time the licence particulars are changed even when the same particulars are re-entered. It would therefore appear that the same particulars could be entered multiple times, and the system would reduce the premium upon each entry. The element of dishonesty appears to be lacking,” the Tribunal said.
“We further observed an attitude during the debarment hearing that the respondent’s failure to inform the applicant of the date should be placed at the door of the applicant for what may be termed his past actions, which the chairperson regarded as indicative of applicant’s lack of co-operation.”
The FST cited two examples from the debarment inquiry on 14 April to illustrate “what may amount to bias” on the part of the chairperson of the debarment hearing.
“The employee had resigned from his role in January 2023. Attempts have been made to contact [SM], as his debarment hearing was postponed on two occasions. On the day of the hearing, despite all of management’s efforts, the employee had failed to adhere to these requests and further failed to attend the FAIS hearing.”
The Tribunal said this statement was not supported by any evidence provided to the inquiry. “Nowhere during the hearing was it placed on record that the applicant was informed of the hearing. The chairperson simply relies on the fact that the hearing was postponed on two occasions to justify why on 29 March 2023 he had to continue in applicant’s absence.”
The second example the FST cited stated: “[SM] has not previously been co-operative with management or the compliance department and had consistently denied all evidence provided by Discovery.”
It said the use of this statement to justify denying SM his right to be treated fairly was “fantastical” and “demonstrative of bias”.
