Publication of the FAIS Ombud’s annual report provides a great learning opportunity every year. We believe that learning from someone else’s mistakes is far better than from your own.
A subject that made the headlines regularly in recent times, concerns selling and taking over a short-term insurance book. This topic also features in the Ombud’s report as one of two trends that she picked in more recent complaints (the other being property syndications).
Selling or taking over a short term insurance book
We have, since the commencement of this Office, warned providers that practice does not necessarily make perfect.
Providers have from time immemorial been taking over or selling short term books to one another. Where such move is in the clients’ interests and the necessary disclosures have been made, there will hardly be a complaint. The problem however, comes about when clients allege violations of the FAIS Act emanating from this age old practice. The case of Nduna, mentioned below, highlights some of the problems consumers encounter with the movement of ‘books’ through no fault of theirs.
Candida Buyile Nduna vs Aquarius Insurance Brokers CC & Maurizio Scolari
Complainant purchased a Peugeot 206 motor vehicle; the regular driver was to be her son, who at that stage was under the age of 25. Her son’s driver’s license was faxed through, the
premiums adjusted accordingly and the vehicle insured with respondent, Aquarius brokers.
After an accident involving complainant’s son, the claim was rejected on the basis that complainant’s son was not named on the policy schedule.
It transpired that, upon the suspension of the previous insurance administrator’s licence by the Financial Services Board, all clients’ policies, which included the complainant’s, were taken over by a new insurer who imposed different terms and conditions, including an increase in premiums.
Respondent, whilst aware of the takeover, failed to familiarise itself with the new terms and conditions or convey same to complainant.
Important about the case:
a) Where there are changes in insurers, it is the duty of the broker to familiarise themselves with the terms and conditions under which their client is insured by the new insurer. Whilst every case is determined on its own merits, the complainant was not even advised that she was insured by a different insurer. Not only was she not advised of the new insurer, the terms under which she was insured were not communicated to her.
b) The person who bears responsibility to communicate the change in insurers and the disclosure of the material terms in this case was the broker and not any of the other parties.
c) The broker in this case was not familiar with terms under which his client was insured by the new insurer yet it was his duty to familiarise himself with these terms.
The summary below also involves a change of policy where the advisor neglected to inform the client of the salient details of the new policy:
Failure to act with due skill, care and diligence
When the complainant’s thatched roof lapa was destroyed by fire, he duly lodged a claim with his insurer. The insurer repudiated the claim and cited as the reason the fact that the lapa was not covered under the complainant’s policy. Aggrieved by the respondent’s failure to place lapa on risk with the insurer, the complainant lodged a complaint with Office.
Upon receiving the complaint, the respondent contended that the complainant was aware that the lapa was not covered. Furthermore, no insurer would cover the lapa as there was no
lightning conductor in the vicinity. The complainant refuted the respondent’s contention by
providing proof that the lapa was covered under the policy, which was replaced by respondent with the current policy. Consequently, we recommended that respondent make a
settlement offer to the complainant. The matter was ultimately settled for an amount of R 123 684.39.
It is clear from the above that transferring an insurance book comprises substantially more than just ensuring that the commission is paid over correctly and on time.
Actually, the prescribed process of explaining why the book is moved forms an integral part of the compliance process. To be able to do so, you need to objectively weigh up the two products, and point out all relevant differences to client. On what grounds can you motivate the change, and obtain a mandate, if you do not know how it will affect each of your clients?
One should always bear in mind that any change should be in the best interest of the client, not the advisor.
