Moonstone recently reported that Old Mutual Insure and subsidiary Elite Risk Acceptances gave policyholders with “higher-risk vehicles” in six provinces until 15 April to instal approved early warning/active tracking devices or lose their theft and hijacking cover.
The insurers said this was because of the increase in the number of claims for newer and late-model high-end vehicles and because criminals have found ways to access vehicles with keyless entry systems.
Read: Fit a tracking device or lose your theft and hijacking cover, vehicle owners told
Old Mutual is not the only short-term insurer to have made theft and hijacking cover conditional on installing a tracking device. And this trend makes the following complaint to the FAIS Ombud particularly topical. The case was one of two case studies published in the FAIS Ombud’s March newsletter.
The outcome in both cases centred on the ombud’s view that the FSPs had not placed the policyholders in a position to make an informed decision by adhering to the disclosure requirements in section 7(1)(c)(vii) of the General Code of Conduct.
Case 1. Tracking device was not fitted
The complainant insured his Toyota Fortuner on 27 September 2021. The vehicle was stolen in April 2022, and the complainant filed a claim against his insurance policy.
The insurer rejected the claim because the complainant did not comply with the minimum security requirements. The vehicle should have been fitted with a tracking device, which at the time of the loss, it was not.
The complainant claimed he was never informed of the security requirements for his vehicle or that non-compliance would result in his not being covered for theft and or hijacking.
In its response to the FAIS Ombud’s initial correspondence, the FSP said it had emailed the revised policy schedule and product provider policy wording to the complainant on 28 September 2021. It clearly reflected the Fortuner’s security details, stating that a tracking device and an immobilizer were present.
The FSP the policy schedule explicitly stipulated that the broker must be informed of any discrepancies within 31 days after the date of the policy schedule, after which the broker will not be liable for errors or omissions.
According to the FSP, the information in the policy schedule and policy wording provided to the client was clear and concise.
The FSP admitted that the specific security requirements had not been highlighted to the complainant. However, it remained of the view that the policy schedule and policy wording were sufficient to ensure that the client was aware of the requirement for a tracking device.
Merely providing the policy wording is not enough
The FAIS Ombud said the FSP had not taken “reasonable and diligent steps” to alert the complainant to the tracking device requirements. It said that merely providing the complainant with a policy wording does not comply with “section 7(1)(cii)” of the General Code of Conduct.
“Section 7(1)(cii)[sic] provides that concise disclosures must be made of any special terms, exclusions or instances in which cover will not be provided. Compliance with this section of the code would then place the client in a position to make an informed decision as is required in terms of section 7(1)(a) of the code,” the newsletter said.
But section 7(1) of the code does not have a paragraph “(cii)”. It does have a paragraph (c)(ii), which requires an FSP to provide, where applicable, full, and appropriate information nature and extent of benefits to be provided, including details of how such benefits are derived or calculated and how they will accrue or be paid.
The provision that requires an FSP to provide “concise details of any special terms or conditions, exclusions of liability, waiting periods, loadings, penalties, excesses, restrictions or circumstances in which benefits will not be provided” is found in section 7(1)(c)(vii).
Moonstone asked the FAIS Ombud’s office to confirm that it meant to cite 7(1)(c)(vii), as it did in the second case below. We have not received a response.
The FAIS Ombud said an informed decision can be made only before the conclusion of the transaction. It cannot be made retroactively by sending a policy wording to a layperson and expecting that person to appreciate the implications of any material terms if those material terms had not been raised by the FSP during its interactions before the conclusion of the transaction.
The FAIS Ombud’s office recommended that unless the FSP could show compliance with the provisions of the General Code, it should resolve the matter with the complainant.
The FSP offered to make a full and final settlement of R644 000, which was accepted by the complainant.
Case 2. Specified item was not in a concealed storage area
The complainant, a freelance photographer, parked her vehicle outside and went inside to do a few things before going out again. When she went outside, she saw the passenger door open and noticed that her camara and camera bag had been stolen. Both items had been on the back seat.
The complainant submitted a claim in terms of the All Risks benefit of her policy. The camera was a specified item for which she paid a separate premium.
The insurer rejected the claim because the items were not concealed in an enclosed storage area of the vehicle.
In its response to the FAIS Ombud’s correspondence, the FSP confirmed that the policy wording stated there is no cover for items stolen from an unoccupied vehicle if the items are not concealed in an enclosed storage area, such as the cubbyhole, boot, or a retractable or removable boot cover.
The FAIS Ombud’s office asked the FSP whether the complainant had been advised at the inception of the policy that cover would not be provided if the specified items were not concealed when the vehicle was unoccupied.
The office cited section 7(1)(c)(vii) of the General Code, saying the purpose of this provision is to ensure that a client is placed in a position to make an informed decision, as required in terms of section 7(1)(a).
The office was of the view that this was a material disclosure, as the expectation created by specifying an item and paying an additional premium for it is that the item will be covered for any eventuality.
“It is important that FSPs manage a client’s expectations by alerting them to exclusions such as this, to ensure they are placed in a position to comply with the requirements of the policy and not be blindsided in the event of a claim,” it said.
The office recommended that unless the FSP was able to show compliance with the provisions of the code, it resolved the matter with the complainant. The FSP made an undisclosed offer to the complainant in full and final settlement, which the complainant accepted.
I have clients who have complied fully with the 2 x tracking device installation requirement and have since had 2 clients who’s vehicles were stolen without being recovered. Both had 2 x fully operational devices installed.
Clients are going to great expense to fit the 2nd device – is this really assisting Insurers ?
A good question. In the article “Fit a tracking device or lose your theft and hijacking cover, vehicle owners told”, Tarina Vlok, the managing director of Elite Risk, said: “Although it seems like traditional tracking devices are becoming less effective, they still assist in mitigating the risk, as they do provide an advantage in the early stages of theft and hijacking.” So, it’s “risk mitigation”, but insurers admit these devices are “becoming less effective”.
Here we are debating about what should be disclosed and tracking devices that are actually becoming less effective where the real culprit is crime and the inability of the government to control it. The clients, doing everything that is expected of them to secure their cars, are paying more and more. It is now likely that your car will be stolen and not something that might happen. I wonder how many stolen cars actually get retrieved. My own Fortuner was stolen (with one of the best tracking devices on the market). The police merely wrote the docket for insurance purposes. When ask why only for insurance purposes they said that the car is long gone.
As for disclosure, clients do not seem to take responsibility anymore. How does the contract work by companies like Vodacom etc? Do they have to disclose as with short term? I can assure you they don’t. They expect you to read all the fine print. The responsibility should be to both the broker and the client. Passing the bucket is becoming the new norm.
I could not agree with you more. When I sign a contract with Vodacom, and there is a clause that says they can sell my information to third parties (as an example), if I did not read it then it is my fault. Surely we cannot be expected to type out a policy wording as they will also not read it. Somewhere clients need to take responsibility and read the particulars of their contracts. The broker surely cannot take the slack for the client’s laziness ?
I lodge so many complaints with basically all the different Ombud departments.
Not one can help me or direct me to the correct department.
Disheartened.
There are two problems with this:
1) While the addition of more tracking devices may lead to a decrease in motor theft, it could potentially result in a surge in hijackings.
2)The quantity of tracking devices may not be the determining factor in preventing theft because remote frequency jammers have become prevalent and can disrupt the signals of any device within the vehicle.
In my personal opinion, a more viable short-term solution would involve raising rates and excess charges for high-risk vehicles and then focusing on the implementing of enhanced security mechanisms, such as a code-based ignition system for high-risk vehicles. We should encourage innovators and inventors to devise alternative security solutions that are more effective than tracking devices.