Failure to obtain all relevant details a factor in complainants winning their cases
IN MANY cases, the FAIS Ombud reaches a settlement with a financial services provider (FSP) before a complaint gets to the determination stage. This is in the interests of the FSP, because its name is not made public, as in the case of a determination.
Below are three cases highlighted in the FAIS Ombud’s annual report in which a settlement was reached. Failure to disclose the risk of underinsurance. After a fire in June 2015, Mr A lodged a claim with his insurer on his homeowner’s policy. The damage was assessed as being to the value of R261 000. The insurer offered to pay R141 000, stating that Mr A had been under-insured and that, as a result, it had applied the rule of average in determining the amount of the payout. (The rule of average is when an insurer decreases a payout in proportion to the degree of under-insurance.) Mr A claimed not to have been informed of the requirement to have the building insured for its replacement value.
On taking up his case, the ombud asked the insurer to show it had complied with the code of conduct under the FAIS Act. Specifically, it had to provide proof that its representative had obtained all relevant and available information to ensure that the product was appropriate.
The insurer was unable to provide any evidence to show it had complied with the code, and could only point to having sent Mr A policy schedules annually. The insurer maintained that it was Mr A’s responsibility to ensure that he was adequately covered.
After the ombud’s office maintained its stance on the insurer’s failure to adequately provide for Mr A’s needs, the insurer offered an amount in settlement of the matter.
Settlement: R120 000 Failure to disclose pre-existing condition clause. Mr B took out a life assurance policy that included an income-protection and a disability benefit. He was later declared medically unfit to work.
When he submitted a claim with the life company in terms of the income-protection benefit, the claim was rejected on the grounds that it had been submitted during the waiting period. The assurer said the policy terms provided for a 24-month waiting period on pre-existing medical conditions, and the illness that had rendered Mr B unfit to perform his duties had arisen directly from such a pre-existing condition.
In correspondence with the ombud’s office, the assurer said the product was suitable for Mr B, because it catered for the need that had been identified. Mr B knew of the exclusions, it said, because these had been disclosed in both the application form and the policy schedule.
However, the ombud drew the life assurer’s attention to the fact that it had failed to advise Mr B of the blanket exclusion on the policy with regard to pre-existing conditions. In addition, it had failed to elicit information from the complainant pertaining to his medical history. This information was both relevant and available, and, if it had been requested, the unsuitability of the product would have been evident.
The life company responded by making an offer that settled the matter in full.
Settlement: R563 581 Failure to provide appropriate advice. Mr C retired as a member of his employer’s pension fund. He was the sole provider for his family, supporting his wife and dependent child, who was a student. Mr C had sustained a significant amount of debt, which he had consolidated by taking out a loan shortly before he retired. This had been done in the knowledge that he would have access to one-third of his pension benefit, which he could use to settle the loan.
On consulting an FSP, he was advised to buy an annuity, which resulted in his entire pension benefit being transferred into the annuity. When Mr C asked about taking a third of the pension benefit in the form of a lump sum, he was told that he was unable to access the money.
Taking up his case, the ombud asked the FSP for evidence that it had obtained all available information about Mr B’s financial situation. It was established that the FSP had not kept a record of the advice and had failed to take Mr C’s circumstances into account. This failure had resulted in an outcome that was inappropriate to Mr C’s needs. The ombud recommended that the FSP pay Mr C an amount equal to one-third of his retirement benefit in a full and final settlement, which it did.
Settlement: R570 994