Signing your life away?
POLICIES: OPERATERS IGNORING LAW ON THE UP
Fais Ombud’s report highlights reliance on riskprofiling questionnaires, to clients’ detriment.
There has been a proliferation of funeral parlours and other providers of funeral policies who operate outside of the law, the Office of the Ombud for Financial Services Providers (Fais) has warned. They operate outside of the law by not being regulated in terms of the Financial Advisory and Intermediary Services Act No. 37 of 2002 (Fais Act) and by providing long-term insurance benefits without having the scheme underwritten, in contravention of the Insurance Act No. 18 of 2017.
This, according to the Fais Ombud 2021/2022 annual report, is the reason for the significant rise in complaints against funeral policy providers for not complying with Section 2A.8.1 of the Policyholder Protection Rules (PPRs).
These rules provide that an insurer must assess whether the submitted claim is valid within two business days after all required documents in respect of a claim under a funeral policy have been received.
If the claim is valid, payment must be authorised; alternatively, the claim must be repudiated. If the claim is disputed, the claimant must be advised of the dispute.
Licensed, but struggling
Ombud Nonku Tshombe said there are schemes where the provider is licensed in terms of the Act and complies with legislation by having its schemes underwritten, but struggles to get claims paid due to financial difficulties experienced by the underwriter, whose difficulties, in turn, are due to economic struggles experienced during and post the Covid pandemic. In such instances, her office has to investigate both the provider and the insurer to determine which entity is responsible.
Tshombe said complaints such as this – and those against smaller funeral parlours operating in rural areas, which more often than not are unlicensed – tend to take longer to resolve.
She said her office is committed to finding an informal resolution – as opposed to proceeding to a formal ruling.
“After a determination is finalised, this office is no longer involved and the complainants, most of whom are without the requisite means, find themselves at the mercy of the expensive justice system.
“They struggle to get the determinations enforced and fight any appeals lodged against the decision. Therefore, this office spends more time to find a positive informal resolution.”
FSPs called out over living annuities
Turning to living annuities, Tshombe said in the previous annual report her office bemoaned the failure of certain financial service providers (FSPs) to make a recommendation as provided for by Section 8(1) (c) of the General Code of Conduct for Authorised Financial Services Providers and Representatives.
Some FSPs often simply provide the prospective client with the level of income they require to meet their current standard of living, regardless of whether sufficient provision has been made – to the detriment of the client.
She said this will result in the client’s initial capital invested reducing over time, leaving them destitute in later years.
When these FSPs are approached by her office, they simply declare generic terms such as a “single” need and try to blame the client.
“This approach illustrates that they failed to have the difficult discussions with their clients and to manage expectations from the beginning,” she said.
“Some indeed address the client’s failure to have made sufficient provision for retirement and caution the client as to the consequences drawing an income.
“However, then the FSP fails to act with the required skill, care and diligence. In this regard, we refer to the FSP’s total reliance on the risk profiling questionnaire and its outcome, at the expense of what is in the client’s best interests.”