The Financial Advisory and Intermediary Services (FAIS) Act and accompanying code of conduct require insurance brokers to do more than facilitate the sale of a policy. They must also ensure that the policy they recommend is suited to your needs, that you fully understand its terms and conditions, and that the representations they make to the insurer on your behalf are correct. This is to ensure that the insurer is able to properly assess the risk you pose and price the product accordingly. Note that your broker is your representative, not the insurer’s.
If a broker fails to meet these obligations and, as a result, a claim of yours is rejected, he or she may be held liable for the claim.
In two recent determinations, Noluntu Bam, the Ombud for Financial Services Providers (also known as the FAIS ombud), ordered insurance brokerages to compensate clients for claims that were rejected, because the brokerages failed to convey vital information to the insurers.
In the first case, Ms B of Pretoria, the owner of a fibre-optic cable installation company, lost electronic equipment to the value of more than R200 000 when her van broke down and she was robbed.
The insurer rejected her claim, because the equipment was not insured under the all-risks section of her policy. In other words, it was covered only when it was at Ms B’s business premises and not when it was with her in the course of her work.
According to Bam’s determination, Ms B’s insurance broker, Anna Ackerman, the sole proprietor of Duo Brokers, knew the nature of Ms B’s business and should have known that the equipment was taken out of the insured premises daily, but she failed to ensure that it was covered under the correct section of the policy.
Bam says: “The nature of [Ms B’s] business involves leaving the premises to call on clients for the purpose of installing and maintaining fibre-optic cables and networks. It does not require genius to work out that [she] works outside the secured offices and will transport stock and equipment to clients and back to the office. Upon a competent assessment of the risks, [Ackerman] should have conveyed this fact to the underwriters. She failed to do so.”
Bam found that Ackerman was in breach of the FAIS Act and that her conduct had resulted in her client failing to be compensated for her loss. She ordered Ackerman to pay Ms B R211 051, the value of all the items lost in the robbery.
In the second determination, a broker appears to have done an exemplary job in securing additional insurance for his client, a farmer. However, the brokerage he worked for neglected to inform the insurer of the additional cover.
Mr D, who has a farm near Harrismith in the Free State, had a commercial policy with Hollard Insurance. On the advice of Coenderaad Koegelenberg of Optimum, a Harrismith brokerage, he extended his insurance to cover fire damage to a game fence on the farm.
Soon afterwards, a fire damaged the game fence. But Mr D’s claim for R85 500 was rejected by Hollard, because, according to its records, the fence was not covered. It turned out that an administrative hitch had prevented the policy from being endorsed.
According to Bam’s determination, Optimum was bought by the Sapcor group of financial services companies in 2010, the year in which Mr D took out his Hollard policy. Koegelenberg had stayed on as an employee of Sapcor, visiting Mr D in January and May 2011, when he advised on the additional cover.
Koegelenberg resigned from Sapcor in June 2011, and the fire on Mr D’s farm occurred some two months later, at the end of August that year.
In its response to the complaint, Sapcor tried to shift the responsibility on to Koegelenberg by suggesting, among other things, that he had failed to inform a clerk at the Optimum office about the change to Mr D’s cover. Koegelenberg responded that he had informed the clerk.
Bam says in her determination: “Having given the advice to take cover for the game fence, it is improbable that Koegelenberg would then neglect to convey the request for cover to the insurer. I accept his version, that he handed the matter to an administrative clerk.”
However, Bam says that, even if Koegelenberg had been responsible for the omission, both he and the clerk were employees of Sapcor and, as such, the responsibility for their actions lay with Sapcor. “Optimum was purchased as a going concern and, in terms of the agreement of sale, [Sapcor] took over a number of employees; this included [the clerk] and Koegelenberg. It is not in dispute that, from March 1, 2010, Sapcor took responsibility for the acts and omissions of [its] employees,” she says.
Bam ordered Sapcor to pay Mr D R85 500 plus interest of nine percent a year from September 2011 until the date of payment.
Call the Ombud for Financial Services Providers, Noluntu Bam, on 012 470 9080 or 012 762 5000. Fax complaints to 012 348 3447 or email firstname.lastname@example.org