Roll on the Conduct of Financial Institutions (Cofi) Bill, I say. That’s because the Treating Customers Fairly (TCF) approach, on which the legislation is founded, has not yet found its way into the culture of some of our most prominent financial services companies, no matter how much they maintain that it has.
The bill promises fundamental change, because it is principles-based, not rules-based. Compliance will not be a matter of merely ticking boxes, and a company’s legal team will not have the final say in disputes. Organisations will have to demonstrate, from board level downwards, that they are committed to the best outcomes for their customers and that TCF is at the heart of their business. If there’s a clash between the letter of the law and a fair outcome for a customer, the latter will – or should, if the legislation is implemented as intended, and financial organisations adopt it in the spirit in which it is intended – trump the former.
A proviso here: what may appear unfair to an individual may be fair to a group. Insurance works by pooling risk, and all policyholders within a risk pool must abide by a common set of rules. An individual who doesn’t has an unfair advantage over the others in the group.
I don’t think TCF and Cofi seek to undermine this basic tenet of insurance. What Cofi will do is allow flexibility in special circumstances. The big corporate financial firms have long had a poor reputation, partly because they so often come across as hard-nosed and unbending in the face of obvious human hardship.
Late last year Momentum hit the headlines for its disastrous handling of the Ganas case, when it rejected a life policy claim from the widow of a man who had been gunned down by hijackers, because he had not disclosed that he had high blood sugar levels. The Ombudsman for Long-Term Insurance sided with Momentum, but the outraged public didn’t. The letter of the law counted for nothing in the public’s eyes. What counted was the human touch, which Momentum apparently lacked.
Here’s another case involving Momentum that went to the Long-Term Insurance Ombudsman. The outcome rested on the interpretation of a common-law rule, the in duplum rule, which applies to debt. I’ll leave it to you to judge whether Momentum showed the human touch or not.
The ombudsman, Judge Ron McLaren, ruled on a complaint about a loan of R5 000 against a life policy that had ballooned to about R53 000.
The in duplum rule states that interest in arrears ceases to accrue once the total accrued interest equals the outstanding principal debt.
In 1983 the complainant, Mr A, took out a life policy with what was then Southern Life. In 1999 he took a loan of R5 000 against the policy. He said in his submission that he did not remember making any arrangements with Southern Life to repay the loan separately, and at no stage was he informed by the company to do so; he assumed that his monthly premium had been adjusted to incorporate the monthly loan repayment.
He said he virtually forgot about the policy (and the loan). In the ensuing years, Southern Life merged with Momentum Life, and this state of non-correspondence continued. He said during this period he moved home twice, although his employment address remained the same until December 2012, when he changed jobs.
Mr A said that in July 2017, when he enquired about the status of another life policy taken with Southern Life, he was informed for the first time that the loan had not been settled and that it had accrued interest of about R48 000 over the years.
He said he immediately wrote to Momentum indicating that he wanted to settle the loan amount and requesting that the interest be waived since he had received no correspondence from Southern Life or Momentum.
According to the determination, Momentum submitted that in 2007 and 2008 Mr A had enquired about the loan and been told that no repayment had been made. He had also been sent quarterly loan statements and annual policy statements on which the outstanding debt was reflected. The insurer also claimed it had not been informed that Mr A had changed his address; that it “cannot be held responsible for the loan status of his policy” and that it “cannot waive such interest as the loan amount was borrowed not from policy funds but from external sources”.
The ombudsman told Momentum that the in duplum rule applied to Mr A’s loan, but Momentum disagreed. There followed a back-and-forth correspondence between Momentum and the ombudsman on the technicalities of the rule, and whether it applied in this instance or not.
At a meeting of adjudicators in the ombudsman’s office, it was held that the rule was applicable. The adjudicators unanimously agreed that the in duplum rule was to be applied by Momentum to Mr A’s policy and his loan balance adjusted accordingly.
In his determination, Judge McLaren quoted several settled cases where it was stated that the purpose of the in duplum rule was to protect debtors against exploitation by lenders who permit interest to accumulate. He said that, on the facts of the matter, fairness demanded that the protection of the in duplum rule should be extended to Mr A.