The ombud for Financial Services Providers recently ruled against a firm of financial advisers that failed to inform a client correctly on an insurance policy.
Mr BN lodged a complaint against Coler Financial Services Providers after an insurance claim for the theft of the vehicle was rejected.
According to the ombud’s report on the determination, Mr BN, self-employed as a courier, bought a 2011 Toyota Hilux bakkie in July 2013. He bought the bakkie for use as a courier.
Mr BN was assisted by Coler Financial Services to source insurance for the vehicle, which was subsequently secured with Renasa Insurance Company.
In July 2015, the vehicle was stolen, and Mr BN submitted a claim. Renasa rejected the claim on the grounds that the vehicle had been covered by a personal, not a commercial, policy. The use of the vehicle had been recorded as business use, whereas it had clearly been used for commercial purposes.
Note that you can stipulate business use under personal cover, but if the vehicle is used primarily for commercial activity, as a means of earning revenue, such as a taxi or delivery truck, it must be insured under a commercial policy.
Renasa referred Mr BN to the relevant sections of the policy, which specifically excluded such cover.
Mr BN complained to the office of the ombud, Naresh Tulsie, saying that he specifically disclosed to the financial adviser that the vehicle would be used as a courier vehicle.
According to the determination report, he had been under the impression that Coler Financial Services had secured adequate cover for his bakkie by insuring it for business use. He says he was never been informed that he required a commercial policy.
Says the report: “Despite numerous attempts by this office to resolve the matter, the respondent failed to appreciate that the personal lines was not appropriate to the complainant’s needs and circumstances and that a commercial lines policy ought to have been recommended to have adequately addressed the purposes for which the vehicle would be used.”
The determination highlights the fact that an adviser or broker has a reasonable obligation to ensure that a client taking out an insurance policy is appropriately covered. Such obligations and duties are, to a large extent, codified in the general code of conduct under the Financial Advisory and Intermediary Services Act.
The gist of the ombud’s findings against Coler Financial Services is that it failed in its duty to ensure that Mr BN was adequately insured. This is supported by:
* It failed to obtain all relevant and available information from the prospective client.
* If obtained the relevant information, it would have been in a position to recommend to the complainant that a commercial lines policy would have been the appropriate option, considering the purpose for which the vehicle would be used.
Mr BN, a layperson, was simply required to say whether the vehicle would be used for “private use” or “business use”, without the respondent ever seeking to fully understand and appreciate Mr BN’s circumstances.
It failed to show compliance with the code in respect of maintaining a record of advice indicating that a needs analysis was conducted and detailing why the product ultimately recommended was appropriate for the complainant’s needs
Says the report: “There was no doubt that the respondent’s negligence in failing firstly to demonstrate that it had assessed the financial needs of the complainant, and secondly to adequately advise the complainant as to the appropriate policy cover to meet his needs, are the reasons for the loss suffered by complainant.”