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Challenges that keep the FAIS Ombud in business



Source: Faurie, Jonathan. “Challenges that keep FAIS Ombud in business.” FANEWS Magazine Feb. 2018: p54. Print.

The 2016/2017 financial year saw the Office of the Financial Advisory and Intermediary Services (FAIS) Ombud receive 10 846 complaints. While the number of complaints has steadily been increasing on a yearly basis, this is the first time that the Ombud has received over 10 000 complaints.

Major worries
In the 2016/2017 report, Noluntu Bam – the FAIS Ombud – pointed out that there are specific trends which are rearing their heads in the short term industry which are contributing to these complaints.

Bam pointed out that despite the importance that short term insurance plays in an individual’s financial planning, financial service providers (FSPs) who operate in the industry still violate provisions of the FAIS Act and the Code.

“They do so by providing the most affordable premium possible regardless of the implications for the client, who might only find out in the event of a claim what the true cost of the lower premium is. This true cost could include a reduction or exclusion in the cover provided or the numerous additional excesses payable,” said Bam.

She added that it is therefore no surprise that the number of complaints that relate to short term insurance policies far exceed those from any other product category of complaints received by the FAIS Ombud in the period under review and in previous financial years.

Information gathering
When a broker sits down with a client, their main objective to get as much information from the client as possible so that the product being sold to them can be priced correctly.

However, Bam said that this is a problem. “The main concern with regards to the provision of short term insurance is the persistent refusal by some FSPs operating in this area to obtain all relevant and available information from the prospective client. This violates section 8 (1) (a-c) of the Code. These FSPs also have a preference for what they call a single need which, more often than not, short changes clients,” said Bam.

She added that the term single need is used by some FSPs as a way to circumvent the requirements of section 8(1) (a-c) of the Code. “By claiming that the client requires assistance only for a specific need, such as insurance for a new motor vehicle, FSPs argue that there is no need to obtain all relevant and available information and by extension, they feel that there is no need to conduct a needs analysis for the client.

Disconnection exists
The Report points out that a disconnect exists between the client’s understanding of comprehensive cover, and some FSP’s understanding of the topic.

“When a client requests such cover, the expectation is that the entire value of the vehicle (including extras) will be covered in the event of theft or a total loss. For some FSPs, comprehensive cover often means that the vehicle is insured for any eventuality up to the retail value of the vehicle, with extras not taken into account,” said Bam.

Cryptic interactions
Finally, the report points out that when it comes to homeowners’ insurance, some FSPs tend to fail to disclose to clients the exclusions that exist in terms of their policies.

“This is especially true for new homeowners who, in the absence of these disclosures, are unable to take any steps to mitigate their losses. It is devastating when, for example, one’s roof collapses during a heavy storm and the claim is rejected for wear and tear,” said Bam.

With insurance on household contents, Bam pointed out that there is failure to provide for accidental damage, which is not automatically covered.

It must be remembered that these actions are only limited to certain brokers, who Bam refers to as FSPs, that have a tendency to push the limits of the law. This behaviour is not endemic to all brokers, however, they are practices that need to be contained if the industry wants to reduce complaints.