The Ombud for Short-Term Insurance agrees with Budget Insurance as to why they repudiated a client’s claim.
A homeowner who wanted to permanently remove his carpets did so by using certain chemicals. He however did not realise that the chemicals created fumes which subsequently caused his household contents to rust and discolour. His household contents were so badly damaged that he submitted a claim for damages to his contents to his insurer, Budget Insurance.
Budget Insurance declined his claim on the basis that the loss and damage to his household contents was not as a result of an event covered under his policy.
The homeowner was not satisfied with this outcome and escalated the matter to the Ombudsman for Short–Term Insurance. The Ombud advised the homeowner that his insurance policy was a defined-events policy which listed events that would qualify as a claim. Any loss or damage which did not result from one of the listed events in his policy would therefore not be covered by the insurer.
The Ombud therefore advised that he was satisfied with the reason provided by Budget Insurance to deny his claim and could not fault their decision.
One of the values of a financial advisor is to understand the circumstances and needs of a client so that an appropriate solution can be provided. Financial advisors help their clients to understand how financial products work so that a client’s expectation is aligned with how the product will perform. This is one of the key principles of Treating Customers Fairly. Should a repudiated claim be upheld by the Short – Term Insurance Ombud, the client may seek recourse through the office of the FAIS Ombud against the financial advisor if the client feels that they were inadequately informed and/or advised.
The question financial advisors should ask themselves is: If faced with a similar situation would the records on their client file be enough to prove that they had made the client aware of the limitations of the product?
This case highlights the importance of keeping detailed records of the advice given and evidence that information about a financial product was clearly disclosed and explained to a client. Should a client elect to implement a financial product which differs from the advisor’s recommendation, the reason for this, together with the advisor’s warning of the consequences of the client’s own choice should be clearly set out in the record of advice.