On the 15th March 2023 it was World Consumer Rights Day and the FAIS Ombud’s office took the opportunity to draw attention to the rights of consumers and the responsibilities of financial services providers (FSPs) towards those consumers. In the FAIS Ombud March 2023 newsletter, the FAIS Ombud referred to articles and case studies and emphasised that an FSP must be equipped with systems and procedures in place to provide their clients with the necessary information and conform to legislative requirements.
The consumer’s rights received attention in the article, “What are your rights as the consumer according to the FAIS ACT” and pressed on the importance of an FSP’s duty to provide their clients with the advisor’s information, company’s details, product and suppliers information, commission and procedures which are outlined in the “Disclosure and Appointment Letter”, and a copy of the contract/policy schedule/agreement within 30 days of signing it.
These documents are necessary to ensure that the FSP can evidence that it has provided the client with the appropriate information to enable the client to make an informed decision on the products and services that they receive.
The example cited below is where the FAIS Ombud handled a matter involving an FSP that had not properly determined the customer’s coverage needs and did not completely inform the client of the policy’s T&Cs. These case studies illustrate that where an FSP does not provide a client with information, it can be to the disadvantage of the FSP. This is because cases like these are resolved in favor of the customer if the broker is unable to produce documentation of engagements that demonstrates compliance with the Financial Advisory and Intermediary Services Act (FAIS Act) and General Code of Conduct for Authorised FSPs and Representatives (GCOC).
In the case of C v W, Mr C insured his family under a funeral policy. Mr C’s son had passed away and his claim was rejected on the grounds that his son had been over the age of 26 years, which was the maximum age for a child to be covered. Mr. C went to the Ombud, claiming that neither had he been informed, nor had he received any notification that his son would no longer be insured when he turned 26. The Broker claimed that the client was aware of the clause however the broker was unable to present the Ombud with any proof that Mr. C. had received a thorough explanation of the policy’s terms and conditions. This resulted in a finding against the FSP. The FSP had to pay out the claim.
Reference was made to the case studies of CD v P & K v K, in both matters the client’s claims were rejected and it was later found that the FSP failed to comply with Section 7(1)(a) of the GCOC which requires that clients must be provided with information to enable them to make an informed decision. In these cases, claims were rejected by the insurer by reliance on exclusions and special conditions included in the policy wording, the Ombud found that even though these exclusions and special conditions were in the policy wording, by merely emailing the policy wording to a client, the FSP does not meet the requirements of Section 7(1)(cii) of GCOC which provides those concise disclosures must be made of any special terms, exclusions or instances in which cover will not be provided.
Compliance with this section of the Code would then place the client in a position to make an informed decision as is required in terms meaning that an FSP needs to specifically draw the client’s attention to any additional requirements and/or exclusions in respect of insurance cover.
In the case of CD V P, the Complainant’s vehicle was stolen, and his claim was rejected as the complainant did not comply with the minimum security requirements that required the vehicle to have been fitted with a tracking device. The complainant alleges that he was never informed of this requirement by the FSP. The FSP provided evidence that the revised policy wording was sent to the complainant clearly reflecting this requirement.
In the case of K v K, the complainant submitted a claim under the “All Risks” portion of her policy. Her camera was stolen from the front seat of her car which was parked outside her house. The claim was rejected on the basis that the complainant did not enjoy cover as the items were not concealed in an enclosed storage area of the vehicle. The Ombud found that the client’s expectation is formed by specifically mentioning an item (the camera) and paying an additional premium for it , which infers that it will be covered for all eventualities. In view of the circumstances of the case, the Ombud was of the opinion that for a client, specifying that “All Risk” cover was provided on specific terms is a significant disclosure. The FSP has a duty to ensure that clients’ expectations are managed and must appropriately inform clients of exclusions to ensure clients are put in a position to comply with the policy’s terms and avoid being caught off guard in the case of a claim.
In these cases the Ombud Office concluded that the FSP did not act as required by the GCOC and in light of the facts, the FSP’s opted to settle the matter with their clients.