When clients experience financial stress, unpaid debit orders may occur. In a recent matter, the Ombudsman for Short-Term Insurance found in favour of an insurer for repudiating a claim due to an unpaid premium.
The client missed a premium payable by debit order due to insufficient funds in his account after he had been dismissed from work. The advisor informed the client that a double premium would be deducted from his account the next month, and the client made sure there was enough money in his account to cover the amount. The client called the advisor to confirm that all was in order, the advisor’s assistant contacted the insurer’s call centre and was allegedly informed that all premiums were up to date and no further payments were required.
Two weeks later a severe thunderstorm caused R30 000 damage to the client’s home. After the client submitted his claim, the insurer informed him that his claim had been repudiated as the policy had lapsed due to non-payment of the premium. The advisor assisted the client and appealed to the insurer. He referred to the telephonic conversation with the insurer, in which the insurer confirmed the premium had been paid. The advisor provided the time and date of the call and motivated for a re-instatement of the policy and that the claim should be paid to the client.
When the insurer declined the request and rejected the claim, the client lodged a complaint with the Ombudsman for Short-Term Insurance. The insurer informed the Ombudsman that due to technical difficulties the telephone recording could not be retrieved, and thus there was no record. The insurer maintained it was within its rights, as the policy wording made it clear that premium payment was the sole responsibility of the insured. The wording also clearly stated that the benefits would lapse after a specified period of non-payment.
The Ombudsman duly ruled in favour of the insurer.
So, what happened?
A debit order that reflects as paid and then shows a reversal a short while later is a common occurrence that results in much debate between banks, clients and companies expecting payment. In this matter, it appears the call to the insurer to confirm payment was made in the timeframe after the payment showed as having gone through and just before it was reversed.
What happens in reality?
Many clients experience cash flow problems from time to time, as financial responsibilities and challenges occur. When a client is financially stressed, and there is not enough money in his or her bank account to cover all the debit orders, the first companies whose debit orders run through the account get paid. If bond, cell phone and loan payments run through a transactional account, for example, banks ensure the bond payment runs first to improve the likelihood of a successful collection.
Some companies, usually microlenders and banks, use a debit order collection system called NAEDO. This system continuously scans a customer’s bank account and takes the debit order amount due when sufficient funds are available in the account. Money that gets snatched by this system cannot be reversed. Not all insurers use the NAEDO system, so if the debit order for your premium is reversed, the insurer might not try to collect it again.
How to protect your reputation
To prevent incidents such as the above from becoming your fault, make sure your record of advice stipulates that premium payment is the client’s responsibility and that non-payment will result in claim repudiation and loss of benefits.
If you assist a client when there is a problem, note the call centre reference number and request an email confirming what was discussed on the phone. If this is not immediately forthcoming, send an email to the call centre referring to the conversation, and inform the agent that your request has not been fulfilled.
Make sure your administration staff sign a declaration as non-advice givers. This will ensure they are aware that they must be very careful when conveying information to clients. They must take care not to give advice, as they are not licenced to do so, but they may pass on factual information to clients.
If clients are present, ask them to sign a short record of advice or declaration that briefly records what was done for them. Always document that clients know they need to confirm with their bank that payment has been made. You can also advise clients to spread their debit orders over a period of time to better manage their cash flow.
Remember to apply TCF principles in your business procedures and make sure you can evidence them by being able to show that you have made every effort to assist your client.
By applying the above recommendations, you can protect yourself from reputational damage and ensure you do not become the ‘fall guy’ when claims are repudiated because premiums were unpaid.