Homeowners’ insurance policy sales process in for a grilling

The Office of the Financial Advisory & Intermediary Services (Fais) Ombud is planning to take action to change the way homeowners’ insurance policies are sold to the public.

Fais Ombud Advocate Nonku Tshombe said the way homeowners’ insurance policies are sold to the public requires attention.

Complaints received about homeowners’ insurance claims related to damage caused by acts of nature, largely storm-related, specifically highlight the dissatisfaction with the decision of the insurer to reject the claim on the basis of wear and tear and/or defective workmanship, Tshombe said in the latest Fais Ombud annual report.

Property syndication complaint backlog

She also provided an update on the backlog of property syndication complaints, which relate to property syndication schemes promoted and marketed by companies such as Sharemax, Realcor and Highveld Syndications, and the increase in complaints received about cryptocurrency schemes.

Tshombe said the Office of the Fais Ombud made a commitment in its 2019/2020 financial year to reduce the original number of 1 300 active property syndication complaints by a minimum of 20% annually – and by end-March 2021 had reduced the backlog by 20.31% to 1 036 complaints.

She said the complaints about homeowners’ insurance policies are more often than not referred by her office to the Ombud for Short-Term Insurance (OSTI).

But she highlighted that: “Despite the prevalence of these complaints both within this Office and the OSTI, there does not appear to be any amendments or improvements made in the manner in which these policies are sold to the public.

“It is an issue that has been a consistent complaint received by this Office through the years … that now requires attention.”

Tshombe said her office will, with all such complaints received, interrogate the disclosures made when the financial service was rendered and how the financial service was rendered.

Ombud will involve the FSCA

Where it is noted that no effort is being made to improve the sales process of these products, referrals shall be made to the Financial Sector Conduct Authority (FSCA) for further investigation, she said.

Tshombe said complaints considered by OSTI under homeowners’ insurance related to acts of nature represented 61% of all complaints received in terms of homeowners’ insurance claims in 2017, 58% in 2018 and 54% in 2019.

Of those complaints received by OSTI, the primary cause for the rejection of 48% of these claims in 2018 and 30% in 2019 was based on wear and tear, gradual deterioration, and lack of building maintenance being the proximate cause of the damage, she said.

“It is clear from these numbers that consumers do not always know or understand the material terms and conditions contained in their policy documents, yet despite these numbers, there does not appear to be any effort made by FSPs [financial service providers] in the manner in which these policies are sold to the public.

“Many of these policies are sold pursuant to a loan agreement, where the application forms are signed while completing the paperwork with the lawyers with no financial advisor in sight.

Governance structures

“Treating Customers Fairly (TCF), which is a regulatory framework that governs the way a FSP business conducts daily dealings with its clients, ensures that all clients are treated fairly during all stages of the product life-cycle and advice process,” she said.

Tshombe added that the provisions in the TCF framework require that customers are provided with clear information and kept appropriately informed before, during, and after the point of sale.

She said this is further reinforced in sections of the General Code of Conduct for Authorised Financial Services Providers and Representatives (General Code) where customers must be provided with concise details of any special terms, exclusions, or instances in which cover will not be provided to place the customer in a position to make an informed decision and make an effort to mitigate any potential losses.