The way homeowners’ insurance policies are sold and the high percentage of claim rejections under these policies is of increasing concern to the Ombud for Financial Services Providers (Fais Ombud).
Acting Fais Ombud Advocate Nonku Tshombe is particularly concerned about the high rejection rate of claims related to acts of nature.
Ombud for Short Term Insurance (Osti) senior assistant ombud Ayanda Mazwi said a statistical analysis done for its 2021 annual report revealed that 48% of the complaints considered by Osti under this category related to claims for damage caused by acts of nature, mainly storm-related.
“In 2020, we anticipated that storm-related claims would become prevalent considering changing weather patterns,” she said.
“The number of complaints relating to homeowners’ claims rejected by an insurer on the grounds [of] loss or damage [that] resulted from defective construction and/or maintenance issues increased by 17% in 2020 compared to 2019.
“There was a further increase in 2021 to 53% from 47% in 2020.”
Industry to blame?
Tshombe said from the Fais Ombud’s perspective, if these complaints are coming in “quick and fast”, this is an issue that those in the insurance industry should be looking at and asking themselves why.
She said Treating Customers Fairly (TCF) principles require that customers are provided with clear information and kept appropriately informed during and after the point of sale.
Tshombe said it appears there is too much emphasis on selling the policy and too little focus on providing advice to homeowners.
Assistant Fais ombud (adjudications) Thobile Masina said advisors will say they did not provide advice or did not think it was necessary to conduct a needs analysis or to even provide a record of advice because it was a short-term insurance product and the person knew exactly what they wanted.
But Masina said what these financial advisors do not understand is that the nature of the discussion they have with clients, no matter how brief or even if it’s over the phone, falls under the definition of advice, because there are recommendations or guidance that is provided to a client to take up a specific product.
Masina said there is a responsibility on financial advisors to consider whether a particular product is the most suitable for a specific client, particularly as there may be exclusions of cover in one policy product and not in another, or a higher premium to cover a specific provision that would otherwise be excluded.
Tshombe said insurance companies do not provide any guidelines to people who take up their policies about their responsibilities in terms of the policy to enable them to reduce the risk of claim rejections.
She said financial advisors should at the point of sale also be advising their clients that they must keep records and documentation on whatever costs they incur for maintenance and repairs to their home.
Tshombe said that if the Office of the Fais Ombud does not see any improvement in the sales process for these particular products, especially in terms of the claim rejection numbers, it will have to make referrals to the Financial Sector Conduct Authority (FSCA) for further investigation.
“The FSCA is the market conduct regulator and for us that issue falls under the conduct of the market in the provision of financial services.
“The FSCA has a lot of power and can issue an enforcement order and also threaten to withdraw the licences of insurers,” she said.
A contract is a contract …
However, Mazwi said a non-life insurance policy is a contract like any other, and contains terms and conditions, including exclusions of cover and/or only those insured events the insurer is willing to cover.
“If an event is not listed, then that loss will not be covered. [Just] As insurers need to bring salient terms and conditions to the consumer’s attention, consumers have an obligation to read the policy wording and become familiar with the terms and conditions to understand their rights and obligations under the policy.
“The contract will create certain rights and obligations on the part of both parties. These will include what the consumer must do to ensure that a claim is covered – for example, maintaining the insured property,” she said.
Mazwi said the Osti has, through various consumer education initiatives, continued to draw attention to the insured’s responsibility to make sure their buildings are structurally sound and properly maintained, because most homeowners’ insurance policies specifically exclude damage arising from structural defects, lack of maintenance or normal deterioration.
“Maintaining one’s property is an obligation under a policy. If the policyholder, for whatever reason, is not in a position to inspect the property for maintenance or if they do, but are not able to determine what maintenance is required, then a service provider would be best to assist.
“It is better to attend to the maintenance than to ignore it altogether as it could result in no cover or a rejection,” she said.
“Having said this, we encourage consumers to register a complaint with the office if they disagree with their insurer’s decision to reject a claim on these grounds, or are not satisfied with the explanation provided to them.”
The latest Osti annual report reveals that 11% of the total number of homeowners’ insurance disputes it considered in 2021 were overturned, resulting in insurers paying previously rejected claims worth a total of R9.35 million.
SA Insurance Association (Saia) corporate affairs manager Kwanele Sibanda said the association is constantly engaged in consumer education drives to educate consumers to peruse their policy to ascertain what is covered and not covered under their policy, or to contact their insurance advisor for assistance.
Sibanda said the policy contract has a ‘prevention of loss’ clause, which requires the consumer to take preventative action to avoid a loss or, in the event of a loss, to minimise the possible loss.
“This speaks directly to maintenance as a mitigating factor to avoid losses due to lack of maintenance,” he said.