The December 2015 determination of the Ombud for Financial Service Providers in De Hoop Steenwerwe v Finmar Makelaars reminds us of the duties imposed on FSPs by the FAIS Act and the FAIS General Code.
Central to the complaint in this case was the FSP’s failure to update the sum insured under the business interruption section of a policy taken out by the complainant. As a result, the complainant was underinsured, resulting in the insurer applying an average condition to the complainant’s claim. The policy paid out less than what it would have paid had the complainant been insured for the correct amount.
In response, the intermediary pointed out that when it took over the business of the insured, the policy in question was already in place, that the danger of average was pointed out to the complainant and that the main purpose of the policy was to cover machinery.
The Ombud, in reaching the determination, considered that from the time Finmar took over the business of the complainant, the insured amount under the policy was wrong. That did not absolve the FSP from the obligations imposed by the Code, including the duty to take reasonable steps to seek appropriate information regarding the client’s financial situation, product experience as well as objectives to enable the FSP to provide the client with appropriate advice. In terms of the Code, an FSP is required to record its advice to the complainant. There was no record of such advice in this case. In the absence of such record, the FSP’s defence was unsustainable because it could not prove the nature of the advice furnished to the complainant pertaining to the average issue.
The Ombud concluded that the FSP had failed to comply with the Code and ordered that the complainant be paid an adjusted sum of R273 715.25, being the difference between the indemnity paid by the insurer and the indemnity amount which should have been paid minus the savings made by the complainant in additional premiums.