Background:

1. The Complainant stated that her late husband secured a homeowners insurance policy through the Respondent in 2018.
2. After a fire at the insured property on 15 August 2023, the Complainant filed a claim and learned the property was significantly underinsured. The required cover was R3,529,806.94, but the sum insured was only R2,084,167.00. As a result, the average clause applied, and the payout received was only R1,171,066.07
3. The Complainant submitted that the Respondent’s Advisor did not adequately explain the policy, especially the risks and consequences of underinsurance. She also stated that the Advisor failed to conduct appropriate annual reviews to ensure the property remained adequately insured.
4. The Complainant maintained that, if the risks of underinsurance had been properly explained and the policy reviewed, she would have ensured the property was adequately insured.
5. The Complainant sought compensation for the resulting loss of approximately R2 million. The policy was originally arranged for the Complainant’s late husband, with the assistance of his brother-in-law, who acted as a short-term insurance advisor and representative.
6. The Respondent stated that the late husband chose to insure the property for R1.5 million, mainly for affordability, and that all relevant documents were provided to the brother-in-law, who completed the paperwork.
7. The Respondent added that the policy was renewed annually, with the brother-in-law managing renewals by phone.
8. After the husband’s death, the Complainant contacted the Respondent in 2023 to transfer the policy to her name as owner and premium payer. The Respondent stated that she did not request any changes to the cover at that time.
9. During the 2023 renewal, the Respondent obtained the Complainant’s email address and sent her the renewal documents, advising her to review the insured amounts, payments, and premiums, and to notify them if any changes were needed.
10. The Respondent submitted that the policyholder was responsible for determining the property’s value, as advisors do not conduct property valuations and as such could not be held liable for the loss.

Assessment of Evidence:

11. In considering the matter, the Office considered the Respondent’s obligations under the FAIS General Code of Conduct for Authorised Financial Services Providers and Representatives (“the Code”).
12. In particular, section 2 requires a Provider to act with due skill, care and diligence when rendering financial services. Section 7(1) requires the Provider to furnish the client with appropriate and material information relating to the relevant financial product, including material terms and risks, to enable the client to make a reasonable and informed decision.
13. The Office also considered the obligations under section 8 relating to obtaining sufficient information regarding the client’s needs and circumstances to enable an appropriate analysis and the provision of useful advice, as well as the record-keeping requirements in section 9.
14. It was established that the policy was arranged as a replacement policy. Therefore, the advice process should have documented the reasons for replacing the previous policy, the information used to determine the cover, and the rationale for the selected sum insured under the new policy.
15. The Office found that the risk of underinsurance and the financial consequences of the average clause were material information that the policyholder should have been told and that the advice should have documented.
16. The record of advice only noted that the late husband chose to insure the property for R1.5 million, with no evidence of discussion about the basis for this amount, the property’s replacement value, or the risks of underinsurance.
17. Although the Respondent claimed to have conducted annual reviews by phone, it could not provide documentation or recordings to support this. The Office therefore had no evidence of advice given during the policy’s term.
18. The Office considered the period after the Complainant’s husband’s death. Transferring the policy to the Complainant was a material change, allowing the Respondent to review the cover with her and explain the insurance coverage, including underinsurance risks. However, the Respondent could not show that such a review or disclosure occurred.
19. The Office also noted the Respondent’s claim that his late brother-in-law, who assisted with the original policy, was knowledgeable in short-term insurance. While this may have been relevant initially, it did not remove the Respondent’s duty to document advice properly or prove that the Complainant understood the policy’s terms, cover, and risks, including determining or valuing the replacement cost of a property. As such, simply recording the late husband’s selected sum insured was not sufficient where there was no evidence that the implications of the decision had been explained or understood.
20. The Office accordingly found that the Respondent could not demonstrate compliance with the relevant conduct, advice, and record-keeping obligations under the Code.
21. Having said that, it could also not be established that the Complainant would have elected to increase the sum insured and incurred the corresponding higher premium had the risk of underinsurance been disclosed to her.
22. The Office could therefore not attribute the full financial loss of approximately R2 million to the Respondent’s conduct and found that awarding the full amount would not be appropriate.

Outcome:

23. The Office found that shortcomings in the advice process contributed to the unfair outcome for the Complainant and recommended resolving the matter through a fair and reasonable settlement.
24. The Respondent offered R50,000, which the Complainant accepted as full and final settlement of the matter.
25. The file was subsequently closed.