How do Policyholder Protection Rules protect consumers purchasing insurance online?

Television and especially investigative reporting such as Carte Blanche highlights the importance of consumer protection. Many in the service industry are not complying with reasonable standards of efficiency – and too many consumers are left distraught.

Legislation and Protection of the Online Insurance Client

It is important to be aware of legislation protecting the consumer. The consumer does not merely have to throw his hands in despair – there are laws on his side which could assist him in seeking redress!!

Consumer Protection Act and Insurance

It is expected that the Consumer Protection Act coming into effect 31 March will provide much needed protection to consumers. Those who purchase insurance online will also benefit from some of the proposed measures – most notably those stipulations with regards to a “cooling off” period and interpretation of contracts.

We would like to refer briefly to these stipulations

Interpretation of Policy contracts

• A policy would be interpreted in favour of the consumer, in the event of ambiguity allowing for more than one reasonable interpretation. This reflects the existing law, but is now an unalterable right.

• Any exclusion within the insurance contract would be measured against whether a reasonable person in the position of the consumer would have expected such exclusion, taking into account the contract’s contents, the manner in which it was presented and the circumstances around concluding it. Policy exclusions may have to be drawn to the consumer’s attention.

• Insurers will not be allowed to take advantage of the fact that the consumer is unable to understand the terms of the contract being concluded with it as a result of either physical or mental disability, illiteracy, ignorance or inability to understand the language of the contract.

• Terms of the policy may be ruled as unfair, unjust or unreasonable if they are excessively one sided, contain terms so adverse to the insured as to be inequitable, or if the consumer was misled by the insurance company.

• The terms of the contract must be in writing and in plain language.

• Exclusions may still be utilised but the exclusions need to be in writing and in plain language, conspicuously presented to the insured allowing the latter a full opportunity to understand their terms.

Cooling –off Period after direct marketing purchases

You will have the right to cancel direct marketing contracts within the cooling-off period:

• Suppliers are required to include a ‘cooling-off period’ in direct marketing transactions – cooling-off periods generally span five (5) business days.

• Consumers have the right to cancel agreements within the cooling-off period, without providing reasons or incurring penalties for doing so.

Policyholder Protection Rules and Direct Marketers

Consumer protection for insurance clients need not be something for the future. Many consumers might not be aware that the Policyholder Protection Rules are already protecting their interests when they are making insurance purchases!

The Policyholder Protection Rules (Long-term Insurance) came into operation on 30 September 2004.

What do the Policy Holder Protection Rules require from Direct Marketers?

Basic Rules for Direct Marketers:

How they do business

4.1 (a) A direct marketer must at all times render services honestly, fairly, and with due skill, care and diligence.

(b) A direct marketer must—

(i) in making contact arrangements, and in all communications and dealings with a policyholder, act honourably, professionally and with due regard to the convenience of the policyholder; and

(ii) at the commencement of any contact, visit or call initiated by the direct marketer clearly explain the purpose thereof.

(c) Representations made and information provided to a policyholder by a direct marketer—

(i) must be factually correct;

(ii) must be provided in plain language, avoid uncertainty or confusion and not be misleading;

(iii) must be adequate and appropriate in the circumstances of the relevant marketing, taking into account the level of knowledge of the policyholder;

(iv) must, where provided in writing or by means of standard forms or format, be in a clear and readable print size, spacing and format;

(v) must, as regards all amounts, sums, values, charges, fees, remuneration or monetary obligations mentioned or referred to therein, be reflected in specific monetary terms: Provided that where any such amount, sum, value, charge, fee, remuneration or monetary obligation is not reasonably pre-determinable, its basis of calculation must be adequately described; and

(vi) need not be duplicated or repeated to the same policyholder unless material or significant changes affecting that policyholder occur, or the relevant direct marketer renders it necessary, in which case a disclosure of the changes to the policyholder must be made to the policyholder without delay before a transaction is concluded.

(d) The direct marketer must disclose to the policyholder the existence of any circumstance which gives rise to an actual or potential conflict of interest in relation to direct marketing, and take all reasonable steps to ensure fair treatment of the policyholder.

(e) Direct marketing must be rendered in accordance with the contractual relationships and reasonable requests or instructions of the policyholder, which must be executed as soon as reasonably possible and with due regard to the reasonable interests of the policyholder which must be accorded appropriate priority over any interests of the direct marketer.

(f) The direct marketer must not deal in any policy for own benefit, account or interest where the dealing is based upon advance knowledge of pending transactions for or with policyholders, or on any non-public information the disclosure of which would be expected to affect the costs of such policy to the policyholder.

Procedures and Systems Required

4.2 (a) A direct marketer must have appropriate procedures and systems in place to—

(i) record all verbal and written communications relating to the direct marketing to a policyholder as are contemplated in these Rules;

(ii) store and retrieve transaction documentation and all other documentation relating to the policyholder; and

(iii) keep the policyholder records and documentation safe from destruction.

(b) Records may be kept in an appropriate electronic or recorded format, which are accessible and readily reducible to written or printed form.

(c) Disclosure records and documentation pertaining thereto must, in any particular case, be kept for a period of at least five years after termination, to the knowledge of the direct marketer, of the relevant policy or, in any other case, after completion of the relevant marketing process, and must be available timeously upon request to the registrar for inspection, and copies thereof must at the request of a policyholder be furnished to such holder.

Making a Full Disclosure

4.3 A direct marketer must, when rendering direct marketing to a policyholder, furnish the policyholder with the following particulars at the earliest reasonable opportunity but prior to the conclusion of a relevant insurance transaction: Provided that where provided orally, it must be confirmed in writing within 30 days:

(a) its business or trade name, and, unless contact was initiated by the policyholder, its telephone contact details;

(b) telephone contact details of the public officer of the direct marketer;

(c) name, class or type of policy involved and a reasonable and appropriate general explanation of the principles of the relevant contract and any information that would reasonably be expected to enable the policyholder to make an informed decision;

(d) the nature and extent of benefits for the policyholder, manner of deriving or obtaining, or payment or furnishing thereof, and the extent to which the policy is readily realisable or the funds concerned are accessible;

(e) any restrictions on or penalties for early termination or withdrawal from the policy, or other effects, if any, of such termination or withdrawal;

(f) charges and fees to be levied against the policy including the amount and frequency thereof and, where the policy has an investment component, the net investment amount ultimately invested for the benefit of the policyholder;

(g) commission, consideration, fees, charges or brokerages payable to the direct marketer (if any) by the policyholder or by any other person;

(h) on request, the past investment performance of the policy, where applicable, over periods and at intervals which are reasonable with regard to the type of policy involved;

(i) nature and extent of monetary obligations assumed by the policyholder (including any anticipated or contractual escalations, increases or additions), manner of compliance therewith and consequences of non-compliance;

(j) where provision is made for increase of premiums, abbreviated disclosures of such contractual increases;

(k) concise details of any special terms and conditions, exclusions, waiting periods, loadings, penalties, excesses, restrictions or circumstances in which benefits will not be provided;

(l) what cooling-off rights are offered and procedures for exercise thereof;

(m) any material investment or other risks associated with the policy;

(n) details of manner of instituting claims under the relevant policy;

(o) any guaranteed minimum benefits or other guarantees where appropriate; and

(p) details of manner of lodging complaints, and particulars of the Long-term Insurance Ombudsman, including that the Ombudsman is available for advice on complaints in respect of claims or other matters which have not been satisfactorily resolved by the relevant direct marketer.

Compliance Duty by other Law

4.4 A provision of a Rule in this Part is not applicable to a direct marketer in any case where a compliance duty in respect of the same matter is imposed on the direct marketer by, in terms or by virtue of any other law.