Discovery penalised for short-term insurance contravention

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The Financial Services Board (FSB) issued a press release on Thursday stating that the Enforcement Committee penalised Discovery Insure Limited an amount of R100 000, following a referral by the Registrar of short-term insurance.

The referral related to a contravention of section 44 of the Short-term Insurance Act, 53 of 1998 of the STIA. Discovery offered a premium waiver for the month of January 2015 through its Vitalitydrive Program to members of the public using the Gautrain, if they took up its short-term insurance products before 31 October 2014. The premium waiver was viewed by the Registrar as an inducement to take up short-term insurance policies in contravention of section 44.

According to the FSB, the Registrar took into account, among other factors, that the contravention was not intentional but was as a result of Discovery’s misinterpretation of the applicable legislation and that Discovery expressed regret for its actions, admitted the contravention and gave its full co-operation to the Registrar.

“The decision does not impact our Vitalitydrive monthly Gautrain cash back benefit in any way. We have confirmation that the regulator is comfortable with this benefit. Discovery Insure takes matters of regulatory control seriously and we continue to be committed to working with the regulator in all aspects of our business,” says Anton Ossip, CEO, Discovery Insure in response to the penalty.

“Section 44 prohibits any person from offering a customer, or potential customer, any valuable consideration in order to ‘induce’ them to enter into an insurance policy. An inducement is an enticement, ‘reward’, or ‘incentive’ that is unrelated to the actual benefits under the policy which would make a person more likely to choose one insurance company over another,” explains  Farzana Badat, HOD, Insurance Compliance, to RISKAFRICA.

“In this case, Discovery advertised that people using the Gautrain a certain number of times during a certain period, would get a premium waiver or ‘free insurance’ for a month if they bought a Discovery policy before a certain date. The Registrar believes that the offering of free insurance or a promise to waive premium falls within the definition of ‘valuable consideration’ as contained in section 44 of the Act.”

The reason that this is a concern, according to Farzana, is that it’s likely that a person who otherwise may not have chosen this policy, because another insurer’s policy is better, may instead be tempted to choose Discovery merely because they were offered a month off from paying a premium. “It is very important that customers make an informed choice when choosing insurance, and that choice must be linked to whether the policy is in their best interest, as opposed to whether they will be getting some kind of ‘reward’ for choosing a particular insurer. It would be different if the ‘reward’ itself was linked to whether the benefits under the policy would be better if the customer chose it,” she explains.

“In this case, the month of free insurance does not necessarily improve the benefits that the customer would get by choosing Discovery,” concludes Farzana.

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