Increasing number of funeral insurance providers operating outside the law

There is an increase in funeral directors and other providers of funeral guidelines operating outside the law, the Office of the Financial Services Ombudsman (Fais) warns.

They operate outside the law by not complying with the Financial Advisory and Intermediary Services Act No. 37 of 2002 (Fais Law) and by providing long-term insurance benefits without subscribing to the scheme in violation of Insurance Law No. 18 of 2017.

This is the reason for the significant increase in complaints against funeral insurance providers for failure to comply with Section 2A.8.1 of the Policyholder Protection Regulations (PPRs), according to the Fais Ombud’s 2021/2022 annual report.

These rules provide that an insurer must assess and decide whether the submitted claim is valid within two business days of receiving all the necessary documentation relating to a funeral insurance claim.

If the claim is valid, the payment must be authorized; alternatively, the claim must be rejected.

If the claim is disputed, the claimant must be informed of the dispute.

The annual report released on Friday and its contents reflect the time that attorney Nonku Tshombe served as ombudsman. Attorney John Simpson has been appointed as the Fais Ombudsman effective November 1, 2022.

Licensed but struggling

Tshombe said there are systems where the provider is properly licensed under the Fais Act and complies with applicable legislation by having its systems underwritten, but due to financial difficulties of the insurer, whose difficulties are in turn due to economic struggles during and attributed to the Covid-19 pandemic.

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In such cases, Tshombe said, her office needs to investigate both the provider and the insurer to determine which company is the responsible party.

Tshombe said complaints like these — and those against smaller undertakers operating in rural areas, who are mostly unlicensed — tend to take longer to resolve.

She said her office is keen to find an informal resolution to these matters – as opposed to a formal decision in the form of a decision.

“Once a decision is finalized, that office is no longer involved and the complainants, most of whom do not have the necessary resources, are at the mercy of the expensive formal justice system,” she said.

“They are fighting to enforce the decisions and are fighting any appeals that are made against the decision. Therefore, this office spends more time finding a positive informal solution.”

FSPs called on living pensions

Regarding living annuities, Tshombe said in the last annual report that her office lamented the failure of certain financial service providers (FSPs) to make a recommendation under Section 8(1)(c) of the General Code of Conduct for Authorized Financial Services Providers and Agents.

Tshombe said certain FSPs often simply provide the prospective client with the level of income they need to meet their current standard of living, regardless of whether adequate accommodation has been made – to the client’s detriment.

She said this will cause the client’s initial invested capital to diminish over time, leaving them penniless in later years.

Tshombe said that when these FSPs are asked for an answer by their office, they simply declare generic terms like a “single” need and try to blame the client whose instructions they performed.

“This approach shows that they failed to have the difficult conversations with their clients and manage the expectations from the beginning of the transaction,” she said.

“Certain FSPs indeed address the client’s failure to have adequate retirement savings and caution the client about the consequences and implications of earning an unsustainable income.

“Then the FSP does not act with the necessary expertise, care and conscientiousness. In this regard, we note the FSP’s unconditional reliance on the risk profiling questionnaire and its outcome at the expense of what is in the best interest of the client.”


Tshombe gave the example of a client who selected an 8% drop in income, but his completed risk profiling questionnaire indicated that the client’s risk profile was “conservative”.

This conservative risk classification then forms the basis for the selection of a money market fund, for example, which corresponds to the customer’s obvious risk aversion.

But Tshombe said that pick will never provide a yield that allows for an 8% drop in earnings.

Over time, the customer will begin to devour their original capital, “and find themselves in a precarious situation for years to come.”

“Add in the impact of inflation… and you can gauge the responsibility of FSPs making sure they conduct a detailed needs analysis to ensure they know their customer.

“This will allow them to provide the client with an appropriate recommendation and make all material disclosures to enable the client to make an informed decision.

“These are the cornerstones not only of the financial planning profession but also of the General Code,” she said.

Summary of Complaints

The Fais ombudsman received a total of 11,827 new complaints in the 2021/22 financial year – the highest number since the ombudsman was founded and 10.78% more than in the 2020/21 financial year.

Tshombe said 8,011 or 68% of all complaints received fell within the Ombudsman’s mandate, the most since the office’s inception.

In accordance with the Ombudsman’s legal mandate to deal with complaints expeditiously, 82.14% of complaints were resolved within three months, 88.6% within six months and 94.23% within nine months of receipt.

Out of a total of 11,827 complaints received, 4,957 were dismissed, 3,791 referred to alternative forums and 1,269 settled in favor of the complainant.

Tshombe said a total of 1,823 complaints, including findings, were resolved in fiscal 2021/22.

The total billing value for the year was R69 979 324 – the highest the Bureau returned to consumers during any financial year.

This article originally appeared on Moneyweb and has been republished with permission.
Read the original article here.

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