CR113 Broker mismanaging insured’s investment
Broker mismanaging insured’s investment – advice given by independent broker-several policies taken out and subsequently surrendered- recouping of loss occasioned thereby
Late in 1996 the complainant, acting on the advice of her independent broker, made an offshore investment in the amount of R245 000 with insurer A. In August 2000 she discovered that the invested capital had reduced to R100 000 which amount was then withdrawn and invested in the money market of insurer B. The complainant entrusted the management of this fund to her broker who advised her to draw a relatively large monthly income of R5000 from this source. He also advised her to take out a policy with insurer C and soon afterwards to surrender it. This process was repeated on six more occasions. No policy lasted more than 2 years. She discovered on 30 July 2003 that there was an amount of only R20 600 left in her money market with insurer B. The complainant alleged that she had no knowledge of the investment in the policies nor of the surrender thereof. She requested our assistance in reclaiming her lost capital.
We advised the complainant that we had no jurisdiction over independent brokers but that we would nevertheless enquire from insurer C the circumstances surrounding the issuing and surrendering of seven policies within a period of six years. We approached insurer C and enquired whether it was satisfied that the applications for new policies and the surrender of existing policies had been done correctly by the completion of the required documentation. Furthermore we enquired whether insurer C had complied with all the requirements of the LOA’s Code on Replacement (of 1 October 1998) and particular to section 3.1, which at that stage read as follows:
“The basic rule is that when a proposal is sought or received in respect of new assurance, it is the duty of the intermediary, and the insurer, to establish whether such a policy is a replacement, and if so to ensure that the client is properly counselled on the consequences of a replacement and is enabled to take the decision to replace on a fully informed basis.”
Insurer C investigated the matter and responded that the independent broker had confirmed that the complainant had full knowledge of the investments in the policies and the cancellations thereof. The broker had produced copies of mandates signed by the complainant and insurer C further advised that it had complied with the requirement of the Code of Replacement of 1 October 1998 in so far as it relied on the consultant to furnish the necessary applications. This was done electronically but the system made no provision for an indication whether the new contracts were replacing existing contracts. The Replacement Code had therefore not been observed.
We requested insurer C to consider, in the interest of the good name of the assurance industry and in an attempt to assist the complainant, to make an ex gratia payment to the complainant to cover some of the losses she had suffered as a result of the early surrendering and replacing of policies. Insurer C forwarded certain calculations reflecting the total amounts received from the complainant and the surrender values that had been paid. The difference amounted to R30 302.21, which included interest being paid to the complainant.
We advised the complainant of this gesture by insurer C and she accepted the payment. We expressed our appreciation to the insurer concerned.