Dr Gerrit Sandrock, FCII, is a Chartered Insurance Practitioner. Having served on several Boards as a Director and Chairman, Dr Sandrock provides financial management consulting services to the global short-term insurance industry. He writes in his personal capacity for the Free Market Foundation.
The views expressed in the article are the author's and not necessarily shared by the members of the Foundation.
This article may be republished without prior consent but with acknowledgement to the author.
The FMF is an independent, non-profit, public benefit organisation, created in 1975 by pro-free market business and civil society national bodies to work for
a non-racial, free and prosperous South Africa.
As a policy organisation it promotes sound economic policies and the principles
of good law. As a think tank it seeks and puts forward solutions to some of the country's most pressing problems: unemployment, poverty, growth, education, health care, electricity supply, and more. The FMF was instrumental in the post-apartheid negotiations and directly influenced the Constitutional Commission to include the property
rights clause: a critical cornerstone of economic freedom.
+27 11 884 0270
PO Box 4056, Cramerview 2060
This article was first published on Bbrief.co.za on 22 June 2022
Great news from the Short Term Insurance Ombudsman
The office of the Ombudsman for Short Term Insurance (OSTI) released its annual report on 17 May, and what exceptionally fine news it contained. Among other positive news, it contained the following facts:
Considering the vast volume of short term insurance claims processed every working day of the year, it is truly reassuring for South African insurance consumers to know that of the 4,309,739 claims received by the industry in 2021, under 0,2% of them complained to the Ombudsman that they thought that they had been unfairly treated. Of those, only 15,82% were found to be wholly or partially correct in their allegation. This means that of all those millions of claims made on the industry, in only 1,378 cases (less than 0,033% of the time) insurers were wrong about a claim. That is, insurers got it right in 99,967% of the time.
- The number of complaints per 1,000 claims received has been cut by more than a third.
- Insurers’ claims decisions are right 99,967% of the time.
The 15,85% OSTI “over-turn” rate was once higher than 30%. Only five years ago in 2016 it was 27,27%. This shows just how remarkably well the industry has been improving in its fair treatment of its customers.
Not only has the “overturn rate” been all but halved, the number of complaints received per 1,000 claims submitted has dropped to less than two thirds of what it was just 5 years ago (from 2,94 complaints per 1,000 claims in 2016 to just 1,94 complaints per 1,000 claims in 2021). This, notwithstanding the huge amount of publicity that the OSTI regularly receives, and the fact that every dissatisfied claimant is required by regulation to be actively advised by the insurer that he or she may complain to the OSTI whose contact details must then be provided.
One should perhaps dwell for a moment on why Ombudsmen exist in the first place.
In some quarters there is an enduring myth that South African customers are systemically disadvantaged by the people who provide them with insurance services. On the OSTI’s website there are more than ten other Ombudsmen listed, not counting the regulators and other governmental functionaries paid ostensibly to protect South African consumers. As is seen from the data above, if the OSTI’s experience is any indication of how the average consumer is treated by South African financial services providers, the role of Ombudsman might now be bordering on being largely superfluous.
However, the more relevant issue is that the Ombudsman system is intended to provide complainants with a free, prompt and effective legal service that simultaneously relieves pressure on our courts. It facilitates a “short cut” channel that bypasses the courts and provides the parties to a dispute with what is effectively specialized legal arbitration. In some cases, some might say too many, even long-established legal principles have been subverted to what is viewed as “fair”, occasionally resulting in a set of parallel dispute settlement practices upon which the courts would likely frown. Nonetheless, this arises only when ombudsmen see themselves as consumer advocates, rather than as the independent legal arbiters that they are intended to be, acting without bias, fear or favour within the bounds of established law.
Even though with statistics as low as these one might wonder whether there was ever any real need for a Short Term Insurance Ombudsman, support for the Insurance Ombudsmen system should continue because without it we might prevent recourse for the tiny few claimants who may have experienced difficulties, who would not have been able to afford legal representation, and who may thereafter have gone on believing that they had been unfairly treated by an industry which has enjoyed international acclaim since long before the advent of ombudsmen in South Africa almost a half-century ago.