A Statistical Analysis of Short-Term Insurance Matters Closed in 2020
During 2020 OSTI finalised a total of 10 805 formal complaints. This was 1 638 more than in 2019.
The majority of these complaints, at 36%, related to motor vehicle disputes. This was followed by homeowners’/building disputes at 21%, commercial at 14%, and household contents at 5%. The balance of 24% is related to other types of cover and general policy queries.
The complaint trends in 2020 were influenced, in part, by the nationwide lockdown and government regulations set to combat the spread of the Coronavirus (COVID-19) in South Africa. For instance, the number of motor vehicle-related complaints was 12% lower than in 2019. It was the lowest reported in the last five years. Commercial complaints increased by 5%, with the majority relating to business interruption claims.
Below we have set out some of the complaint trends in relation to each category of insurance.
Motor vehicle insurance disputes
At 73%, accident-related claims remained the highest number of complaints considered by OSTI in this category. Warranty and mechanical breakdown claims comprised 11%. Theft and hijack claims comprised 7%.
In OSTI’s 2018 and 2019 Annual Reports, we pointed to a downward trend (15% and 13% respectively when compared to the previous years) in the number of complaints relating to accident claims rejected by an insurer on the ground that the incident driver was under the influence of alcohol (DUI). This is attributed to several factors. The statistics in 2020 show a further 12% decline when compared to 2019.
On the other hand, the predominance of claims rejected on what is referred to as the reasonable precautions clause is now apparent. The number of complaints relating to motor vehicle claims rejected on the basis of this clause increased substantially. In 2018 these types of complaints increased by 48% when compared to 2017. OSTI considered close to 300 complaints on the issue and this number has remained more or less constant in 2020.
The reasonable precautions clause is a general exclusion to cover contained in most vehicle insurance policies. It refers to the insured’s obligation to exercise due care concerning the insured vehicle and to prevent loss. Essentially, the clause excludes the insurer’s liability for a claim arising from loss or damage caused by the insured’s own actions. In many of the matters that we considered in 2020, the insurer’s decision to decline liability was based on allegations that the insured was driving over the regulated speed limit.
In previous years, some insurers relied on insufficient circumstantial evidence to justify rejections based on DUI, in which case OSTI would overturn the insurers’ decisions. The upward trend in insurers relying on the reasonable precautions clause, we believe, may have, in some measure, been influenced by this. We say this because when we review the merits of such a dispute, there is frequent mention of a suspicion that the incident driver was under the influence of alcohol, however, the assessment of the claim by the insurer may not have yielded sufficient evidence to sustain a rejection on this ground.
Having said this, the insurers’ reliance on the reasonable precautions clause has, in some cases, been incorrectly applied and/or unsubstantiated. In adjudicating these matters, OSTI has adopted the courts’ approach. It generally recognises that the clause must be restrictively construed to ensure that it does not undermine the very purpose of having a policy of insurance, which is to cover an insured’s negligence. An insurer may only successfully rely on the clause if it can prove that a driver acted recklessly, in a specific legal sense. Speed alone, for instance, does not amount to recklessness. Therefore, a claim cannot be invalidated by the insurer if it is, at best, established that the insured drove negligently at the time of the collision.
In 2020, 16% of the total number of motor vehicle disputes were resolved in favour of the insureds, and OSTI put R48 908 741.25 back into their pockets.
Homeowners’ insurance disputes
54% of complaints considered by OSTI under this category related to claims for damage caused by acts of nature, largely storm-related damage. With changes in the weather patterns, we anticipate that catastrophic storm-related claims will become prevalent.
OSTI considered a total of 2 100 homeowners’ insurance disputes in 2020, 15% more when compared to 2019. The primary cause for the complaints, at 47%, was the rejection of claims based on policy exclusions for damage caused by defective design, construction or workmanship, wear and tear, and lack of building maintenance.
This cause for complaints increased by 17% in 2020 and continues to be the main basis for consumer dissatisfaction in homeowners’ insurance coverage.
Although many aspects of the above can be discussed, an issue we wish to highlight for the consumer concerns homeowners’ insurance policies issued under a home loan with the bank. Often, an evaluation of the building is conducted by the bank at the time of the purchase. The purpose of this evaluation is to establish whether the property is of sufficient value to act as security for the loan. The evaluator does not inspect the property for insurance purposes. As such, the assessment does not warrant that the property is free from underlying structural defects, wear and tear or other maintenance-related issues that may affect the outcome of a future claim. Generally, an insurer is under no obligation to inspect the property before the commencement of an insurance policy since insurance contracts are entered into in good faith. It is the insured’s responsibility to ensure that the building is properly maintained and structurally sound.
11% of homeowners’ insurance disputes were resolved in favour of the insureds’ complaint, with a recovery of R15 703 055.02.
Household content insurance disputes
Theft and burglary claims comprised 55% of complaints considered by OSTI under this category. This was a 17% decline compared to last year’s figure. Complaints relating to damage caused by power surges increased from 3% in 2018 to 6% in 2019. Last year 11% of household contents disputes related to power surge claims. This cause of damage will remain a concern for consumers during periods of load-shedding. This event is excluded from the cover in some household content insurance policies.
16.5% of household content insurance disputes were resolved in favour of the insureds’ complaint, with a recovery of R3 782 112.41.
Commercial insurance disputes
The total number of commercial complaints considered by OSTI in 2020 surged by 62% when compared to 2019. Motor vehicle complaints comprised 21%. This was a 12% decline when compared to 2019. Building complaints also declined from 23% in 2019 to 18% in 2020.
In our 2019 Annual Report we predicted an increase in complaints related to COVID-19, particularly around business disruption and travel. In 2020, 22% of commercial insurance complaints related to business interruption claims. The majority of these, 15%, concerned COVID-19-related business interruption.
Some of these complaints were submitted in circumstances where insurers had endorsed the business interruption cover to exclude claims related, directly or indirectly, to the COVID-19 pandemic or nationwide lockdown. Where the insureds enjoyed the extended business interruption cover for infectious/contagious diseases, the issue was mainly whether the direct cause of the business interruption was the government-imposed lockdown or COVID-19.
Legal certainty on the question of causation was sought and received widespread media attention during 2020. This issue was ultimately decided on by our courts. The outcome of COVID-19-related business interruption claims submitted in 2020 is now being considered by insurers based on the court decisions.
16% of commercial insurance disputes were resolved in favour of the insureds’ complaint and OSTI recovered R38 909 691.15. These figures do not reflect the outcome of the business interruption complaints as the relevant court judgment was only handed down in December 2020. Most of these claims are only being processed in 2021.
“Other” and non-claim-related policy disputes
The remaining complaints relate to various types of insurance cover and products including personal accident, water loss, travel, all risks, mobile devices, legal expenses, hospital and medical gap cover. This category, overall, comprised 25% of the formal complaints considered by OSTI in 2020. Disputes relating to mobile device theft and accidental damage were the highest in this category, at 30%. COVID-19-related travel insurance disputes comprised 7% of all these disputes.
29% of the total complaints in this category were resolved in favour of the insureds’ complaint and OSTI recovered R12 245 301.72.
OSTI’s customer experience
Customer experience, in the context of OSTI, entails delivering efficient and effective resolutions to both the complainants and the insurance industry. Customer experience surveys are completed by complainants (the insureds) and insurers at the conclusion of each stage in the complaints handling process.
In relation to the number of complaints finalised in 2020, 76% were satisfied with our service, process and communications.
Senior Assistant Ombudsman and Head of Department for Customer Experience & Public Relations