Discovery fined for enticing customers

Cape Town – Insurer Discovery [JSE:DSY] has been fined R100 000 for promoting “rewards” which are unrelated to actual benefits.

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.

Head of Insurance Compliance at the Financial Services Board (FSB) Farzana Badat told Fin24 that section 44 of the Short-term Insurance Act, 53 of 1998 prohibited any person from offering a customer or potential customer any valuable consideration (or reward) 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 will make a person more likely to choose one insurance company over another.

“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,” Badat said.

The reason why this is a concern, she said, was that it was likely that a person who otherwise may not have chosen the policy (because another insurer’s policy is better) may instead be tempted to choose Discovery merely because they would be getting a month off from paying a premium.

“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,” Badat said.

In this case, the month of free insurance does not necessarily improve the benefits that the customer would get by choosing Discovery, she said.

In its decision to fine Discovery R100 000 for the contravention, the FSB said 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.