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Cape Town - Discovery Insure on Friday said its promotion to Gautrain users was a way to reduce cross-subsidy where possible and reward frequent commuters for costing the short-term insurer less in claims.
Discovery Insure, which operates in the short term insurance space, was responding to an FSB fine of R100 000 for promoting "rewards" unrelated to actual benefits.
In terms of the promotion, which was launched in January 2014 and made available for new clients joining before October 31 2014, 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.
Farzana Badat, FSB Head of Insurance Compliance, told Fin24 on Thursday the offer was a contravention of section 44 of the of the Short-term Insurance Act, 53 of 1998.
Section 44 prohibits 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 a premium falls within the definition of ‘valuable consideration’ as contained in section 44 of the Act,” Badat said.
READ: Discovery fined for enticing customers
Discovery Insure CEO Anton Ossip told Fin24 on Friday that Discovery's analyses showed that frequent Gautrain users reduce their driving kilometers on SA roads substantially - on average by as much as 150km per month.
"This reduction in exposure of the insured vehicle, reduces the accident risk and to a certain degree the theft and hijacking risk – meaning that frequent Gautrain users cost us less in claims.
"As such we wanted to reward these clients for their reduced risk exposure through a once-off premium holiday."
He said fewer than 100 Discovery Insure clients were awarded a premium holiday in January 2015.
Ossip said the regulator agreed that the breach was not intentional by Discovery Insure "as the relevant provision was unintentionally misinterpreted".
"Discovery Insure takes matters of regulatory control seriously and we continue to be committed to working with the regulator in all aspects of our business," said Ossip.
He emphasised that the fine does not impact the Vitalitydrive monthly Gautrain spend cash-back benefit in any way.
The FSB's Badat said the reason for concern was that it was likely that a person who otherwise may not have chosen the policy (because another insurer’s policy could be better) may instead be tempted to choose Discovery Insure 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 Insure.
In its decision to fine Discovery Insure 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 Insure’s misinterpretation of the applicable legislation.
Discovery also expressed regret for its actions, admitted the contravention and gave its full co-operation to the Registrar, according to the FSB.
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