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Consumer Affairs
Sunday, August 1, 2010
Legal nonsense

The Ombudsman for Short-Term Insurance is concerned about the number of complaints received from consumers relating to motor vehicle warranty contracts. These are usually included at the time of purchase of a motor vehicle, or when a manufacturer’s warranty on the vehicle is due to expire.

These products are marketed as being insurance policies administered by “insurance administrators” and have all the hallmarks of an insurance policy. Later on, when a “claim” is rejected by the “insurance administrator” consumers may be advised that if they are unhappy with the decision of the administrator, they should seek assistance from the Ombudsman.
However, when the Ombudsman receives a complaint and investigates the matter it frequently transpires that the product sold to the consumer was not an insurance policy underwritten by a registered insurer, but was in fact nothing more than a contractual arrangement concluded between the consumer and the dealer concerned. The consumer is thereafter left high and dry in relation to any recourse against the dealer since he is not a registered insurer and consequently falls outside of the jurisdiction of the Ombudsman for Short-Term Insurance.
When such complaints are in turn referred to the Motor Industry Ombudsman he also declines to intervene on the basis that he only deals with complaints relating to motor vehicles and not financial services products. Brian Martin, the Ombudsman for Short-Term Insurance says he has referred the matter to the Financial Services Board for consideration, but in the meantime consumers are urged to exercise great caution in the purchase of such products and in particular, to enquire at the time of purchase, whether the warranty offered is an underwritten insurance policy. If it is nothing more than a contract with a dealer, consumers’ attention is drawn to the fact that in the event of any dispute or complaint they could be left with no recourse against the dealer other than through the legal process, which is extremely costly and time consuming. The dealer may also prove to be of dubious standing.
Consumers are encouraged to acquaint themselves fully with the nature of the benefits provided by such contracts and to consider carefully whether the product offered covers the consumers’ needs. “Ask questions regarding the warranty and in particular whether it is underwritten by a registered insurer,” advises Martin. If a product is held out as being an insurance policy, make sure that it is underwritten by a registered short-term insurer. Consumers can check if an insurance company is registered by contacting the Financial Services Board on 012 428-8000.

Footnote

Remarks Nigel Benetton, publisher Insurance Times & Investments: “I cannot believe I am hearing this. I remember covering these issues concerning motor warranties exhaustively when working for the Financial Mail many years ago. For example, see the attached notice from the Financial Institutions Office (ancestor of the FSB) dated..... wait for it...............: 26th October 1982.”
 

Copyright © Insurance Times and Investments® Vol:23.8 1st August, 2010
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