FSB warns against unregistered insurer

 The Financial Services Board (FSB) has issued a warning against C& W Financial Services and PBG Group Schemes who has been conducting unregistered insurance business and not meeting death claims.

 FSB head of market conduct, Oppie Opperman, says last year he received complaints from an insurance company, certain funeral undertakers and a several other people that funeral claims were not being paid to beneficiaries of a voluntary funeral scheme.

 It was alleged that an intermediary of Pinetown in Kwazulu-Natal, C&W Financial Services, with its principal Pat Gombert, administered the purported funeral scheme. He also recruited clients in the Northern Cape, Free State and Lesotho.

 The complainants said that despite the payment of premiums (on behalf of members) to C&W Financial Services for voluntary funeral schemes, death claims were not met.

 “An inspection revealed that Pat Gombert had conducted unregistered insurance business on an on-and-off basis and as such had contravened various sections of the Long-term Insurance Act,” says Opperman.

 “In doing unregistered insurance business (funeral policies is commonly referred to as assistance business), Gombert received insurance premiums from his clients (the majority are funeral undertakers or private funeral schemes), and also accepted the risk to pay ‘funeral claims’.

 “‘Insurance premiums’ were used to pay for his ‘business overheads’ and private expenses, and surpluses, if any, funded the payment of claims.

 “Claims were however only paid if a client was in a position to exert enough pressure on Gombert. His arrangement with his clients was that they had to remit the full amount of premiums due to him, and had to submit ‘funeral claims’ separately for payment by him.

 “Gombert at all times brought his clients under the impression that a registered insurance company underwrote his ‘funeral scheme’

 “Soon after the start of his business, the reality was that total monthly claims submitted by his clients exceeded the total monthly premiums due from them. This resulted in Gombert not being able to honour the entire ‘funeral claims’ submitted by his clients, and consequently he became indebted to most of his clients.

 “Faced with no other choice he allowed his clients to deduct claims from their premiums collected and they in turn remitted small amounts and in most cases, no amounts as monthly premium.

 “Gombert always blamed an insurance company or its intermediary for the ‘slow’ or non-payment of claims. This cycle of events had the effect that Gombert would have no cashflow from time to time, a position he found himself in at the end of May 2000.

 “Faced with the reality of not having any disposable funds, Gombert would get his ‘group funeral scheme’ underwritten. He would then invite quotations from insurers through other intermediaries in the assistance business industry.

 “Gombert always impressed on these intermediaries that this ‘group funeral scheme’ consisted of between 14 000 and 18 000 ‘main members’. At no stage did the membership of his ‘funeral scheme’ approach those numbers. 

“With their own potential remuneration in mind, intermediaries had been all too eager to arrange for underwriting by a registered insurer at preferential rates. (Gombert in turn had always offered lower rates to his clients that those quoted by registered insurers).

 “Once underwritten, this ensured the cash flow of claims into his wife’s bank account. It also enabled him to pay his overheads and private expenses, the claims he was pressurized to pay - in many cases claims form prior periods. It also allowed him to pay the premiums due to the underwriting insurance company in spite of his clients paying small or no amounts in premium - the insurance companies effectively funded the premiums paid by Gombert to them.

 “On average it had taken insurance companies less than two months before they realized how Gombert operated and then they cancelled their underwriting agreements.”

 ENDS

 Issued by         Russel Michaels
                        Manager: Communication and Liaison
                        Financial Services Board
                        Wednesday 28 March 2001
                        Tel (012) 428 8025 / 083 281 2954