In February, I reported on the case of “Gayle”, who had a vehicle insurance claim turned down because at the time she took out the policy she didn’t disclose that she had two adverse listings on her credit record.

She argued that she had no idea about the listings, relating to two judgments obtained by the City of Joburg, and took her case to the ombudsman for short-term insurance.

But that office initially sided with the insurer, saying the repudiation was justified.

Gayle was left with a car that had been badly damaged by hail – a write-off, in insurance terms – for which she would still have to repay her bank over three years, during which time she could get no credit because of her blemished record.

When I queried the decision with one of the senior assistant ombudsmen, I was told Gayle had misrepresented her financial history when taking out the policy. Had the insurer known about the judgments against her, it would not have taken on the risk.

Why not?

“The rationale is that where the insured’s financial record is tainted by defaults, judgments, sequestrations and/or liquidations, they are considered to be a moral risk, as their financial circumstances could induce them to submit a potentially fraudulent claim,” I was told.

“Therefore, when seeking cover, it is vital to provide insurers with correct information pertaining to your financial record, as incorrect or incomplete information could result in the rejection of a claim and possibly the voidance of the policy.”

In February’s column, in which I chose not to name the insured or the insurance company involved, I commented: “Of course, there’s nothing to stop an insurer from doing their own credit checks, as all credit providers do.”

I ended by providing practical advice on how consumers can check their credit records.

I received a stream of e-mails in response, including several from senior people in the insurance and financial services industries, all outraged at the repudiation.

To cut a long story short, Dennis Jooste, who took over as the ombudsman for short-term insurance in January, several months after the office had handled this case, decided to reopen it. He conducted interviews with both parties, and the upshot was that the insurance company reversed its decision and paid the claim.

Minus the excesses, an amount of R34 622 was paid to Gayle, which on top of the previous refund of R16 000 in premiums brought the total payout to about R50 000.

The first thing I discovered on returning to this case was that Gayle, real name Gay Khaile, was not a woman, but a man. I’d made the gender assumption having previously only dealt with the complainant via e-mail. Sorry Gay!

Then I discovered we had something in common – we were both caught in the same hailstorm near Dutywa in the Eastern Cape three days before Christmas 2010.

His car, a 2004 Mitsubishi Outlander, was deemed by his insurer to be a write-off; the car I was using needed R80 000 worth of panelbeating.

Khaile, who lives in Joburg, was left to fund the repair of his car himself.

The insurer in question was Centriq, a division of Santam, which, incidentally, had paid out a R4 000 household contents claim lodged by Khaile just before the hail incident.

Asked why his failure to disclose his credit record had not jeopardised the earlier claim, Centriq told Khaile the claim was minor and had required “minimal administration”.

Jooste said while a consumer with an adverse credit record was indeed more prone to filing a fraudulent claim, each case had to be considered on its merits, and it was clear Khaile had been unaware of the adverse listing in question.

While the principle remained, Jooste said, it was “perfectly sensible” for insurers to check applicants’ credit records – a quick process undertaken by credit providers as a matter of course.

Centriq’s PR and communications co-ordinator, Caryn Talmage, said while the company and the ombudsman were initially in agreement about the repudiation of Khaile’s claim, when the case was reopened new evidence was presented, and Centriq had decided that the claim should be revisited.

Khaile said when his claim was first repudiated, he approached Randburg Magistrate’s Court and asked to see the paperwork relating to his two City of Joburg judgments, as he had not received a summons to appear in court.

“I discovered the summons was never served on me as required by law – it was stuck on the outside gate to my property, not my front door, and I never saw it. But I gave this information to the ombudsman’s office last year,” he said.

I asked the SA Insurance Association (SAIA) whether there was anything in its code of conduct compelling insurers to check a consumer’s credit when they applied for cover.

SAIA’s technical general manager, Suzette Strydom, said: “The SAIA does not support any practice where insurers only obtain or check information material to their willingness to enter into an insurance contract, or which may influence the cost of the insurance at the time a claim arises; often referred to as ‘underwriting at claims stage’.

“The repudiation of claims as a result of an adverse credit rating that is unrelated to the claim is… not supported.”

Strydom said SAIA had spoken to the Credit Ombud, Manie van Schalkwyk, and the ombudsman for short-term insurance about the issue, “to address the concerns raised and an apparent increase in complaints of this nature”.

“Van Schalkwyk confirmed that almost half of the credit- active population has an impaired credit record,” Strydom said.

“There is definitely a correlation between bad debt and fraudulent claims. However, insurers should assess this risk at the underwriting stage.”

The organisation had been communicating with its members on this issue and had raised it at a board committee meeting in April, said Strydom.

“At that meeting it was indeed agreed that credit information history must be obtained at point of sale and not at claims stage, in line with the SAIA code of conduct.”

So not only has the Khaile case brought financial relief to him, but put the spotlight on an “underwriting at claims stage” practice which is prejudicial to consumers.

The payout fell short of what Khaile paid to repair his car, but he says he has been able to repay most of the money he borrowed to get the work done.

“I still face the nightmare of having to have the judgments rescinded, because until I do I can’t get any credit,” he said.

It’s in your interests to check your credit score

Most credit-active consumers don’t know their credit score.

Almost three-quarters of people (73 percent) who were polled by www.justmoney.co.za said they had no idea what their credit score was.

The flash poll revealed only 18 percent knew their credit score, while 9 percent didn’t know what a credit score referred to.

“Our poll unfortunately shows that consumers don’t understand the importance of knowing their credit score,” said site editor Angelique Ruzicka.

“There is clearly a need to create more awareness around this issue, so that more people regularly check to see if their finances are in order.”

Another reason to check is to ensure you haven’t become a victim of identity fraud.

According to the National Credit Regulator, in the first quarter of the year, 10 357 disputes were lodged over the accuracy of information on consumer credit records. Most – 7 722 – were resolved in favour of complainants. So that’s another reason to check your credit record regularly.

How to check your credit record

For a free annual report, contact the bureaus directly. Details below:

* TransUnion: www.mytransunion.co.za, 0861 482 482

* Experian: www.experian.co.za, 0861 105 665

XDS: www.xds.co.za, 011 645 9100

How to dispute a listing: If you feel an adverse listing on your record is incorrect or unfair, lodge a dispute with the bureau and ask that the listing be removed.

If, after 20 days, the listing remains, approach the Credit Ombud for help.

Call 0861 662 837 or e-mail Ombud@creditombud.org.za

Contact Wendy at consumer@knowler.co.za