Tell it like it is, or your claim will be rejected
Consumers’ failure to disclose key information, or to provide wrong information when they take out an insurance policy - what insurers call “material non-disclosure” and “material misrepresentation” - is a growing problem for both insurance companies and consumers. The Office of the Ombudsman for Short-term Insurance has warned that it has seen a spike in misrepresentation, which can render policies null and void.
When it comes to insurance, to overshare is the safest bet. The ombud says insurance policies are underwritten in the utmost good faith, but omissions or wilful misrepresentation are likely to cost consumers at claims stage. And while there aren’t many examples of insurers making examples of customers found guilty of fraudulent deception, there’s nothing preventing them from doing so.
Ayanda Mazwi, senior assistant ombudsman, says the office’s statistics show a high number of complaints related to material non-disclosure. And in most cases, the ombud found in favour of the insurer, because, in law and in contract, “the insurer wasn’t at fault”.
The ombud says a driver’s age, gender, insurance and claims history, occupation and how long they have had a valid driver’s licence are some of the critical factors taken into account when determining whether cover will be granted, and if so, on what terms. Where and how a vehicle is parked overnight also matters.
“For example, a 38-year-old woman who has had her driver’s licence and insurance for 10 years, works from home and has not suffered a loss in over three years will be likely to pay a low insurance premium,” the office says. “By contrast, an 18-year-old with no insurance history or a driver with losses in the past three years will be considered to be a greater risk and so will pay a higher premium.
“For this reason, it is often tempting to a higher-risk driver to misrepresent who the regular driver is in order to receive a lower premium. This may initially save you a few hundred rands. However, when the insurer eventually finds out the truth (usually during the process of validating a claim), it will be entitled to void the policy from its commencement date and your claim will be denied, leaving you with the full cost of your loss.”
Customers might think that the end justifies the means, but when it comes to claims phase, their policy is worthless.
Another factor to consider is risk address: part of your risk is determined by your street address. Crime in the area, flooding or fire risks, perimeter security and other factors are crucial in premium determination.
If you’re using the insured property for business purposes, whether a home or vehicle, your risk is considered significantly higher. That includes using your car for a lift club, where passengers pay a fare, or if you’re attending client meetings for business.
And if you’re planning a home refurbishment, you need to inform your insurer. Building work can be dangerous, messy and usually attracts unwanted attention to moveable property, so your theft risk increases.
Mazwi says the advice to disclose fully is nothing new. Insurers underwrite policies based on the information at hand and factor their risk into the premiums. And customers receive a benefit in terms of premiums.
But if insurers rely on misrepresentation, they have to prove it: whether with a sales call recording or a written proposal form, signed by the insured. Legally, they have to retain those call recordings for up to 10 years.
The advice, she says, is rather to disclose - fully - because if you don’t, you could not only get your claim repudiated, but also incur huge financial losses.
“You’re entering into a relationship. But if you’re couching something to benefit you, or disclose some information and exclude others, that has an influence on underwriting. Look at your policy schedule - how many accidents have you had, did you disclose your financial status, etc. When it goes to claims, if there’s a discrepancy it may affect the validity.”
Mazwi says where there are disputes brought to the ombud, they look at the information provided, all the questions asked during underwriting and whether or not it was material misrepresentation. “We can also request a proportional payment or an equitable resolution.”