A case study recently published by the Short-term Ombudsman reiterates the basic principle that short-term insurance is a contract entered into in good faith and that there was no obligation on an insurer to verify the information at the sales stage of the policy.
Mr Y submitted a claim for a single motor vehicle accident. The insurer rejected the claim on the grounds of non-disclosure of previous losses suffered by Mr Y, which according to the insurer, was a breach of the policy terms and conditions.
During the telephonic sale of the insurance policy, Mr Y was asked to disclose losses suffered in the last five years. He informed the insurer that he had suffered one loss in 2011.
During the validation of the claim, the insurer established that Mr Y had three more losses within this period, which were not disclosed at the inception of the policy. Had the losses been disclosed at the sales stage, the premium would have been calculated differently. The insurer therefore suffered a prejudice of 23.6% in respect of the premiums.
The insurer submitted that it had not considered a proportional settlement of the claim due to the fact that the misrepresentation was made intentionally. Mr. Y disputed this, arguing that he disclosed what he could reasonably remember.
The Ombudsman pointed out that the losses which were not disclosed fell within the five year period on which the insurer’s questions were based and further, that the recorded sales conversation did not give any indication that Mr Y was uncertain about what the insurer required in order to correctly underwrite the risk.
The insurer had discharged its obligation in terms of the Policyholder Protection Rules in that it had created a clear duty of disclosure and that the insured should, in the position of a reasonable person, have known that he needed to disclose all losses suffered in the last five years to the insurer. The Ombudsman therefore upheld the insurer’s decision to decline liability.
An insurance contract is in effect entered into on a basis of mutual trust. The insurer undertakes to fulfil its obligations under the contract, and the insured to provide all relevant information required to assess the risk. Due to strict regulation, insurers are bound to fulfil their obligations, but little happens to an insured who does not. Imagine the outcry if a fraud charge was laid against the insured?
Consumerism protects these clients, and the only possible remedy is stricter underwriting upfront to protect both the underwriter and innocent policyholders.