When it comes to insurance, the payment of claims is top of mind for most clients. Ultimately risk cover is there to protect a policyholder when the unexpected happens.
It is therefore concerning to note that the second highest cause for complaints, based on the Ombudsman for Short-Term Insurance (OSTI)’s annual report for 2017, was claims that were rejected based on a policyholder’s alleged misrepresentation of underwriting details at the sales stage.
Examples of these cases include misrepresentations about regular driver details, previous insurance and claims history, credit history, security devices and whether the vehicle would be used for personal or business use.
The National Treasury recently raised concerns regarding the practice by insurers of verifying only at claims stage information provided by policyholders at the underwriting stage.
The South African Insurance Association (SAIA) reported that it is acceptable industry practice to test the policy terms and conditions applicable and verify information provided by the policyholder at claims stage. However, the concern arises when insurers, although they are able to verify policy and claims information at the underwriting or sales stage, choose to do so only at claims stage.
Underwriting at claims stage is a 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 when a claim arises. Underwriting at claims stage can take the form of conducting credit checks and finding previous insurance cancellations not disclosed or misrepresented. Poor underwriting at the sales stage promotes this practice.
SAIA re-emphasized its Code of Conduct that states that all material information must be obtained by the member at the time of underwriting and not at claims stage.
Failure to do so is also contrary to the Treating Customers Fairly provisions. It is important to remember that TCF is not a tick-box item; you have to be able to demonstrate that it is part of your business’s culture, and one of the most important criteria for assessment of this will be how you handle claims.