Material non-disclosure

10 May 2017 Jonathan Faurie

Non-disclosure is making the headlines again in the industry proving that it is a continuous issue. This was the case with a recent determination made by the Office of the Short Term Ombudsman. It was a case related to non-disclosure where the client acted negligently at claims stage.

Mr Y submitted a claim for a single motor vehicle accident. The insurer rejected the claim on the grounds of non-disclosure by Mr Y for previous losses suffered by him which is a breach of policy terms and conditions.

Frank discussions

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.

According to the insurer, 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 by Mr Y who disputed this arguing that he disclosed what he could reasonably remember.

Relying on the Ts & Cs

The insurer pointed to specific policy wording in support of the rejection of the claim. It referred to the General Terms and Conditions of the Policy which states:

  • You must check all the information you have provided to make sure it is correct, including material information;
  • Material Information is information that a reasonable person would consider essential to their insurer in order to properly assess a client’s risk; and
  • In assessing your risk, insurers can decide whether or not to insure a prospective client, what premium to charge for a risk and whether to apply addition terms and conditions.

Important facts to remember

The insurer then pointed to an important fact:

All information provided by a client will be validated at claims stage. Example of material information includes previous burglaries, accidents or judgements against you.

If a client does not provide a broker, who is an agent of the insurer, with correct information, it would be interpreted as a misrepresentation, omission or non-disclosure and the insurer may act accordingly.

Further, policyholders must inform brokers immediately if any information we have about them and/or the items they have insured changes or is no longer true and complete.

Ombud weighs in

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 Ombudsman further stated that short term insurance is a contract entered into on good faith and that there was no obligation on an insurer to verify the information at the sales stage of the policy.

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.

Why is this an issue?

We need to ask ourselves why in this day and age are we still dealing with issues of non-disclosure such as the one above.

The role of the broker is an important one in this situation. Sitting down with a client and ask the questions that need to be answered regarding non-disclosure is an integral part of risk management. After these discussions, a client should be left in no doubt about what is disclosure and non-disclosure.

Editor’s Thoughts:
Brokers play a vital role in ensuring the client complies with the requirements of the insurer. Telephonic sales have pitfalls were as brokers face to face sales drive the important disclosures etc. through. Do you agree? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts


Added by Humphrey, 10 May 2017
I personally hate call centres. You are correct in the telephonic transactions put one on the spot to answer the question there an then. Give me a proposal form to go away and complete and I would be happier - gives me time to think about the facts that need to be disclosed (plus I can keep a scanned copy).
Of course larger brokers use centralized call centres too for personal lines clients. So the answer is a good smaller broker where you can form a relationship and get personal advice based on the brokers knowledge of you and your circumstances as an individual - of course if you can find one as their numbers reduce due to the onerous legal compliance requirements of FAIS etc. Really sad indeed.
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