Misrepresentation… how blurred is the line?

30 October 2019 Myra Knoesen

Insurance policies are underwritten in utmost good faith. Yet material misrepresentation at sales stage remains a growing problem in South Africa.

FAnews spoke to Darpana Harkison, Senior Assistant Ombudsman at the Ombudsman for short term insurance about misrepresentation and how blurred the line is. 

“A policy is null and void based on an omission or misrepresentation made at the time a policy is purchased. An example of material misrepresentation would be if an applicant for car insurance said they had not been in any prior accidents, despite the fact that they have some history of accidents,” said Harkison. 

What if questions are not specific enough? 

Insurers design their sales questionnaire so that it can readily draw out the accurate answers from consumers. However, what if the questions asked by an agent are not specific enough to trigger a memory of driving over a pothole 20 years ago, for instance; does that count as misrepresentation? 

“A misrepresentation during a telephonic sales conversation is very much dependent on the manner in which the question was asked. Most insurers will not require a full history of all losses experienced by the consumer; insurers normally only require a loss history dating back to about five years prior to the sales conversation. However, if the insurer does question the consumer about all losses experienced and consumer fails to disclose the pothole incident from twenty years ago, then that would amount to a misrepresentation. The misrepresentation in itself is not sufficient for the insurer to reject/void the policy – the misrepresentation must be material in that had the consumer disclosed the pothole incident, then the insurer either would not have accepted the risk and/or charged a higher premium,” said Harkison. 

“The relationship between the insurer and the consumer is based in the civil law and therefore the insurer need only demonstrate on a balance of probabilities that the consumer misrepresented him/herself during the sales conversation. Only in criminal law must the State prove its case beyond reasonable doubt,” added Harkison.

The consequences of misrepresentation

“The disclosures which the consumer is required to make after the sales conversation is dependent on the type of cover the consumer enjoys, the questions which were posed during the sales conversation and the provisions of the policy wording. For example, in a motor policy if the consumer is asked to disclose the identity of the regular driver during the sales conversation, then the consumer must inform the insurer when the regular driver changes. In a household contents policy, if a linked alarm is a condition of cover, then the consumer must notify the insurer if the contract with the security company is cancelled,” continued Harkison.

“The consumer must disclose the rejection/voidance to any future insurers in order to avoid another claim rejection/voidance due to material misrepresentation,” added Harkison. 

Always on the side of the law 

“The Policyholders Protection Rules (PPRs) and the Treating Customers Fairly (TCF) outcomes provide that the insurer must place the consumer in a position to make an informed decision regarding the acceptance of the policy and that consumers are provided with clear information and kept appropriately informed before, during and after point of sale. Also, most insurers do carry out sales conversations in the consumers preferred language,” emphasised Harkison.

“During the sales conversation, the consumer must listen carefully to the questions which are being asked. If he/she is unsure of the answer, then the insurer must be advised and the consumer can then revert to the insurer at a later stage with the correct answer. If the insured does not understand the question, then clarity must be sought,” said Harkison.

“Once the policy incepts, the consumer must ensure that he/she reads the policy document carefully and understands the scope of cover provided and the extent of the consumer’s obligations,” concluded Harkison.

Writer’s Thoughts:
As stated above, the relationship between the insurer and the consumer is based in the civil law and therefore the insurer need only demonstrate on a balance of probabilities that the consumer misrepresented him/herself during the sales conversation. But this, once again, shows us the importance of brokers in helping their clients understand their policies and the wording in the policies. Do you agree? If you have any questions please comment below, interact with us on Twitter at @fanews_online or email me -


Added by cynical simon, 30 Oct 2019
Misrepresentation at underwriting stage may very well render a policy voidable but certainly not nul and void.
There is a huge difference between the two.
Please check and rectify.
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Added by Ayanda, 30 Oct 2019
"..... misrepresentation at sales stage remains a growing problem in South Africa." A "GROWING" problem! Really?
We were told 17 years ago that FAIS would fix this and that as a result, premium persistency would improve considerably. Instead, persistency has deteriorated dramatically and now you report that so has sales honesty - even when the sales person knows that their conversation is being recorded.
And all with 1,000 salaried staff employed at the FSCA, up from around 27 in 2002.
Is this one Hell of a lot of expenditure, time, effort and inconvenience for everyone so as to achieve precisely nothing?

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Added by Quinten Knox, 30 Oct 2019
It is comforting that the OSTI re-affirms that the standard of proof that is required is that of balance of probabilities.

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