What you don't say will come back to haunt you

FAnews has received a number of queries from readers who are concerned with the manner in which no-claims histories are managed by short-term insurers. Gareth Stokes, FAnews Online editor investigated.

Unhappy policyholders believe that the importance of policy questions around no-claims is not adequately communicated at policy inception stage – resulting in claims being repudiated later on. In particular, Auto & General Insurance (A&G) came under criticism for delaying the request for documentary support of no-claims status to claims stage.

The sales process

The first step is to determine how clearly the no-claims concept is communicated to the client at policy inception or amendment. We asked Angelo Haggiyannes, director at A&G, how they went about it. He says that each member of A&G sales staff is trained to follow detailed scripting on their screens.

These instructions ensure that the client "is warned up front that the information they will be asked is very important in determining the premium and that the consequences of not giving the correct answer could lead to a problem with claims," says Haggiyannes. "We then ask the client for their insurance history – and depending on that answer we ask whether the client has had any accident claims in the last two years – and then we ask if they have had any motor theft claims in the last two years."

Most short-term insurers adopt a similar process. Zurich personal lines indicate that their no-claims question "is a standard question forming part of the investigation into prior insurance and claims history."

Insured has an opportunity to check

Discussions during the sales process are not the only time the insured has the opportunity to confirm their no-claims status. "On the insurance schedule the answers as recorded at the time of sale or amendment are reflected. In other words: the period of insurance, the client's insurer and the client's claims history for the last two years," says Haggiyannes. The client receives this schedule and is obliged to check that these details are correctly recorded.

Benefits of a no-claim bonus

Zurich says "The bonus is a discount of premium. Zurich has developed its own rating system which takes into account a number of factors including the lifestyle of the proposer and the make, model and use of the vehicle."

Haggiyannes concurs, "A&G uses a specific rating system that would depend on the amount of years of insurance history the client has; plus the amount of claims that the client has had. So if the client hasn't claimed for five years and the client has been insured for five years, he would be allocated a five year no-claim bonus and enjoy a discount on premium."

Proving the no-claim status

Proving no-claims status is a fairly simply process. Haggiyannes says, "What A&G would need is proof from the previous insurer in the form of a letter insurer confirming the period the client was with them and that the client drove that car which was comprehensively insured." Zurich personal lines will accept "either a certificate from the existing insurer or, if appropriate, an affidavit."

The problem creeps in with the timing of requests for this proof. And this is where A&G differs from other players in the industry. While Zurich and many other short-term insurers request no-claims proof at policy inception, A&G has other ideas. Haggiyannes says this proof is sought by A&G at claims stage, and not for all claims, only when relevant. "So we would then, if necessary, ask if the client could provide this. Our experience being asking for it up front is that clients do not have this readily available…"

Of course, if the client does not have this information readily available at policy inception, they are even less likely to be able to produce the proof two or three years down the line. It seems more sensible to expose no-claims issues at policy inception.

Clients who are unable to provide proof of their no-claims at this time could be refused cover or charged an appropriate premium from day one. This makes more sense than allowing the client to pay incorrect premiums for two or three years only to repudiate (or pro rata settle) any claim on the basis of insufficient documentary support. It would also prevent the lengthy dispute resolution processes which inevitably spring from such refusals.

A frequent source of malcontent

Misunderstandings around the no-claims bonus generate a fair number of problems at claims stage. Haggiyannes confirms that A&G has to resolve a number of complaints involving disputed no-claims bonuses. "We do very often run into a problem at claims stage. That is why upfront when we make the sales we make it very clear to the client. So he knows the importance and the consequence up front."

He believes many clients don't understand the significance of their no-claim status. "They don't understand that the insurer is entitled to repudiate the claim where there has been premium prejudice." I've come across cases where we've asked the client the question perfectly, but it is very obvious to me listening to the conversation that the client did not understand what was being sought. In which case we either pay the claim, or give the client the benefit of the doubt and pay the claim pro-rata. In certain circumstances it is also quite obvious the client did not intend to misrepresent in which case we pay out on a pro rata basis, in other words because the client is paying 90% of the premium, we will pay 90% of the claim."

However, in the absence of mitigating circumstances A&G takes a tough stance. And other short-term insurers agree. Zurich says that "a deliberate lie constitutes fraud and the policy would be regarded as void from inception in this case. Otherwise, cases are treated on their merit."

Keeping the Ombudsman busy

A significant number of these cases find their way to the Ombudsman for Short-Term Insurance. FAnews commented that it appeared most no-claims cases taken to the Ombudsman are determined in favour of the insurer. Haggiyannes believes "the Ombudsman definitely applies the principals of fairness and equity."

The solution is simple. Make sure that your clients clearly communicate their insurance history when taking up or amending their insurance policies. Pleading ignorance at claims stage is not going to cut it. Brokers should request all relevant documentation from their clients and pass this on to the insurer as a matter of course - whether it has been requested or not. Proactive measures upfront avoid problems at claims stage.