South Africa is a nation of chance takers
While paging through the Ombudsman for Short-Term Insurance 2007 Annual Report the ‘case study’ section caught our attention. These summaries of real-life complaints decided by the Ombudsman give us an insight into the antics of insurers and insurance con
Your lies will eventually find you
“A 22-year old purchased a vehicle in September 2006 and telephonically arranged for insurance…” begins one case. The insured was subsequently involved in a motor vehicle accident en-route to a work appointment. His claim was refuted because the vehicle was only insured for private use. When the policy was sold the insured answered in the negative when asked if the vehicle would be used for business purposes. It was also alleged that the insured misrepresented his age. The insurer advised they would not have covered a 22-year old for full business use due to unacceptable risk. If the insured had advised the insurer of these important facts when purchasing the cover, this complaint would never have arisen, let alone tied up valuable time at the Ombudsman.
The insurer has an easy ‘out’ when a material misrepresentation or non-disclosure results in it accepting risk which would not otherwise have been accepted or would only have been accepted on substantially different terms. The Ombudsman quickly resolved the issue, reminding the insurer that its remedy “was to cancel the policy ab initio and to refund all premiums paid.” The other option would be to keep the policy alive and perform in terms thereof. Needless to say the insurer chose to cancel the policy in this case.
The Ombudsman does not disclose the source of complaints so it’s not possible to determine whether direct selling results in more complications… It would be a great statistic to analyse though wouldn’t it?
No punishment for another’s indiscretions
The second case that caught our eye involved an insurer’s decision to refuse a motor accident claim due to the insured’s “failure to disclose a spouse’s financial circumstances.” The case shows the levels to which some insurers are prepared to go to repudiate a reasonable claim. A married woman had purchased and financed a vehicle from her own means. She was also the sole driver of the vehicle. When she made a claim it was declined because she had “not disclosed that her husband had various judgements against him.” The couple was married out of community of property and the bulk of the judgements against the husband occurred prior to the marriage.
“The Ombudsman pointed out to the insurer that the insured’s spouse could not, in the given circumstances, derive any benefit from his spouse’s claim, whether directly or indirectly.” The Ombudsman convinced the insurer that the repudiation was unfair and the insurer agreed and paid the claim.
This claim supports that an insured should not be punished for another’s indiscretions… But it once again highlights how important it is to make full disclosures when taking out short-term insurance cover. Although (in our view) it remains unclear how disclosure of these judgments would have made a material difference to the risk premium charged on a motor vehicle policy.
Pay up or no payout
The final case we’ll look at in this article was declined due to irregular payment of premiums on an insurance policy. In this case the insurer refuted a claim submitted on 6 October 2006 because the vehicle was “not on risk at the time the incident occurred due to non-payment of premium.” A thorough investigation of the facts showed that the insured’s policy had been cancelled three times for non-payment of premium since inception on 30 October 2003.
This policy was cancelled for a third time on 1 December 2006 due to non-payment in October and November of that year. The Ombudsman upheld the insurer’s decision not to pay the claim on the grounds that the insured had failed to make premium payments even allowing for the 15 days grace period which is required in terms of the Policyholder Protection Rules.
As we mentioned in the opening paragraph many of the cases decided by the Ombudsman could be solved by applying some commonsense. One would expect that since the Ombudsman for Short-Term insurance has closed 19 071 complaints in the last five years that ‘cut and dried’ cases would no longer reach the final resolution stage… And that proves that insurers and insured alike are willing to chance a final throw of the dice. It costs nothing extra and there’s always hope the decision could go your way!
Editor’s thoughts
The Ombudsman for Short-Term insurance was established to allow consumers an affordable alternative to legal challenges in the event they cannot resolve their claim with the insurer. Would it be reasonable for the Ombudsman to fine insurers who defend weak complaints? Send your comments to [email protected], or respond below.
