Insurance is based on trust, which works both ways. Your insurer trusts you to be honest in your responses when it assesses you for risk (the probability of loss) and, once you are insured, to report changes in circumstances that may alter your risk profile. In return, you expect your insurer to compensate you fairly in the event of a covered loss.
Two cases from the case files of the Ombudsman for Short-term Insurance (now a division of the National Financial Ombud Scheme), highlight the importance of being truthful and open with your insurer.
Designated regular driver
Mr A claimed for accident damage to an insured vehicle. His daughter had been driving the vehicle at the time of the accident. The insurance company rejected the claim because the details of the regular driver had not been correctly declared at the inception of the policy.
The insurer pointed to the fact that the address at which the insured vehicle had been kept was not the address of Mr A, but that of his daughter. When questioned by the insurer, Mr A’s daughter conceded that she had always driven the vehicle more often than anyone else.
The regular driver named on a vehicle policy schedule refers to the person who drives the vehicle more frequently than any other person. This information is important for the insurer, because younger drivers generally pose a higher risk than older, more experienced drivers, and thus drivers under 25 years of age typically pay higher premiums.
When Mr A complained about the rejected claim to the ombudsman, the ombudsman found that the evidence indicated that Mr A had deliberately misrepresented the details of the regular driver in order to obtain a lower premium. The repudiation of the claim was upheld.
Change of address
If there is a material change in your circumstances as a policyholder, your insurer needs to be informed. A material change is defined as “any change [that is] material to the risk and within the control and knowledge of the insured”.
Mr B’s motorcycle was stolen from his residence and, when he claimed from his insurer, the claim was rejected because Mr B had not informed the insurer that he had changed his address.
The insurer held that this change constituted a material change in risk. The policy states: “Should there be any change in circumstance, which may affect the risk insured, it is your responsibility to notify [the insurer] or your intermediary in writing as soon as the change becomes known to you. Failure to do so may result in cancellation of cover or claims being found to be invalid due to the change in circumstances.”
Mr B said that he had moved out of his primary residence and had been house-sitting at the address from which the motorcycle had been stolen. He said the homeowners had returned home and asked him to move his motorcycle out of the garage where he had parked it. This is when it had been stolen.
The insurer noted that, on the proposal form, Mr B had indicated that the motorcycle would be parked overnight in a locked garage with an alarm system at the address specified. Mr B had lived at an alternate address for seven months before the loss and had not informed his broker of this change.
The ombudsman noted: “The starting point when a non-disclosure has occurred is the materiality test as set out in section 53 of the Insurance Amendment Act of 2003: ‘The representation or non-disclosure shall be regarded as material if a reasonable, prudent person would consider that the particular information should have been correctly disclosed to the insurer, so that the insurer could form its own view as to the effect of such information on the assessment of the relevant risk.’”
Given the substantial period of time that Mr B had been residing at the new address, the ombudsman said it was reasonable to expect him to have advised the insurer of the change. The rejection of the claim was upheld.
