A client had motor vehicle insurance with Miway Insurance Company. When the client had a car accident, he claimed from his insurer, but they rejected his claim based on misrepresentation, misdescription or non-disclosure.
The insurer’s reason for rejecting the claim was based on the client not providing accurate information at sales stage. When the sales consultant of the insurer asked the client what his insurance history is, the client answered 6 years. The words used by the sales consultant to establish this was “if you add all the years of having insurance on your personal property, how many years would that be?” The client answered that he had 6 years of prior insurance until that day. When the insurer however had to validate the claim after the client’s accident, it was found that the client, in fact, only had 3 months’ previous vehicle insurance. The insurer therefore indicated that this information was relevant to the evaluation and acceptance of the Policy. It therefore stated that, had they known the true history of the client, the premium would have been higher and, based on the misrepresentation of the client, they suffered a premium prejudice. The client’s claim was rejected and his policy voided from inception date.
Client’s response to Ombud
The client was asked to provide proof that he had 6 years’ previous insurance to which he responded that he did not understand the question at sales stage and that he did not have motor insurance for 6 years.
In the second conversation, the client stated that he did not remember telling the insurer that he had 6 years of insurance.
In a third conversation, he stated that the sales consultant pushed him into saying that he had insurance for 6 years and that he was asked about all his personal property. He did therefore have a form of insurance for 6 years, as he was paying a premium for a credit life insurance policy on a loan with the bank. The bank confirmed however that this type of cover did not include personal asset/property but was in respect of a personal loan.
The Ombud held that in the sales call, the insurer did not specifically ask the client about his previous short-term insurance or his motor vehicle insurance history. He was merely asked how many years altogether he had insurance. The sales consultant did not qualify the type of personal property that the insurer is asking about. The client’s confusion was a result of the wording of the questions put to him.
The questions put to the client did not specifically refer to short-term insurance or motor vehicle insurance. It could therefore not rely on the exclusion relating to material misrepresentation or non-disclosure to void the policy. The insurer was ordered to settle the claim in full.
Lessons to be learnt
In reading the client’s response to the Ombud, it is evident that the client exposes the shortcomings of the insurer’s agent. The defences ‘I did not understand the question’, ‘I do not remember’ and “I was pushed into saying something” are commonly used by clients in the financial services industry when the outcome is not in their favour. Advisors must caution against this and ensure that the way in which they give advice does not arise in a client being able to rely on these ‘defences’.
The Ombud highlighted that the insurer did not ask the correct questions in order to gather the information which it required. As an advisor, you also have to ask certain questions in order to gather information from your client. Advice will then be given based on the information gathered from the client. It is important that you ask your clients questions in a clear and unambiguous manner in order to receive answers which best reflects the client’s actual circumstances. If a client misinterprets a question based on the wording of the question, that means that the client will not be stating the true facts of his/her financial history. This could lead to a claim being repudiated in the future. Also, ensure that the information required by product providers are gathered from your client and that your client understands why the information is needed and why it is important that such information is correct. Clients must understand the question and a record must be kept of communication between yourself and your client as part of your record-keeping process.