In this instance, a father bought a vehicle for his daughter who was to take her driver’s licence test in the following month. He called his insurer to insure the vehicle and also notified them that it is intended for his daughter once she obtains her licence. The insurer, however, required that a regular driver be nominated in order to underwrite the risk and that it can only be a driver with a valid driver’s licence. The father then indicated that he will be the regular driver until such time that his daughter becomes the regular driver. The insurer advised the father that he would need to notify them as soon as his daughter becomes the regular driver as the premium would need to be adjusted to her risk profile. The father agreed to notify the insurer of this and the policy was issued with him as the regular driver.
The daughter obtained her driver’s licence roughly a month after inception of the policy. She was in an accident with the insured vehicle six months after she had become the regular driver of the vehicle. The issue is that the father did not inform the insurer that his daughter had become the regular driver and he was therefore still indicated as the regular driver on the policy.
The insurer rejected the claim on the grounds that they had not been informed of a material change in the risk. They stated that they were prejudiced as they would have charged a higher premium had the daughter been indicated as the regular driver. Because the father neglected to inform them of this change, a lower premium was paid on the policy and this resulted in the prejudice suffered.
To be fair to both parties, the Ombud applied the principle of equity. The Ombud was of the view that the father did not intentionally fail to inform the insurer that his daughter became the regular driver. The fact that he did inform the insurer during the underwriting call that the car was bought for his daughter was proof that there was no intention for him to misrepresent this in order to pay a lower premium. The insurer agreed to settle the claim on a proportionate basis – this is where the insurer settles a claim in proportion to the percentage of the premium received.
This case illustrates the duty on the part of clients to inform their product provider of any material change to their circumstances. When an advisor assists clients with insurance policies, it is important that clients understand that any material change in their circumstances must be communicated as this is critical to them enjoying the benefits of full insurance cover.
If a client’s claim is repudiated and their complaint to the Short Term Insurance Ombud is dismissed, then it is possible that the complaint can be referred to the FAIS Ombud against the advisor. An advisor must therefore make sure that there is proof that the client was informed of the importance of notifying the advisor and/or the insurer of any changes.
Do your clients know what they have to do in order to make sure that the benefit will pay out at claim stage?
An advisor’s records should clearly show the important information which a client should be made aware of. Even though a client should receive a policy schedule which sets out the terms and conditions, excesses, security measures, etc. and the instances where the client will not be covered, advisors are the experts and should make sure that clients understand their obligations and are fully aware of how the policy works.
The full case study can be read in The Ombudsman’s Briefcase Newsletter (Issue no.1 of 2016). Click here to read the newsletter.