The National Financial Ombud Scheme’s Non-Life Insurance Division advised that about 40% of all complaints received during the 2023 financial year involved motor vehicle insurance. Most of these complaints concerned rejected accident-related claims due to policy exclusions.
The most common exclusions included failure to take reasonable care or precautions to prevent or limit the loss, particularly in cases involving speeding, followed by misrepresentation or non-disclosure when purchasing the policy, during the policy’s term, and at claim’s stage.
Approximately 25% of complaints concerned homeowners whose claims were denied as a result of policy exclusions. The majority of these claims were for damage caused by natural forces; however, they were rejected due to delayed deterioration, poor maintenance, wear and tear, design or construction faults.
Edite Teixeira-Mckinon, Lead Ombud of the Non-life Insurance Division, cited a recent case which highlight the risk around policyholders who are unsure about the meaning of any words or phrases, or terms and conditions in their insurance policy. In particular the detail of exclusion clauses as one of the common reasons for the rejection of insurance claims is the insured’s failure to understand the policy details, especially regarding what is covered and what is not.
In the first case, a driver was found to have exceeded the speed limit at the time of the accident triggering the policy’s exclusion, regarding driving at a speed in excess of the speed limit. The insurer rejected the claim based on this condition and by relying on the facts of the case, including speed data and highlights the importance of reading policy documents and understanding how any specified exclusions can impact the validity of a claim.
In the second referenced case, the insured filed a theft claim, alleging that the theft occurred while they were temporarily away from home. The insurer declined the claim due to no evidence of forced entry or exit from the premises. In this case, the insurer did not place reliance on the material facts of the case, which were not in dispute, but on the definition of certain terms “unoccupied” used in the policy, which the insured had failed to understand. As with many technical documents, the meaning and importance of words and terms in a policy schedule may not be clear to clients, which leads to misunderstanding and results in complaints being lodged.
The abovementioned cases emphasise the serious consequences for clients who fail to understand and meet their contractual policy obligations.
Advisors are encouraged to advise clients to carefully review policy documents and for clients to ensure that they understand the policy wording and are aware of any specific clauses, limitations, or exclusions. This can be done in an informal manner, through an email to confirm the details of the discussion, or a confirmatory note, or noted more formally in the record of advice. By doing this, advisors ensure that when clients submit a claim there is no room for uncertainty as to whether the claim will be covered by the insurer. However, merely sending the policy wording to the client via email, or generally stating that the client should read and decipher the policy wording and exclusions will not be sufficient.
In terms of Section 7 of the FAIS General Code of Conduct, advisors have a very specific duty to point out details of any special terms or conditions, exclusions of liability, waiting periods, loadings, penalties, excesses, restrictions or circumstances in which benefits will not be provided. Financial advisors should take specific care of storing records confirming and evidencing that exclusions were discussed and explained to the client in a clear and appropriate manner.
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