Being
ignorant of the terms and conditions (Ts and Cs) of your short-term insurance
policy is more likely to trip you up than a loophole in the policy itself. And
you usually only get to terms with the Ts and Cs when it’s too late – when your
claim has been rejected.
At a recent
meeting of the Acsis/Personal Finance Financial Planning Club, Dennis Jooste,
the Ombudsman for Short-term Insurance, revealed the most common reasons for
short-term insurers rejecting claims for motor, contents and homeowner’s cover,
which in many cases involve ignorance of the Ts and Cs.
Jooste says
more than half of all complaints to his office involve motor claims.
Here’s why
most motor claims are repudiated.
1.
Unlicensed driver.
2.
Unroadworthy vehicle. If you have an accident and your
insurer finds out your wipers didn’t work or your tyres were smooth, your claim
could be rejected on the basis of your car being in an unroadworthy state.
3.
Reckless driving. Watch out for the “Failure to take
care” clause, Jooste says. “This refers to recklessness, which is not to be
confused with negligence.” Also look out for a “Breach of road traffic
regulations” clause. If you were exceeding the speed limit at the time of an
accident, your claim could be rejected.
4.
Drunk driving.
5.
Driver not the “regular driver”. Some policies cover the regular
driver only. Others cover a named driver or any licensed driver. Jooste says
misrepresentation by policyholders in this instance is common. Since young
drivers pay higher premiums because of the risk they pose to the insurer, they
may list a parent as the regular driver. When it is revealed that this isn’t
true, the claim may be repudiated.
6.
Total-loss policy. This cover applies only when the
insurer deems your vehicle to be a total write-off. Sometimes policyholders
have this type of cover and only realise it when their claim is rejected,
Jooste says
7.
Telematics data shows driver fault. Telematics
is technology that can be used to track and recover your vehicle if it is
stolen, and/or monitor your driving behaviour. Jooste says that some insurers
insist on you fitting a telematics device to your vehicle. “The data gleaned
from a telematics device can show a breach of speed limit or reckless driving
leading up to an accident, which can result in your claim being rejected – and
it is difficult to dispute the evidence,” he says. But some insurers use
telematics to reward good driving. In other words, telematics can be used as a
carrot or a stick. “Make sure you know how the insurer is going to use this
information,” Jooste says.
8.
Tracker device not fitted. Jooste says that if your cover
is conditional on your car being fitted with a satellite tracking device, your
claim will “probably” be rejected if you fail to comply with this condition.
9.
Vehicle inspection not carried out. Jooste says
some insurers insist on inspecting your vehicle at inception of the policy. This
is so that there can be no disputes about pre-existing damage to the vehicle.
If you neglect to comply, you will be in breach of your contract and can have
your claim rejected.
10.
Material non-disclosure at underwriting stage. Jooste
says your claims record, a break in insurance cover, prior applications for
cover being rejected, and judgments on your credit record are all material to
the assessment of your risk, and it is imperative that you disclose such
information. For example, people with a bad credit record have a higher
propensity to file fraudulent claims than people with a clean credit record, he
says. “If you lie and it comes out later, your claim may be rejected.”
11.
Vehicle used for business. If you plan to use your vehicle for
business, you need to disclose this to your insurer. “In my experience,
insurers are very reasonable about this, and don’t look to load your premium if
you seldom use your vehicle for this reason.”
12.
Vehicle not parked securely at night. If you state
that your car is parked securely – in a garage or off the street – at night,
and, in the event of theft, it is found it was regularly in the street, your
claim could be rejected.
13.
Security device not fitted. If you’re required to have your car
fitted with an alarm or a gear lock and you don’t comply, your claim can be
rejected.
Homeowner’s
insurance
Homeowner’s
insurance is cover for your home (the building, not the contents). “Remember
that the insured value is not what you could get if you sold your property; it
is for the cost of replacing or rebuilding your home at today’s values. Beware
of relying on bank valuations,” Jooste says. Even if the insurer is associated
with a bank, make sure your home is not undervalued.
Jooste lists
the following reasons for homeowner’s insurance disputes:
14.
A peril you aren’t covered for caused the loss.
If your loss was the result of “gradual deterioration” and “maintenance”
issues, you aren’t covered, Jooste says. Homeowner’s insurance typically covers
you for storm and fire damage.
15.
Poor design and faulty workmanship. These are usually not covered.
16.
Retaining walls not built to acceptable standards. Retaining
walls have to be built according to engineering specifications, Jooste says. So
if a landscaper – and not an engineer – built your retaining wall and it
collapses, your insurer might not pay out.
17. Subsidence. If
your house is built on clay, cover for subsidence is “normally excluded”,
Jooste says.
18.
Unoccupied premises. “If you leave your home
unoccupied for, say, 30 days, without advising your insurer, it could have
grounds to repudiate a claim,” Jooste says.
19.
Moveables not covered. There are often disputes over what
is a fixture, which is immovable, and what is a moveable item. Homeowner’s
insurance covers you for permanent fixtures only.
Contents
cover
Most claims
for contents cover are rejected on the basis of the average clause (See
“General principles of insurance”) because policyholders tend to under-insure,
Jooste says.
20.
Inflated and fraudulent claims. This is a big problem in the
industry, Jooste says. “Don’t inflate your claims. Most policies carry a
forfeiture clause, so if you are caught out, you may have to forfeit all
benefits under the policy – in other words, the insurer is entitled to
repudiate the entire claim,” he says.
GENERAL
PRINCIPLES OF INSURANCE
As a
policyholder, you need to understand some general principles of insurance,
Dennis Jooste, the Ombudsman for Short-term Insurance, says. These are:
* Utmost
good faith. “Insurance is based on utmost good faith. When you enter into a
contract with an insurer, you are asking the insurer to assume the risks that
we all face in our everyday lives. The insurer knows nothing about you. Your
premium is going to be determined by the insurer based on your risk profile.
This is where utmost faith comes in.”
* Full
disclosure. “In assessing your risk profile, the insurer relies on you to make
full disclosure of all material information,” Jooste says. “This is why it’s so
important that you are honest when you take out insurance, and maintain this
honesty throughout your relationship with the insurer. Otherwise, come claims stage,
the insurer may say, ‘but you didn’t disclose that fact to me and therefore I
couldn’t assess the risk properly’.” Also bear in mind that insurers share
information, he says. The consequences of material non-disclosure at
application stage is that your policy becomes “voidable”, resulting in you
having no cover when it comes to light that you did not make full disclosure.
* Insurable
interest. You can’t insure something in which you don’t have an interest. “If
you own something, you have ‘an interest’,” says Jooste. “For example, when
adult children move back home and bring with them their own assets, which they
don’t bother to insure, problems arise. They assume their assets will be
covered by their parents’ insurer. The bad news is they are not covered by
dad’s insurance, because dad doesn’t have an insurable interest in the
property.”
* The
“average” clause. This requires that you insure your assets at their full
value. If the sum insured at the time of the loss is less than the insurable
value of the property, the amount claimed will be reduced in proportion to the
under-insurance. Jooste says most people don’t have adequate cover for their
household contents and don’t realise the consequences of this. If you have
household contents to the value of R800 000, which you have insured for
R500,000, and you suffer a R100 000 loss, you might think you’re adequately
insured. Not so, he says. Your insurer can penalise you for being under-insured
and can pay you out in terms of the “average”. “In this case, it may pay you
out five-eighths of R100 000. That’s how average works,” he says. Jooste says
it’s important to revalue your assets annually to ensure you have sufficient
cover.
There are
companies that specialise in valuations and can give you a valuation for each
and every item you have, Jooste says. This provides clarity on their value. “At
claims stage, some insurers want proof of purchase, such as an invoice. Be
aware that the onus is on you to prove your loss,” he says.
Jooste
advises that you take photographs of each item in your home and save them to a
disc or external hard drive.
*
Enforceable contract. The policy is an enforceable contract subject to its
terms and conditions, and any ambiguities in the policy will be interpreted
against the insurer, Jooste says.
On
taking out a motor policy
When taking
out motor insurance, Jooste says you need to be mindful of the following:
* Valuation.
Pay careful attention to how the insurer values your car: at retail value (the
price at which a dealer will sell a vehicle to a consumer), trade value (the
price a dealer will pay you for your vehicle), or market value (generally the
mid-point between trade and retail). These values affect the premium you pay
and what the insurer will pay out when you claim. A vehicle is a “wasting
asset”, which means you need to revalue it on a regular basis, Jooste says.
Although short-term insurers might soon be compelled to annually assess the
value of your motor vehicle and set your premiums accordingly – rather than
merely increase your premiums in line with inflation – until this happens, it
is your responsibility to make sure you aren’t over-insured.
* “No water
damage”. Watch out for this exclusion, Jooste says. “During a Highveld
thunderstorm, I drove into a dip and the water level rose so high that it
flooded my engine and blew it. Fortunately it was covered, but some insurance
companies exclude water damage to an engine. So be careful of that exclusion,”
he says.
* Excesses.
“Be aware of multiple excesses,” Jooste says. Some policies apply multiple
excesses, meaning that in addition to your standard excess others may apply.
For example, young or new drivers who haven’t had a license for a certain
number of years, can be liable for an additional excess. If you have an
accident within six months of obtaining cover, or between midnight and 6am –
the most dangerous time on the road – an extra excess may apply. And some
insurers levy an additional excess on drivers older than a certain age.
Jooste’s
advice: “Go home and read your policy. If there is anything that you don’t
understand, ask your broker or insurer to explain it to you.”
Contact
the ombud
The role of
the office of the Ombudsman for Short-term Insurance is to provide an
independent, fair and cheap dispute-resolution service to the public. If you
have a complaint against your insurer, you can contact the ombudsman on
telephone 011 726 8900 or sharecall 0860 726 5501, fax number 011 726 5501 or
email info@osti.co.za. For more about his office, go to
www.osti.co.za
Pictures by Pixabay
By Angelique Arde
Article featured in iol.co.za (insurance on line)