The importance of evaluating and reassessing a client’s risk, including changes in insurance risks under the COVID-19 lockdown period was one of the topics discussed at the OSTI’s virtual Consumer Webinar. “Elements and circumstances of risks change throughout one’s life. Depending on the stage of your life and the circumstances, there might be times when you need to increase your cover, get cover that you never had before or decrease the cover as per your needs,” according to Thasnim Dawood, Senior Assistant Ombudsman.
She notes that it is important to reassess one’s cover at regular intervals, at least once a year or at a significant lifestyle change or adjustment to your circumstances. The failure to reassess may have significant financial consequences.
We as advisers play a very important role in this regard. The last communique on RDR noted that the authorities were investigating ways in which fees for service could be charged separately from advice fees.
A recent OSTI case study illustrates the importance of correct advice vividly.
The case at hand
Mr. V, the insured, lodged a claim with his insurer for damage to his motor vehicle arising from a motor vehicle accident. At the time of the accident, the vehicle was being driven by his daughter-in-law. The insurer rejected the claim on the grounds of material misrepresentation/non-disclosure, on the basis that there was a material change in risk, of which they have not been informed:
| ● | The daughter in law was not indicated as the regular driver, although she used the vehicle as the regular driver after her divorce from Mr V’s son. |
| ● | She only had a learner’s licence and the insured motor vehicle’s risk address was different to the address noted in the policy. |
Besides the fact that the new regular driver did not have a license, the insurer also referred to the following policy wording as basis for rejecting the claim:
“information that affects and changes the risk:
there is an obligation on you to advise us immediately on the happening of any event that may affect our decision to accept the risk or the terms on which we accept the risk or our continued acceptance of the risk. Should you not adhere to these obligations, we may void the whole or any part of this policy and the section as from inception or date of change” and for this general condition, the term “you” includes any person acting on your behalf.“
The insurer submitted that the issue was not whether the insured’s daughter in law (Mrs M) could lawfully drive a vehicle in the circumstances permitted by the relevant legislation. The issue was that Mrs. M became the regular driver of the vehicle, which was a risk that the insurer would not have accepted.
Although Mr V claimed that he informed his broker that his daughter in law only had a learner’s license and that his broker assured him that she was covered under the policy, the insurer rejected the claim.
It is therefore clear that the broker did not evaluate the change in risk and inform the insurer as required, thereby not keeping his client securely covered at all times.
OSTI’s decision
OSTI also based its decision on whether there was a material change in risk and whether the insurer was entitled to reject the claim based on material non-disclosure. OSTI found that there had been a material change in the risk in respect of the regular driver and that the insurer was entitled to reject the claim on that basis. Mr. V did not inform the insurer of this change and, had the insurer been informed, it would not have continued to accept the risk.
As a result, the insurer’s rejection of the claim was upheld, and Mr. V’s complaint was dismissed.
Although changes in risk can be difficult to gauge, the circumstances could have been different for the client if he was correctly advised by his broker on the possible material change in risk.
Click here to read more about the specific OSTI case study.
Other topics canvassed at OSTI’s Consumer Workshop included “Misrepresentation & non-disclosure at the sales stage, during the operation of the policy and at the claims stage” (by Darpana Harkison), “Conduct issues on the part of the insured” (by Peter Nkhuna) as well as a live Q&A. Click here to listen and view a recording of the webinar.
Your clients’ circumstances might have changed completely because of Covid. It is therefore important to be proactive and assess the changes in risk to ensure proper cover for your clients. Click here to read the article “Review your insurance cover with remote working” published recently – an article that highlights possible risk changes and can be used as guideline to ensure that your clients (and you) are correctly covered at all times, so that, come claims time, there are no unforeseen surprises.
