In more than two thirds of the Ombudsman for Short-term Insurance’s (OSTI) finalised complaints in 2018, consumers were dissatisfied with the insurer’s decision on a claim. In its Annual Report the Ombud reported that the majority of these complaints, at 36%, related to the rejection of a claim on the basis of an exclusion or warranty in the policy terms and conditions. “It is clear to OSTI that many consumers do not know or understand what is in their policy documents. Because it is not possible to go through all of the terms and conditions of cover at sales stage, insurers are required to provide the insured with policy documents drafted in simple language. The insured must read these documents and consult the insurer or broker should there be a need for clarity. If a dispute relates to what the insured was told when the policy was being sold, OSTI considers all sales communications, written and verbal”, Ayanda Mazwi, Senior Assistant Ombudsman mentioned earlier this year.
But what if the sales process was telephonic or online? OSTI recently shared that in the context of direct marketing, where most insurance contracts are being concluded telephonically, OSTI and the courts would listen to the sales conversation in order to determine what information was required and requested by the insurer, and then what information was provided by the consumer. In the case of non-disclosure, they would look at what information was not provided by the insured.
When looking at proposal forms and online applications, once again OSTI looks at the questions that were posed to the consumer and the answers provided. If it established that there was indeed a misrepresentation/non-disclosure, the insurer must then establish whether or not the misrepresentation was material to its acceptance of the policy. Section 53 of the Short-term Insurance Act provides that the insurer may only reject the claim and/or void the policy if misrepresentation is material, i.e. had the consumer provided the correct information to the insurer would either not have accepted the risk or would have underwritten the risk on different terms and conditions.
Another factor that plays a huge role in the South African context is language barriers. In many cases this leads to confusion and misunderstandings on the part of the consumer. OSTI advises that insurers must make an effort to explain concepts such as “claims”, “losses”, “comprehensive insurance”, “regular driver”, “principal driver” and “nominated driver”, to name but a few, which are commonly used at sales stage. In insurance, these terms denote certain meanings, however, to the lay person these terms are not self-explanatory. There is also an obligation on the consumer to ensure that they understand the question correctly before providing an answer.
Where English is not the consumer’s first language, the consumer must request that the conversation be carried out in a language in which she/he is fluent. It is also important not to rush through the conversation as the consumer might not fully comprehend the question being asked and only answer a portion of the question or provide the incorrect response. In these harsh economic times, the premium is an important consideration but it is not the only consideration as having a claim rejected due to misrepresentation/non-disclosure could have even more devastating financial consequences.
Therefore, in order for the insurer to succeed in its rejection of a claim on the grounds of misrepresentation at sales stage, the insurer must demonstrate that:
| a) | a clear and concise question was posed to the consumer to which the consumer responded or that the consumer failed to respond to the question; |
| b) | the consumer’s response amounted to a misrepresentation/non-disclosure in that the consumer provided false/misleading information or the consumer failed to provide material information; and |
| c) | had the consumer provided the correct information, the insurer either would not have accepted the policy or it would have imposed additional terms and conditions to the policy, for example an increase in the premium. |
Click here to read an OSTI case study that illustrates some of these concepts.
