Insurance Ombudsman Karen Stevens told the Sunday Star-Times the ramifications of non-disclosure are huge. She says although insurers do provide reminders and warnings about disclosure, these should be made stronger. "The law is scary and the consequences are really scary. I don't know if consumers are being sufficiently scared up front to understand exactly what's likely to happen if they fail to disclose."
For health and life insurance, all disclosures need to be made when the policy is first signed. But for general insurance such as house, contents and vehicle polices, declarations must be done at the time the insurance is taken out – and then updated at least once a year. And any "change in circumstance" is considered relevant – for example, a conviction for shoplifting could affect a car insurance claim.
Problems arise because many consumers don't understand their responsibility to tell the insurance company anything it might need to know. Either they forget to include details, or presume that a change of circumstance isn't relevant.
Disclosure of information need not prevent a customer remaining insured. Stevens would like to see law changes that bring New Zealand policy in line with Australian legislation, which uses the "reasonable person" test, which she says is fairer. It is based around the question: "What would the reasonable person in the circumstances understand an insurer would want to know?"
In New Zealand, the law uses the "prudent underwriter test" meaning consumers have to work out what the insurer would like to know, and provide that information.
Stevens said: "The law is draconian... Insurance companies can take very, very harsh measures if anybody fails to disclose, even if it is an innocent non-disclosure. It doesn't matter."
The Law Commission has made proposals as far back as 1998 for changes to insurance law, but Stevens says any change is on the backburner.
Aucklander Peter Lomas has experienced the perils of non-disclosure first hand. Earlier this year his car was stolen and written off. He submitted his claim to insurer AMI and was shocked to find it turned down and his policy voided, on the grounds that he had failed to disclose his criminal convictions. He said he had no idea he was obligated to declare the convictions.
Ad Feedback Not having the car replaced has left him without a vehicle he had been using for work and he said the situation left him financially and mentally stressed.
He took out his insurance policy in 2002. Since then he has received six convictions, the first in 2004. The convictions include common assault, breaching a trespass order and contravening a protection order, which he says occurred after a marriage break-up. He didn't realise the charges would be relevant to his car insurance as they didn't relate to driving.
AMI products executive manager Alan Perry said the convictions would have excluded Lomas from cover if AMI had known about them. A customer advocate review within AMI upheld the decision, as did a report by the insurance ombudsman.
After taking out the policy in 2002, Lomas paid around $7000 in premiums, but had received around $11,000 in previous claims.
Perry said declining a claim or policy on the grounds of non-disclosure was a rare occurrence among the tens of thousands of claims processed every day.
He said whether a conviction or fine would affect cover depended on the situation. One speeding ticket was unlikely to change anything, but seven high-speed fines by the owner of a sports car could affect premiums and excess charges. Dishonesty convictions were considered seriously because they indicated the moral character of the applicant. [rc]
Emma Page
emma.page@star-times.co.nz
© 2009 Fairfax New Zealand Limited
October 31, 2009
NEW ZEALAND: Insurance pitfalls -: Are you really covered?
.
WELLINGTON / Sunday Star Times / October 31, 2009
By Emma Page
INSURANCE CUSTOMERS who fail to tell their insurer about speeding tickets, minor criminal convictions or even modifications to their vehicle could miss out on payouts because of laws that the industry watchdog has described as "draconian" and "scary".
Under New Zealand law, policy holders are obliged to tell their insurance company about any "relevant" facts, no matter how small.
Failure to do so – even where the insurance company does not specifically ask for a particular piece of information – can lead to claims being denied and policies voided, effectively leaving the policy holder without cover, even though they have been paying their premiums.
Insurance Ombudsman Karen Stevens told the Sunday Star-Times the ramifications of non-disclosure are huge. She says although insurers do provide reminders and warnings about disclosure, these should be made stronger. "The law is scary and the consequences are really scary. I don't know if consumers are being sufficiently scared up front to understand exactly what's likely to happen if they fail to disclose."
For health and life insurance, all disclosures need to be made when the policy is first signed. But for general insurance such as house, contents and vehicle polices, declarations must be done at the time the insurance is taken out – and then updated at least once a year. And any "change in circumstance" is considered relevant – for example, a conviction for shoplifting could affect a car insurance claim.
Problems arise because many consumers don't understand their responsibility to tell the insurance company anything it might need to know. Either they forget to include details, or presume that a change of circumstance isn't relevant.
Disclosure of information need not prevent a customer remaining insured. Stevens would like to see law changes that bring New Zealand policy in line with Australian legislation, which uses the "reasonable person" test, which she says is fairer. It is based around the question: "What would the reasonable person in the circumstances understand an insurer would want to know?"
In New Zealand, the law uses the "prudent underwriter test" meaning consumers have to work out what the insurer would like to know, and provide that information.
Stevens said: "The law is draconian... Insurance companies can take very, very harsh measures if anybody fails to disclose, even if it is an innocent non-disclosure. It doesn't matter."
The Law Commission has made proposals as far back as 1998 for changes to insurance law, but Stevens says any change is on the backburner.
Aucklander Peter Lomas has experienced the perils of non-disclosure first hand. Earlier this year his car was stolen and written off. He submitted his claim to insurer AMI and was shocked to find it turned down and his policy voided, on the grounds that he had failed to disclose his criminal convictions. He said he had no idea he was obligated to declare the convictions.
Ad Feedback Not having the car replaced has left him without a vehicle he had been using for work and he said the situation left him financially and mentally stressed.
He took out his insurance policy in 2002. Since then he has received six convictions, the first in 2004. The convictions include common assault, breaching a trespass order and contravening a protection order, which he says occurred after a marriage break-up. He didn't realise the charges would be relevant to his car insurance as they didn't relate to driving.
AMI products executive manager Alan Perry said the convictions would have excluded Lomas from cover if AMI had known about them. A customer advocate review within AMI upheld the decision, as did a report by the insurance ombudsman.
After taking out the policy in 2002, Lomas paid around $7000 in premiums, but had received around $11,000 in previous claims.
Perry said declining a claim or policy on the grounds of non-disclosure was a rare occurrence among the tens of thousands of claims processed every day.
He said whether a conviction or fine would affect cover depended on the situation. One speeding ticket was unlikely to change anything, but seven high-speed fines by the owner of a sports car could affect premiums and excess charges. Dishonesty convictions were considered seriously because they indicated the moral character of the applicant. [rc]
Emma Page
emma.page@star-times.co.nz
© 2009 Fairfax New Zealand Limited
Insurance Ombudsman Karen Stevens told the Sunday Star-Times the ramifications of non-disclosure are huge. She says although insurers do provide reminders and warnings about disclosure, these should be made stronger. "The law is scary and the consequences are really scary. I don't know if consumers are being sufficiently scared up front to understand exactly what's likely to happen if they fail to disclose."
For health and life insurance, all disclosures need to be made when the policy is first signed. But for general insurance such as house, contents and vehicle polices, declarations must be done at the time the insurance is taken out – and then updated at least once a year. And any "change in circumstance" is considered relevant – for example, a conviction for shoplifting could affect a car insurance claim.
Problems arise because many consumers don't understand their responsibility to tell the insurance company anything it might need to know. Either they forget to include details, or presume that a change of circumstance isn't relevant.
Disclosure of information need not prevent a customer remaining insured. Stevens would like to see law changes that bring New Zealand policy in line with Australian legislation, which uses the "reasonable person" test, which she says is fairer. It is based around the question: "What would the reasonable person in the circumstances understand an insurer would want to know?"
In New Zealand, the law uses the "prudent underwriter test" meaning consumers have to work out what the insurer would like to know, and provide that information.
Stevens said: "The law is draconian... Insurance companies can take very, very harsh measures if anybody fails to disclose, even if it is an innocent non-disclosure. It doesn't matter."
The Law Commission has made proposals as far back as 1998 for changes to insurance law, but Stevens says any change is on the backburner.
Aucklander Peter Lomas has experienced the perils of non-disclosure first hand. Earlier this year his car was stolen and written off. He submitted his claim to insurer AMI and was shocked to find it turned down and his policy voided, on the grounds that he had failed to disclose his criminal convictions. He said he had no idea he was obligated to declare the convictions.
Ad Feedback Not having the car replaced has left him without a vehicle he had been using for work and he said the situation left him financially and mentally stressed.
He took out his insurance policy in 2002. Since then he has received six convictions, the first in 2004. The convictions include common assault, breaching a trespass order and contravening a protection order, which he says occurred after a marriage break-up. He didn't realise the charges would be relevant to his car insurance as they didn't relate to driving.
AMI products executive manager Alan Perry said the convictions would have excluded Lomas from cover if AMI had known about them. A customer advocate review within AMI upheld the decision, as did a report by the insurance ombudsman.
After taking out the policy in 2002, Lomas paid around $7000 in premiums, but had received around $11,000 in previous claims.
Perry said declining a claim or policy on the grounds of non-disclosure was a rare occurrence among the tens of thousands of claims processed every day.
He said whether a conviction or fine would affect cover depended on the situation. One speeding ticket was unlikely to change anything, but seven high-speed fines by the owner of a sports car could affect premiums and excess charges. Dishonesty convictions were considered seriously because they indicated the moral character of the applicant. [rc]
Emma Page
emma.page@star-times.co.nz
© 2009 Fairfax New Zealand Limited
