The price you pay for lying to your insurer
A third of insurance claims have an element of dishonesty according to the South African Insurance Association (SAIA). This happens even though insurance is based on the principle of utmost good faith.
Have you ever thought about the consequences of presenting false information to your insurer?
According to the insurance industry experts, insurers take two actions in the case of misrepresentation: voidance and cancellation.
What is voidance?
According to Schaick Malan, a CEO from BrightRock, a life insurance agency, insurers apply voidance to policies where a client’s risk was based on incomplete or incorrect information.
“This might happen when a policyholder did not make a full disclosure during the application, for instance about their medical condition. This is either by careless omission or intentional dishonesty,” says Malan.
When this happens, the insurer will refund the premiums paid (less costs) and the claim will be unsuccessful.
What is cancellation?
Malan says the cancellation of policies happens under more serious circumstances. It happens when dishonesty occurs after the consumer entered into a valid insurance agreement with the insurer.
“In the life cover sector, an example would be if a policyholder lies about or withholds details of a condition to manipulate a dread disease claim in his or her favour,” explains Malan.
The cancellation will also be added to the now former policyholder’s insurance record, making him or her a higher risk to insure, or even uninsurable.
Could lying land you jail?
This does not happen often, according to Max Huggins, COO of MiWay. He says it depends on the severity and extent of the fraud.
“The bigger and more calculated the fraud, the bigger the possibility of criminal charges,” says Huggins.
What do insurers do to ensure consumers are honest?
According to Malan, insurers keep record of all calls and correspondence. They reserve the right to validate all the information provided at application stage when assessing a claim.
Malan continues to say insurers rely on industry databases that keep record of fraudulent interactions.
According to him, some insurers also have forensics departments that investigate suspicious claims.
What if the dishonesty was not intentional?
Huggins states that investigators and assessors investigate the circumstances surrounding the incident.
“If the insured claims for their stolen TV and states the TV was 55 inches and cost R3 500 – this could possibly be an innocent mistake, not understanding inches,” he explains.
“However, if the claim stated the TV was 55” and cost R8,000 – and investigators and assessors find that the TV was smaller, this seems to be deliberate because the TV size and amount claimed for are in line. This could signal intention,” he adds.
Can the insurers be dishonest?
Dishonesty is not only committed by consumers. Malan says there are some disreputable insurers who are likely to leave consumers short changed with tricky terms and conditions in the fine print.
“An example of this would be a life insurer who does not pay dread disease claims if the client dies within 14 days of meeting the claims criteria,” says Malan.
How do you protect yourself?
Malan suggests that consumers familiarise themselves with the fine print and use a reputable, independent financial adviser. The adviser will assist them in identifying trustworthy insurance providers.
Huggin added that if consumers find wrong doing from their insurers, they can lodge a complaint or dispute with the Ombudsman who will investigate the complaint.