Cape Town – Insurance is a contract and consumers must understand their obligations when they enter into it – and the consequences of dishonesty, cautions Nthabiseng Moloi, head of marketing and brand at MiWay.
The law sees insurance as a special type of contract that demands a higher duty of both parties. This is necessary because the insurer must rely on the insured to provide accurate information about the nature of the risk.
For this reason, the insurer will ask a number of questions before the contract is entered into, and the insured is obliged to inform the insurer of any changes in his or her circumstances once the policy is in place.
“Clearly, any breach of the good faith implicit in the relationship between insurer and insured will place their contract at risk,” said Moloi.
“It is very important that consumers are aware of the consequences of such a breach of good faith, both in respect of a specific claim and of their general standing with all insurers.”
What is the difference between the voidance and cancellation of a policy?
If, when a claim is made, the insurer discovers that the insured party did not make a full disclosure at the time, either by omission or untruth, they might decide to void the policy.
An example would be regarding previous losses suffered or something else that would affect their risk rating.
If a contract is voided, it is as if it had never been entered into. In this case, the insurer would refund the premiums paid (less any costs) and the claim would not be met.
Voidance is invoked when the contract was based on incomplete or incorrect information, whether because of dishonesty or just carelessness.
Cancellation is much more serious.
An insurer will cancel a policy if they become convinced that dishonesty occurred after a valid contract was entered into.
An example would be a client who stages a vehicle hijacking to get a full payout on a damaged car, or who conceals the fact that the accident occurred on his or her way back from a pub.
In such cases, the insurer could decline the claim or, at worst, cancel the policy. In the case of cancellation, the premiums are not refunded.
Even worse, the cancellation becomes part of the insured party’s insurance history and will have to be disclosed every time they seek insurance.
Cancellation will have the effect of making an individual a higher risk and insurance premiums will be raised accordingly. It may even become difficult to obtain insurance at all.
Insurance is an industry that relies totally on trust. It should come as no surprise that, when the trust is broken, the consequences are quite severe.