How to make sure your claim is approved
Short Term Insurance
How to make sure your claim is approved
Disclosure is one of the most important principles in insurance. Approximately 70% of rejected claims are rejected based on non-disclosure or misrepresentation at underwriting stage.
Unfortunately, unintentional non-disclosure of material information happens quite frequently.
Illustrating common scenarios
Claim rejection in the casualty claims environment, for example, is often a result of information not being filtered through to the individuals signing the proposal and policy documents.
To illustrate this, most casualty proposal forms ask whether the insured is aware of any claims that have been made against the company by third parties, and whether the insured is aware of any circumstance or event that may lead to a claim being made against them in future.
The insured or broker might respond “no” to these two questions without first making proper inquiries from all section heads, managers, divisions, branches, internal legal and risk departments within the business.
Another all-too common mistake occurs when the insured believes that his or her duty to disclose a known event or circumstance only arises when a formal claim has been made by a third party.
The problem with this misconception is that most liability policies exclude claims arising from circumstances known to the insured, prior to the inception of renewal of the policy – irrespective as to whether a formal claim has been made. If the insured fails to disclose a known event or circumstance to the insurer, prior to the renewal or inception of the policy, the insurer will have the right to reject the claim.
Another misconception is that the insured only has a duty to disclose events or claims being made, when he or she believes that he or she is likely to be held liable.
The questions to consider
The question is not whether the insured intentionally failed to disclose the information, but rather whether the non-disclosed information is material to the assessment of the client’s risk.
One must ask if a reasonable person, in the position of the insured, would consider the information as material to the assessment of the particular risk. Secondly, the insurer will consider whether it would have accepted the risk had the information been disclosed, or, if it would have accepted the risk if it had been on substantially different terms; and lastly, if it would have charged a higher premium.
Based on the outcome of these questions, the insurer may have the right to reject the claim or void the policy ab initio. It is therefore vital that the broker take control to ensure that the correct information reaches the insurer at the right time.
Ask the right questions
It is vital to have an in-depth understanding of not only the client’s business and the liability risks it is exposed to, but also the industry in which it operates. Next, it is essential to ask the right questions.
These include: the insured’s company details and structure; the nature of the insured’s business; how long the insured has been operating; a detailed description of the insured’s business activities; their products and/or services; details regarding any foreign territory operations; imports and exports undertaken; details regarding staff complement and whether the insured has standard trading conditions in place with its customers, contractors and suppliers; the company’s annual turnover over the past four to five years; legislative requirements; membership of professional bodies and/ or organisations; details of any claims made against the insured or complaints lodged against their products and/or services over the past five years and details of any events or circumstances that may lead to a claim.
A copy of the insured’s risk/complaints register and more information pertaining to the level and degree of risk management within the company could also be helpful.
The trap of non-disclosure is an easy one to fall into and can be catastrophic to your client. Adding just a few extra steps to your client interview at underwriting stage can make all the difference.
de Pontes, A. (2019). Financial & Advisory News (FA News). Insurance Publications cc, p.48.