Top 20 reasons your insurance claims get rejected
Ever wonder if it is truly that important to read the terms and conditions of your short-term insurance policy? The answer is undoubtedly a “Yes”. The general reaction towards the thought of combing through paragraphs and pages of terms and conditions is one of needing a motivational speech to just get you out of the starting blocks. Many clients do not concern themselves with the fine print before it’s too late and the time for the detective in them to reveal itself, has arrived.
At a meeting of the Acsis/Personal Finance Financial Planning Club, Dennis Jooste, the Ombudsman for Short-term Insurance, revealed some of the most common reasons for short-term insurers rejecting claims for motor, contents and homeowner’s cover, which in many cases involve ignorance of the T’s and C’s.
Jooste says more than half of all complaints to his office involve motor claims. Here’s why most motor claims are repudiated.
1. Unlicensed driver.
2. Unroadworthy vehicle. If you have an accident and your insurer finds out your wipers didn’t work or your tyres were smooth, your claim could be rejected on the basis of your car being in an unroadworthy state.
3. Reckless driving. Watch out for the “Failure to take care” clause, Jooste says. “This refers to recklessness, which is not to be confused with negligence.” Also look out for a “Breach of road traffic regulations” clause. If you were exceeding the speed limit at the time of an accident, your claim could be rejected.
4. Drunk driving.
5. Driver not the “regular driver”. Some policies cover the regular driver only. Others cover a named driver or any licensed driver. Jooste says misrepresentation by policyholders in this instance is common. Since young drivers pay higher premiums because of the risk they pose to the insurer, they may list a parent as the regular driver. When it is revealed that this isn’t true, the claim may be repudiated.
6. Total-loss policy. This cover applies only when the insurer deems your vehicle to be a total write-off. Sometimes policyholders have this type of cover and only realise it when their claim is rejected, Jooste says
7. Telematics data shows driver fault. Telematics is technology that can be used to track and recover your vehicle if it is stolen, and/or monitor your driving behaviour. Jooste says that some insurers insist on you fitting a telematics device to your vehicle. “The data gleaned from a telematics device can show a breach of speed limit or reckless driving leading up to an accident, which can result in your claim being rejected – and it is difficult to dispute the evidence,” he says. But some insurers use telematics to reward good driving. In other words, telematics can be used as a carrot or a stick. “Make sure you know how the insurer is going to use this information,” Jooste says.
8. Tracker device not fitted. Jooste says that if your cover is conditional on your car being fitted with a satellite tracking device, your claim will “probably” be rejected if you fail to comply with this condition.
9. Vehicle inspection not carried out. Jooste says some insurers insist on inspecting your vehicle at inception of the policy. This is so that there can be no disputes about pre-existing damage to the vehicle. If you neglect to comply, you will be in breach of your contract and can have your claim rejected.
10. Material non-disclosure at underwriting stage. Jooste says your claims record, a break in insurance cover, prior applications for cover being rejected, and judgments on your credit record are all material to the assessment of your risk, and it is imperative that you disclose such information. For example, people with a bad credit record have a higher propensity to file fraudulent claims than people with a clean credit record, he says. “If you lie and it comes out later, your claim may be rejected.”
11. Vehicle used for business. If you plan to use your vehicle for business, you need to disclose this to your insurer. “In my experience, insurers are very reasonable about this, and don’t look to load your premium if you seldom use your vehicle for this reason.”
12. Vehicle not parked securely at night. If you state that your car is parked securely – in a garage or off the street – at night, and, in the event of theft, it is found it was regularly in the street, your claim could be rejected.
13. Security device not fitted. If you’re required to have your car fitted with an alarm or a gear lock and you don’t comply, your claim can be rejected.
Homeowner’s insurance is cover for your home (the building, not the contents). “Remember that the insured value is not what you could get if you sold your property; it is for the cost of replacing or rebuilding your home at today’s values. Beware of relying on bank valuations,” Jooste says. Even if the insurer is associated with a bank, make sure your home is not undervalued.
Jooste lists the following reasons for homeowner’s insurance disputes:
14. A peril you aren’t covered for caused the loss. If your loss was the result of “gradual deterioration” and “maintenance” issues, you aren’t covered, Jooste says. Homeowner’s insurance typically covers you for storm and fire damage.
15. Poor design and faulty workmanship. These are usually not covered.
16. Retaining walls not built to acceptable standards. Retaining walls have to be built according to engineering specifications, Jooste says. So if a landscaper – and not an engineer – built your retaining wall and it collapses, your insurer might not pay out.
17. Subsidence. If your house is built on clay, cover for subsidence is “normally excluded”, Jooste says.
18. Unoccupied premises. “If you leave your home unoccupied for, say, 30 days, without advising your insurer, it could have grounds to repudiate a claim,” Jooste says.
19. Moveables not covered. There are often disputes over what is a fixture, which is immovable, and what is a moveable item. Homeowner’s insurance covers you for permanent fixtures only.
Most claims for contents cover are rejected on the basis of the average clause (See “General principles of insurance”) because policyholders tend to under-insure, Jooste says.
20. Inflated and fraudulent claims. This is a big problem in the industry, Jooste says. “Don’t inflate your claims. Most policies carry a forfeiture clause, so if you are caught out, you may have to forfeit all benefits under the policy – in other words, the insurer is entitled to repudiate the entire claim,” he says.
GENERAL PRINCIPLES OF INSURANCE
As a policyholder, you need to understand some general principles of insurance, Dennis Jooste, the Ombudsman for Short-term Insurance, says. These are:
* Utmost good faith. “Insurance is based on utmost good faith. When you enter into a contract with an insurer, you are asking the insurer to assume the risks that we all face in our everyday lives. The insurer knows nothing about you. Your premium is going to be determined by the insurer based on your risk profile. This is where utmost faith comes in.”
* Full disclosure. “In assessing your risk profile, the insurer relies on you to make full disclosure of all material information,” Jooste says. “This is why it’s so important that you are honest when you take out insurance and maintain this honesty throughout your relationship with the insurer. Otherwise, come claims stage, the insurer may say, ‘but you didn’t disclose that fact to me and therefore I couldn’t assess the risk properly’.” Also bear in mind that insurers share information, he says. The consequences of material non-disclosure at application stage is that your policy becomes “voidable”, resulting in you having no cover when it comes to light that you did not make full disclosure.
* Insurable interest. You can’t insure something in which you don’t have an interest. “If you own something, you have ‘an interest’,” says Jooste. “For example, when adult children move back home and bring with them their own assets, which they don’t bother to insure, problems arise. They assume their assets will be covered by their parents’ insurer. The bad news is they are not covered by dad’s insurance, because dad doesn’t have an insurable interest in the property.”
* The “average” clause. This requires that you insure your assets at their full value. If the sum insured at the time of the loss is less than the insurable value of the property, the amount claimed will be reduced in proportion to the under-insurance. Jooste says most people don’t have adequate cover for their household contents and don’t realise the consequences of this. If you have household contents to the value of R800 000, which you have insured for R500,000, and you suffer a R100 000 loss, you might think you’re adequately insured. Not so, he says. Your insurer can penalise you for being under-insured and can pay you out in terms of the “average”. “In this case, it may pay you out five-eighths of R100 000. That’s how average works,” he says. Jooste says it’s important to revalue your assets annually to ensure you have sufficient cover.
There are companies that specialise in valuations and can give you a valuation for each and every item you have, Jooste says. This provides clarity on their value. “At claims stage, some insurers want proof of purchase, such as an invoice. Be aware that the onus is on you to prove your loss,” he says.
Jooste advises that you take photographs of each item in your home and save them to a disc or external hard drive.
* Enforceable contract. The policy is an enforceable contract subject to its terms and conditions, and any ambiguities in the policy will be interpreted against the insurer, Jooste says.
On taking out a motor policy
When taking out motor insurance, Jooste says you need to be mindful of the following:
* Valuation. Pay careful attention to how the insurer values your car: at retail value (the price at which a dealer will sell a vehicle to a consumer), trade value (the price a dealer will pay you for your vehicle), or market value (generally the mid-point between trade and retail). These values affect the premium you pay and what the insurer will pay out when you claim. A vehicle is a “wasting asset”, which means you need to revalue it on a regular basis, Jooste says. Although short-term insurers might soon be compelled to annually assess the value of your motor vehicle and set your premiums accordingly – rather than merely increase your premiums in line with inflation – until this happens, it is your responsibility to make sure you aren’t over-insured.
* “No water damage”. Watch out for this exclusion, Jooste says. “During a Highveld thunderstorm, I drove into a dip and the water level rose so high that it flooded my engine and blew it. Fortunately it was covered, but some insurance companies exclude water damage to an engine. So be careful of that exclusion,” he says.
* Excesses. “Be aware of multiple excesses,” Jooste says. Some policies apply multiple excesses, meaning that in addition to your standard excess others may apply. For example, young or new drivers who haven’t had a license for a certain number of years, can be liable for an additional excess. If you have an accident within six months of obtaining cover, or between midnight and 6am – the most dangerous time on the road – an extra excess may apply. And some insurers levy an additional excess on drivers older than a certain age.
Jooste’s advice: “Go home and read your policy. If there is anything that you don’t understand, ask your broker or insurer to explain it to you.”