News Review: General Insurance


The disclosure obligation is important


by Kevin Paterson, sales & marketing director, Assurant Intermediary


the allegation that insurers don’t pay claims is frequently laid at their door. there appears to be a common perception


amongst


consumers that insurers will do everything possible not to pay out – a perception fuelled perhaps by stories in the national press. as is often the case, the


true picture is very different. the uK insurance industry paid out £58 million a day in general insurance claims in 2009 according to the latest figures from the association of British insurers. Fraudulent claims aside, it


has to be assumed that most customers buy insurance in good faith. if claims are denied then it generally implies there has been an issue of non-disclosure or ignorance relating to the cover afforded. insurers rely on the


information provided by the customer, or the intermediary on their behalf, in making their decision about whether to accept the risk and on what terms. intermediaries have four main obligations regarding disclosure of information when placing or renewing insurance. they should: • advise their client of their duty to disclose all material circumstances and explain the consequences of failing to do so. • indicate the sort of matters that ought to be disclosed.


• take reasonable care to elicit details about anything that should be disclosed that their client might not think it necessary to mention. • Be satisfied that their client understands his/her obligations. this will ideally require a written exchange, both at placement and on renewal, although a verbal agreement is acceptable as well. You cannot rely on the


questions asked on the proposal form to provide limits on the information required by an insurer. this is where intermediaries sometimes fall foul of the law, especially regarding accident, sickness and unemployment


behalf, or, as is increasingly the case, the client completes the form themselves online. in the digital age, many proposal forms don’t require the client’s signature, making it all the more difficult for an intermediary to prove that they have followed the non-disclosure process adequately.


insurance.


the questions asked on an aSu proposal form aren’t long or detailed enough and there is a temptation to sprint through them, but intermediaries risk both invalidating the policy for their customers at the point of claim and a potentially hefty claim against their own professional indemnity insurance if their duty of care is brought into question.


Communication it has never been more important that intermediaries guide their clients carefully through the disclosure and record all details, both for the validity of future claims but also for their own professional protection. a denied claim could have an impact on their professional reputation. this point becomes all


the more important if, as an intermediary, you fill out the proposal form on your client’s


“There should be no reason to decline a non-fraudulent claim if the policy has been underwritten at the point of sale and if the non-disclosure process has been followed accurately and diligently.”


a case study published on


the financial ombudsman’s website is a clear example of how an incomplete and unsigned proposal form can lead to a denied claim over a breach of the duty of disclosure. the claim in question was denied by the insurers originally because, they claimed, the client failed to disclose a previous criminal conviction. the box asking for details of “non-motoring convictions (relating to you or any other permanent resident)” was left blank. the client maintained that they had verbally told their broker about the convictions but the broker failed to record them. Because the box had been left blank there was no evidence that the broker had asked about the convictions during their meeting. the insurer


said it would not have issued the policy if it had been aware of these convictions and it cancelled the policy. the client had not been asked to check the proposal form or even to sign it. the client’s complaint


was upheld by the financial ombudsman and the insurer was ordered to meet the claim and to pay the client £200 in compensation. While the case study


doesn’t go on to say what the implications were for the broker, many do find themselves facing a claim on their professional indemnity insurance. the number of brokers fined by the FSa increased three-fold from 2009 to 2010, and the cost of professional indemnity insurance for brokers and intermediaries is predicted to rise by 50%. as well as ensuring


clients are treated fairly, intermediaries must ensure their own protection. in my view, this highlights one of the reasons why it is better for aSu to be underwritten at point of sale. most aSu policies are underwritten at the point of claim so problems of disclosure aren’t discovered until a client needs to claim on the policy. if the products are underwritten at the point of sale then intermediaries themselves are essentially completing the first level of underwriting at application. there should be no reason to decline a non-fraudulent claim if the policy has been underwritten at the point of sale and if the non-disclosure process has been followed accurately and diligently.


mortgage introducer MARCH 2011 17


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