'White lies' can kill a claim

By DIANA CLEMENT


When my partner took out household insurance recently he told the company we had a burglar alarm.

The box in question turned out to be house fuses and, in one fell swoop, he'd invalidated our cover. Had we suffered a loss, AMI would have been within its rights to decline our claim.

People can and do void their insurance policies every day of the week as a result of silly and innocent mistakes or by telling what they deem to be white lies.

But the consequences of having a claim turned down can be far-reaching.

Insurance and Savings Ombudsman Karen Stevens cites the case of a single mother who bought a car on finance. On renewal of her insurance policy, she failed to declare that a new partner with criminal convictions had become a regular driver. When the partner wrote off the car in an accident, the insurance company declined the claim for non-disclosure.

It went on to cancel her household insurances because of the partner's presence in the house and, as a result of having no building insurance, her mortgage was foreclosed.

Harsh as this may sound, such tales are not unusual, says Stevens.

Insurance contracts are based on a principle of law known as "utmost good faith", which means the insurer will pay out providing you have told them the truth.

Yet it's almost a norm in our society to tell white lies, be economical with the truth and exaggerate claims when dealing with insurance companies.

Martyn Norrie, chief executive of loss adjuster GAB Robins NZ, says by hiding factors that will lead a prudent underwriter to turn away your business, you are "stacking the cards against the insurer" and, as a result, you're likely to have claims declined.

Common examples of this are the parents who insure the cars and motorcycles of their offspring as their own in order to lower premiums, they fail to declare previous claims or criminal convictions because they fear the insurance will be turned down. As a result, the contract isn't based on good faith and is void.

Customers can also invalidate their claims by their actions - such as the driver who is still under the legal drink-drive limit but denies drinking at all, thus invalidating a claim by lying.

By admitting having one beer with mates, that driver would be in the clear because he or she would be neither breaking the law nor lying to the insurer.

Surprisingly few people read the small print of their insurance contracts - despite the fact that they can cover property worth hundreds of thousands of dollars.

In the two years between school and university, I worked in the Sun Alliance claims office. As a teenager bored by paper shuffling, I treated claims handling as something akin to a contact sport.

Thanks to the knowledge I gleaned in those two years during the 1980s I've ensured my own claims have been paid. When I fell foul of burglars in London and my shiny new laptop was stolen, the loss adjuster grilled me more than once over how much work I'd lost.

I knew he was trying to prove that my laptop was used for business, not purely personal use, and wouldn't, therefore, be covered by an ordinary household contents policy.

Needless to say that I kept my cool and the claim was paid.

Without a doubt, some insurers are more vigilant than others when it comes to investigating claims.

During one university holiday, I handled motorcycle claims for a specialist insurer. Each claim was delved into in great detail and a surprising number were declined - usually because the motorcycle owner had lied on his or her proposal or claim form about previous claims or motoring convictions or innocently failed to disclose them.

Non-disclosure of relevant facts, at the inception of the policy, and at each renewal date, is in fact the number one reason claims are turned down. Of 1000 claims investigated by the Insurance and Savings Ombudsman during the past four years, roughly one quarter of them were for non-disclosure.

The next biggest ground for denial is fraud - which can be as simple as claiming for a state-of-the-art digital camera, when the camera you lost was in fact a 10-year-old point and click model.

What many people don't realise is that they are effectively taking out a new contract with the insurance company at each renewal date. Hence, they must declare any new relevant facts at that point.

AMI and Vero told me that they err on the side of the customer when claims could be declined on a technicality.

Stevens, who sees the worst side of the industry, agrees, saying companies prefer the good PR that comes from paying up, to earning a bad reputation.

Of 10,000 flood claims received by the industry this year in the Manawatu, Bay of Plenty and Wellington areas, only one resulted in a complaint to the ombudsman.

Even so, the moral of this tale is that it's worth considering paying slightly more to get a policy with an insurer that has a good reputation for claims handling.

Consumer magazine asked readers to rate the claims handling of their insurer and AMI did come out consistently high. Asked why, Alan Perry, executive manager of customer support at AMI, said that was because the company had maintained its branch network, where customers could come in and have their claims explained.

Policyholders aren't just tripped up over their household and motor insurance. Extra special care is needed in disclosing previous medical conditions and doctors' visits when it comes to health and life-related insurance.

The consequences of innocent non-disclosure in this area are "horrendous", says Stevens, and can leave grieving families in the financial lurch.

What's more, says Stevens, the public should beware of offers from financial professionals to find them cheaper or better life and health cover. The professionals take sizeable commissions every time they sign up a new customer, so there is considerable enticement for them to churn customers, getting them a new policy every few years.

But in many cases, says Stevens, the customer's health has changed in the meantime.

She would like to see insurers subject to more stringent regulation as in Australia and Britain.

The common questions section of the Insurance and Savings Ombudsman's website at I-Ombudsman is a must-read for anyone about to claim.