Why Full Disclosure Is So Important

You've done stuff. Maybe it was heroic; maybe you're not too proud of it. Either way, you need to disclose your full insurance history when you take up a new insurance policy.

We're not saying you have a shady past. All we're saying is, things have happened. And while you might not want the whole world to know about every good or bad deed you've ever done, when you take out a new insurance policy, you may have to share some information about your previous insurance policies with them.

One South African didn't, and her story has become a case study in why it's so important to be honest and upfront with your insurance company.

The case of Ms A and the incomplete application forms

The individual concerned (the Ombudsman for Short-term Insurance's case study calls her Ms A) was involved in a car accident. When she claimed from her insurance company, that claim was rejected because of her 'failure to disclose a cancellation of a previous policy due to fraud or dishonesty'. The insurer then also voided Ms A's policy and refunded her all of her premiums.

While validating her claim, the insurance company had found out that one of Ms A's previous insurance policies had been cancelled by the previous insurer due to 'fraud or dishonesty'. (Turns out Ms A had admitted to having supplied incorrect information relating to some items she'd claimed for.) 

Ms A was obviously not happy that her car insurance claim had been rejected, so she asked OSTI to mediate the case.

The insurance company said that Ms A had not mentioned the previous cancellation when she completed the proposal form. It said that if she had disclosed that previous cancellation, it would not have accepted the risk and would not have given her insurance cover.

Ms A said that the proposal form didn't require her to disclose that information – and if it was so important, the insurance company should have asked about it in the application form.

The OSTI agreed that the proposal form did not specifically ask Ms A to disclose previous cancellations. However, the insurer had clearly stated that it relied on Ms A to provide true, correct and complete information – and all material information (whether asked for or not) had to be disclosed. 'The proposal form further contained a warranty signed by Ms A that all statements on all pages were true and correct and contained all information known to her affecting the risks under the sections to be insured,' the OSTI noted.

In that case, it ruled, the information about her previous cancellation should have been included.

The OSTI found that 'a reasonable person in Ms A's position would have considered this information to be material and would have disclosed it at the start of the contract, whether the question was specifically asked or not.'

The OSTI ruled in favour of the insurance company. The insurer refunded the premiums Ms A had paid since the start of her cover, minus any claims that had been paid during the existence of the policy.

Anything you'd like to add?

That's bad news for Ms A... but what does it mean for you?

Insurance companies aren't looking for ways to catch you out or excuses to not pay out your claims. But they are completely within their rights to determine the underwriting criteria it uses to decide whether to accept a risk or not.

The price – or premiums – that you pay for your insurance are determined by your risk profile. If your application forms are incomplete, or if you leave out any information that you could be reasonably expected to know, then the insurance company won't have the full picture of your risk profile and won't be able to make a fair decision on what your premiums should be – or whether they should take the risk of providing you with insurance cover at all!

'When taking out insurance, it is always best to disclose all information which [the person applying for insurance] is aware of to the insurer and let the insurer decide whether the information should be taken into consideration when underwriting the policy,' OSTI warns.

When you compare insurance quotes – whether it's car insurance, home insurance, travel
insurance or pet insurance – be sure to check what's covered by the various policies. Then, when you sign up with a new insurance provider, be honest. If you have any skeletons in your cupboard, it pays to tell your new insurer about them. (At least from an insurance point of view. If your shady past is limited to a bad haircut in the 1990s, then you're in the clear.)

This article is for informational purposes only and should not be construed as financial, legal or medical advice.