An insured’s duty of disclosure for replacement insurance

Alvin had home and contents insurance with the same insurer for over 15 years. He decided to contact an insurance broker, for advice regarding more competitive and suitable policies that may be available on the market.

The broker asked Alvin to bring his old insurance policy. The broker asked Alvin about all of his previous claims. Alvin recalled three claims off the top of his head and checked his phone to get more details around them. The broker scribbled these down in front of Alvin. The broker then went away and obtained a quote for Alvin from a new insurer.

The broker emailed the quote, to Alvin along with a disclosure statement which explained that Alvin had a duty to disclose anything that the insurer should know about. Alvin accepted the quote, and the broker placed the new policy on Alvin’s behalf.

Unfortunately, a few months later Alvin’s house was burgled. Alvin makes a claim to his new insurer with the broker’s assistance. Alvin told the broker that about 3 months ago, a burglar had stolen similar property from his home in the exact same way.

The insurer was not pleased. Alvin had failed to disclose the previous burglary when he applied for insurance. The insurer wrote to Alvin saying he would need to tell insurers in the future about this material non-disclosure.

The broker worked very hard to minimise the consequences for Alvin. He convinced the insurer not to cancel Alvin’s insurance policy from the start. The broker was able to negotiate a $2500 excess premium on Alvin’s policy instead. If another burglary occurred and Alvin’s alarm system was turned on, the excess would further reduce to 1,500.

Alvin was not happy. This excess was far greater than what he had paid with his old insurer. Alvin decided to cancel his insurance with the broker and move to a different company. Alvin could not find an insurer who was willing to insure him without a heft excess of $1,500 while ordinarily the excess would only be $250. Alvin believed the broker had be too casual in the meeting and failed to inform him about the consequences of not disclosing all claims. He felt that his insurance record was tarnished because of the broker’s sloppy service and he was stuck paying a really high excess.

Alvin also complained that the broker had not provided him with a service contract or asked for his consent before signing the insurance policy on his behalf. The insurance contract contained a disclosure statement which the broker had signed on Alvin’s behalf. Alvin felt that the broker had failed his professional duties as a financial advisor to him. Alvin complained to FSCL.

 

Review

The broker did not agree. He had sent Alvin plenty of documentation which explained the duty of disclosure and the consequences of failing to make full disclosure. Alvin had agreed to the quote by email, so the broker was entitled to sign the contract on his behalf. 

The broker, however, did acknowledge that he forgot to give Alvin a service contract. He did not think this was relevant to Alvin’s complaint, but offered to pay $1000 as a gesture of good will.

 

Outcome

We put the broker’s offer to Alvin who accepted it in full and final settlement of his complaint.

 

Insights for the consumer

The consequences of not making full disclosure can be dire, an insurer can cancel your policy and decline to provide you with insurance. This can be logged on the claims register and can affect your ability to get insurance with another company. 

 

Insight for the participant

By law, a financial adviser must act with diligence, care and skill towards his or her client.

Financial advisers are professionals and it is expected that they will follow best practice when securing replacement insurance (such as analysing the past and new policy, exercising care around previous claims that could affect the excess under a new policy, and securing a quote from a few companies and analysing what would best suit the client’s needs.

It is also expected that financial advisers will keep and maintain clear records of contact and instructions with their clients. A disclosure statement should be provided upfront and not after the adviser’s services have been engaged.

Financial advisers should explain a new policy and the insured’s obligations to the client in person.

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