THE Insurance and Pensions Commission (Ipec) says the withholding of material information before the conclusion of a contract will make such a contract voidable at the option of a prejudiced party.
Based on this, if either the insured or insurer feel that material information was not disclosed to them before entering a contract, the prejudiced party can have the document voided.
For the first quarter of 2024, the commission received 27 complaints against the short-term insurance sector, down from 28 in the same period last year. Unsatisfactory service was the major source of complaints, constituting 41% of the complaints, delay in settlement (7%), insufficient claim documents (26%), tobacco (7%) and repudiation (19%).
In a recent journalists mentoring programme on the activities of Ipec and the National Social Security Authority, Ipec insurance director Sibongile Siwela said the insurer and the insured should act in good faith towards eachother.
“The duty of utmost good faith requires an insured person to disclose all material information with regards to the subject matter of insurance relevant to the insurer’s decision to accept or reject the risk [the duty of disclosure],” she said.
“The insurer is required to clearly explain the terms and conditions of the insurance contract to the insured, for example, what is covered and what is excluded. If either party fails to disclose material information before conclusion of the contract, the contract becomes voidable at the option of the prejudiced party.”
She said the insurer was only liable for losses when they were caused by events or perils covered by the insurance policy.
“If the proximate cause of a loss is not insured, the insurer will not be liable to compensate for the loss suffered,” Siwela said.
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“After compensating the insured for loss suffered due to an insured event, the insurer gets every right of the insured against the third party involved in the occurrence of the event. The insurer steps into the shoes of the insured to claim against a third party.”
She said the amount of insurance payout could not exceed the amount of damages incurred.
For example, if a person insures his/her car worth US$20 000 and the damage is worth US$15 000, the insured is entitled to US$15 000.
However, if it was insured for US$10 000, the insured will only get US$10 000.
“Insurance is not meant to enrich policyholders, but to compensate and return them to the position immediately before the loss. If the sum insured at the time of a loss is less than the market value of the insured property, the amount claimed under the policy will be reduced based on the difference between the sum insured and the market value,” Siwela said.
“It applies on partial losses when there is under-insurance. An insured may willingly choose to under-insure to reduce their premium to a level they can afford, or underinsurance may occur due to ignorance.”
The commission understood the need for insurers to settle claims within agreed timeframes to protect claimants from loss of value.
