6 non-disclosure

relevance of previous claims and losses
The vast majority of household and motor proposal forms ask if a policyholder has had any recent claims, losses or accidents, typically within the last three years. We have been asked how we view cases where – at the time the policyholder claims in these circumstances – an undisclosed loss may be more than three years old. We treat the ‘cut off’ point as the last occasion before the claim – be it a policy inception or a renewal – when the policyholder was under a duty to disclose material facts to the insurer.

To take a simple example, if – at the time of the proposal – in answer to a question about losses, a policyholder failed to disclose a loss which took place two years and six months previously, then that should only count as a material non-disclosure for the first year of the policy. It should cease to be of relevance after the first renewal. However, it would still be relevant for a claim made nine months after policy inception.

non-disclosure and sales
The Association of British Insurers’ (ABI) Code of Practice for the selling of general insurance imposes the following specific requirement on an intermediary when a proposal form is completed:

“...(to) ensure that the consequences of non-disclosure and inaccuracies are pointed out to a prospective policyholder by drawing his attention to the relevant statement in the proposal form and by explaining them himself to the prospective policyholder.”

To comply with the ABI Statement of General Insurance Practice, there ought to be a ‘relevant statement’ in the proposal form, setting out the consequences of failing to disclose all material facts, and warning that if the proposer is in any doubt about facts considered material, he should disclose them.

The Code Monitoring Committee carries out a mystery shopping exercise every year or so, to monitor Code compliance. For the Committee’s 1999/2000 research programme, mystery shoppers bought a number of policies. The intention was to establish the extent to which insurers are complying with the Code’s requirement to explain the consequences of non-disclosure. The result of this part of the exercise was extremely disappointing: in only 15 per cent of cases was any sort of an explanation given.

The new General Insurance Standards Council Code includes a commitment that members will ‘explain your [policyholder’s] duty to give insurers information before cover begins and during the policy, and what may happen if you do not’. This might be seen as going further in implying an obligation on customers than we normally consider to be reasonable. However, evidence from the Committee report suggests this is not a commitment which is well observed at present by insurers and intermediaries.

Policyholders frequently assert that they failed to disclose information because they genuinely did not appreciate it was required by the insurer. Alternatively, they may have followed an intermediary’s advice when completing a proposal form. We do not always accept such assertions, but the evidence of the Committee suggests that many intermediaries and insurers fail to comply with the requirements of the Codes. In these circumstances, unless firms can demonstrate having used reasonable endeavours to ensure compliance, we may be rather more inclined to support the policyholder’s position in such cases than we have done in the past.

case studies - non-disclosure