Policy cancellation is not something insurers do lightly, but it is sometimes unavoidable. It is important to understand why it happens because cancellation can have a detrimental effect on your future ability to obtain insurance, says Nthabiseng Moloi of MiWay.
When an insurance policy is cancelled, many consumers tend to see it as unfair. In most cases, this is because they have not fully realised the fact that an insurance policy is actually a contract between two parties: the insurer and the insured.
The contract aims to protect the insured against certain risks in exchange for a premium and the insurer relies on the insured to provide an accurate and honest picture of the nature of the risk, based on the answers given to a set of questions.
The insurer does its best to assess what the risk is and bases the premium on that assessment. It stands to reason that if the risk changes or the insured breaches some of the terms of the policy, it has the option to cancel the policy.
If, however, the risk turns out to have been higher than originally assessed, the insurer can void the policy, in which case it is as though it never existed and all premiums will be returned.
By the same token, the insured is also at liberty to cancel the policy if he or she is dissatisfied in any way, or has found a better deal with another insurer. In that case, the insurer might make a counter-offer and if it is accepted, the contract would be amended to reflect the new terms and conditions.
If not, it would be cancelled and the insured would enter into a new contract with another insurer.
Most policies allow for a 30-day notice period of cancellation, which gives both parties time to seek a solution. If, however, there has been dishonesty or fraud, the insurer can cancel without notice, MiWay said.
So what would lead an insurer to cancel a policy?
There are three main causes for policy cancellation, stated Moloi, namely:
- Dishonesty. This would be when it transpires that the insured was not truthful about the nature of his or her risk profile, or he or she has made fraudulent claims. Most people would accept that honesty is fundamental to any business relationship – and especially in insurance, where uberrima fides, or utmost good faith, is legally considered to be the default position on both sides.
- Altered risk profile based on changed behaviour. Some people take the attitude that once they are insured, they can take less care of whatever has been insured, on the basis that it is insured and the insurer can just pay. This reckless behaviour would obviously result in a greater number of claims than the insurer had anticipated based on the original risk profile. In other words, the contract or policy would no longer be an attractive business proposition for the insurer. In such a case, a reputable company would first contact the insured and advise him or her to modify their behaviour in order to bring their risk profile back into alignment with the policy. Only if this did not mend the issue, would the policy be cancelled.
- Non-payment of premiums. When an insured party does not pay his or her premiums for three consecutive months, the insurer is entitled to cancel the policy.
Consumers should remind themselves that by behaving in a way that leads to excessive claims does not affect just themselves, but everybody who insures with that company.
It is rather like a stokvel member who constantly borrows money from the fund – soon enough, the other members would request that person to leave the group as his or her behaviour is jeopardising everybody else’s chance of benefitting from the communal funds, said Moloi.
If you are ever unfortunate enough to have a policy cancelled and you believe you have been treated unfairly, your first port of call would be the insurer’s own dispute-resolution team. Insurers have a vested interest in keeping their clients happy, after all.
In the unlikely event that the matter is not resolved, the Ombud for Short-term Insurance will provide an objective, specialist assessment of your case and offer relief if it is warranted.
Remember, a contract has to work for both parties. Once you have understood that your contract with your insurer is based on a certain risk profile, you will be better placed to act accordingly and the contract will continue to provide the cover you require, Moloi concluded.