3 most common reasons why an insurer might cancel your policy

It is rare, but not uncommon, for the relationship between the customer and his or her insurer to sour. This may result in the insurer having to take what seems like drastic action by cancelling the policy of the customer.

“The problem is that once you are fired from one insurer, it is very difficult to get a decent insurance policy elsewhere at the same premium rate, given that you will have a record,” said Christelle Colman, spokesperson for Old Mutual Insure.

“It therefore pays to know what your and your insurer’s rights and responsibilities are so that you can avoid finding yourself in this unfortunate situation.”

She said the first thing to remember is that it starts with a contract between you and your insurer. It is easy to forget that the brief interaction with an insurance broker, online platform or telesales consultants is actually the start of a no-nonsense, two-way contract.

Till death do us part?

“You should think of your insurance policy as a marriage or meeting of minds between you and your insurer,” said Colman. “You are making commitments and promises to your insurer in return for which they protect your assets from predefined loss events.”

Local social media sites recently lit up with a flurry of posts from an unhappy motor insurance client after her insurer cancelled her policy.

Consumers were quick to bash the insurer; but slow to consider the rights and responsibilities that the insured and insurer had agreed to. In this case the insured had made four claims against her policy in the preceding five months, which did not bode well for her claim record and ultimately led to the cancellation of her policy by the insurer.

Colman is sympathetic to this situation and adds that often it comes down to understanding the fine print.

“If you make too many claims in quick succession, your insurer is within its rights to fire you. The law is clear about what is required from each party to an insurance contract; your policy wordings contain exit clauses for both you and the insurer in the event the relationship goes sour.”

In such an event, the insurer is obliged to give the policy holder at least 31 days’ notice of the intention to cancel the policy. They must give reasons in that cancellation letter. If this process is not followed, then the insured has the right to dispute it.

Below are the three most common circumstances in which an insurer might cancel a policy:

If you fail to meet your monthly premium payments

There are few arguments in the case of a non-payment cancellation as we are all familiar with the no pay, no service construct.

Consumers are advised to contact their insurers if they run into financial difficulties so that a financial arrangement can be made, failing which the insurer may cancel the policy in line with the industry’s Policyholder Protection Rules.

If you are dishonest when taking out the policy or when claiming against it

“Honesty is the foundation of every business relationship and is a critical part of the contract for insurance,” said Colman. “We use the information that you share with us when taking out your policy to determine your risk profile and offer you a fair price for your insurance cover.”

Any misrepresentation that you make when taking out the insurance policy means that you and the insurer enter the contract with incomplete or untrue information. Upon discovery, the insurer can elect to void the policy, by returning all your premiums as if the policy never existed or cancel the policy outright.

Things become complicated if the dishonesty happens at claims stage. “Many insureds try to blur the facts surrounding a loss event because they know the claim will be rejected if the true facts get out,” said Colman.

If your insurer even suspects that you have contravened one of the exclusion clauses in your policy wording, such as driving under the influence of alcohol, they can refuse your claim and cancel the policy.

If your risk profile changes

Your insurer bases your monthly premium on a careful assessment of the risk you present. It does so by weighing up your responses to a set of questions when you buy insurance. If your actual claims exceed the claims suggested by your risk profile the insurer acts, usually by adjusting premiums higher or, in extreme cases, by cancelling the policy.

“This type of cancellation seems unfair because multiple claims could result from an insured’s bad luck. We engage with clients before cancelling on this basis; but making too many claims over a short period of time has consequences,” said Colman.

Read: The most complained-about short-term insurers in South Africa

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3 most common reasons why an insurer might cancel your policy