A look at why short-term insurance claims are rejected – and the role of brokers in helping clients prevent this from happening to them.
The latest annual report by the Ombudsman for Short-term Insurance (OSTI) shows that policy exclusions are the main reason why insurance claims are rejected. These exclusions range from not applying due care in the case of a car accident to lack of maintenance in the case of household insurance. The report’s findings underscore the importance of understanding policy wording and what constitutes a valid claim.
The OSTI 2023 annual report points to a significant gap in what constitutes a valid claim and what is required for a successful claims experience. It shows that the highest rate of disputes was related to motor-vehicle claims, which represented 42% of all OSTI referrals last year.
The majority of complaints from motor vehicles were declined across the industry due to exclusions in policies and a lack of due care or precaution in preventing or minimising the loss, mainly for claims involving speeding. This was followed by misrepresentation or non-disclosure throughout the lifecycle of the policy.
Similarly, most homeowners’ claims were declined due to policy exclusions and a lack of maintenance and wear and tear.
The 2023 report reflects what we see in claim rejection trends. It also highlights the important role brokers can play in continuing to help policyholders understand their policy’s terms and conditions before they agree to them.
It must be noted that insurers take claim rejections very seriously. Each claim is carefully considered to determine whether the policy was followed before it is rejected. Short-term insurers need to report their overturn rate – the number of claim rejections overturned by the OSTI – to their respective boards, so it’s in their best interest to keep their overturn rate as low as possible.
Below are a few case studies that provide lessons in contractual obligations, policy wordings and rights and responsibilities, as shared in the OSTI 2023 annual report.
Did speeding cause this accident?
In this car accident, the complainant claimed for motor-vehicle damage caused by a collision with a cow after being blinded by an oncoming vehicle. The insurer declined liability on the basis that the client was exceeding the speed limit on a poorly lit road where cows often crossed. Vehicle diagnostics revealed that the car was travelling at a speed of 130km/h on a road with a speed limit of 80km/h. The insurer’s investigation suggested that the high speed was material to the accident, as well as the driver’s lack of due care and precaution.
However, on referral to the OSTI, it was decided that the onus was on the insurer to prove that the claimant deliberately disregarded the maximum speed limit. OSTI was also not convinced that the accident wouldn’t have occurred if the car had been travelling at a slower speed. The ombudsman said many of the findings were speculative, as it couldn’t be determined without doubt that the cow would have been visible had the insured driven at the speed limit. OSTI found in favour of the insured and the insurer settled the claim.
Who’s to blame – the storm or poor maintenance?
The insured asked for OSTI’s help after the insurer declined a claim for a collapsed boundary wall. The basis of rejection was gradually operating causes – in this case, wear and tear, as well as weeds and roots. In addition, the boundary wall was acting as a retaining wall, even though it was not designed for that purpose and didn’t comply with national building regulations. The OSTI had to weigh up whether the cause of the wall’s collapse was due to the wind after a bad storm or whether it was related to the owner’s negligence in not maintaining it properly. In the end, they sided with the insurer and upheld the rejection of the claim.
Did load shedding really destroy this fridge?
The client lodged a claim with their insurer for damage to their fridge. In two reports, they claimed the freezer component was no longer working and that the cause was power surge due to repeated load shedding. However, the insurer’s assessor reported that all electrical components were in working order and that the freezer section wasn’t working due to a gas leak. Gas leaks in refrigeration usually occur due to a deterioration of the piping. The assessor found no electrical damage caused by an influx of electrical power, as the compressor and PC board were both in working order. The insurer relied on gradually operating causes as the basis for their rejection of the claim.
The OSTI found that the quality of the insured’s reports was lacking, as they merely stated that the damage was caused by power surge, without any supporting reasons. OSTI upheld the rejection of the claim.
The role of the broker
Exclusions are a key part of short-term insurance policies. Brokers can help their clients better understand how important these exclusions are to avoid the nasty surprise of having a claim rejected.
A needs assessment when taking on new clients to understand their specific needs and risks could identify potential gaps in coverage for policyholders.
Brokers can remind their clients that contracts, renewals and policy documents must be reviewed meticulously.
By performing these functions, brokers can continue to play a proactive role in ensuring their clients are fully covered, well-informed, adequately protected and able to navigate the nuances of short-term insurance policies.