South African Insurance Association

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Underwriting at Claims Stage

The National Treasury recently raised concerns regarding the practice by insurers of verifying only at claims stage information provided by policyholders at the underwriting stage.

Underwriting at claims stage is a practice where insurers only obtain or check information material to their willingness to enter into an insurance contract, or which may influence the cost of the insurance at the time when a claim arises. Underwriting at claims stage can take the form of conducting credit checks and finding previous insurance cancellations not disclosed or misrepresented. Poor underwriting at underwriting stage promotes this practice.

Although, it is acceptable industry practice to test the policy terms and conditions applicable and verify information provided by the policyholder at claims stage, so as to apply the policy terms correctly, the concern arises when insurers, although having access to avenues and/or repositories to verify policy and claims information at the underwriting or sales stage choose to do so only at claims stage.

According to the Ombudsman for Short-Term Insurance (OSTI)’s annual report for 2017 released in April 2018, the second highest cause for complaints was repudiations based on a policyholder’s alleged misrepresentation of underwriting details at sales stage.

Examples include misrepresentations about regular driver details, previous insurance and claims history, credit history, security devices and whether the vehicle would be used for personal or business use.

SAIA does not support any practice where the insurer only obtains material information which would have determined its willingness to enter into an insurance contract or which may influence the cost of insurance, at claims stage. The SAIA Code of Conduct states that all material information must be obtained by the member at the time of underwriting and not at claims stage. An agreement or undertaking to provide additional information/documentation subsequent to the initial underwriting shall be an acceptable practice.

SAIA is committed to a sustainable insurance sector which inspires confidence in stakeholders and adds real value to consumers. Any market conduct by SAIA members which is prejudicial to the consumer is investigated and addressed with the respective member.
SAIA continues to encourage members to be meticulous during the underwriting stage as this results in fair customer outcomes.

For more information contact:
Mashudu Mabogo, SAIA Legal Manager