Karen Stevens, Insurance and Financial Services Ombudsman, says the best time for consumers to undersand insurance is before they need it.
“It’s both our message to consumers, and to financial advisers who belong to the IFSO Scheme. Advisers should ensure their clients understand what they are signing up to, what their obligations are, and how to avoid getting caught without cover,” she said.
“Many of the complaints we investigate at the IFSO Scheme could have been better managed from the beginning, with clear communication and information. Managing client expectations up front is the only way to avoid disappointment later.”
“Disappointment often leads to complaints,” Stevens said.
“If people know what to expect from the beginning - the limits of their cover or what they will need to do for a successful claim - complaints can be avoided.
“Some people have unrealistic expectations that insurance will cover any and every unexpected loss. Many don’t understand how the claims process works, and what they need to do to prove they have suffered a genuine loss.
“In the same way as we urge consumers to check their policy and keep asking questions, we also encourage advisers to provide good information to guide the process from inception to renewal, and during claims.”
Common misunderstandings are highlighted in the following complaint inquiries and complaints received by the IFSO scheme. “Complaint inquiries are any questions we receive on our 0800 number, our info email, or online, whereas complaints have been accepted for investigation, and go through our disputes resolution process.”
“By sharing real examples of when and how things go wrong, our hope is to give you the opportunity to get it right first time - by understanding the issues and engaging with your clients.”
Real Life cases
Excess is a common issue in complaint inquiries and complaints to the IFSO Scheme. At inception and at renewal, advisers could help clear up misunderstandings by explaining what an excess is, why it exists, and how and when an excess would apply to a claim.
Not my fault
Colleen’s* car was hit by a van and damaged. The party at fault in the accident wouldn’t respond to her calls. Colleen didn’t want to pay an excess upfront when she is not at fault.
A rat chewed through two ends of the one pipe over a few days in Chloe’s* house. The insurer applied two excesses to the water damage claim, as it said the damage was caused by more than one event.
Car accident, not “completely free of blame”
Eric’s* car was damaged in an accident, which occurred when Eric and another driver reversed at the same time. The other driver said Eric reversed into the door on the driver’s side of his vehicle. Eric disputed this.
The insurer accepted Eric’s claim, but didn’t believe Eric was “completely free of blame” (as required by the policy for the excess to be waived), as there were two different versions of the facts. The excess of $400 applied.
The IFSO scheme case manager said there was no independent evidence available. Therefore, the insurer’s decision (that they couldn’t confirm Eric was “completely free of blame”), was reasonable in the circumstances. To show he was “completely free of blame”, so the excess could be refunded, Eric could have taken the matter to the Disputes Tribunal or provided more evidence.
2. Prima facie claim
At claim time, advisers can assist clients to understand, and have realistic expectations about, the claims process and about their obligations and options. The mystery of the prima facie claim is the cause of up to 20% of general insurance complaints.
“We break it down for consumers by explaining that, to make an insurance claim, they need to show they have nsuffered a loss, and that loss must be covered by the policy,” says Karen. “This is the prima facie claim. If the insured has no proof to demonstrate these points, the claim can be declined. Financial advisers can really help by explaining what the requirement to prove a prima facie claim involves, including explaining how to prove the loss and prove ownership.”
Burst pipe, not sudden, no cover
Colin* noticed water damage in his house. He said it was from a burst water pipe inside a retaining wall. Colin said he cannot access inside the retaining wall to see exactly what happened as it is too expensive. The insurer declined the claim on the basis that Colin had not proven the damage was sudden and unexpected.
Earthquake claim, not earthquake damage
Kim* made a claim for damage to her house following the Kaikoura earthquakes. The insurer declined the claim on the basis that the damage did not occur as a result of an EQ.
No receipts for jewellery
Tim’s* home was burgled twice, but he didn’t have receipts for the stolen jewellery. The insurer said the photos Tim provided weren’t sufficient proof and declined part of Tim’s contents claim.
Boat engine damage
Sam’s* boat engine was damaged when a bag got stuck, causing water to spill into the motor. Sam had an engineer’s report to support this view, but the insurer had two reports supporting mechanical damage, which was excluded under the policy. The insurer offered to cover 50% of the claim.
Linda* claimed several items of jewellery had been stolen from her home during a number of burglaries. Her insurer appointed a loss adjuster who reported there was no evidence of forcible entry and no proof of ownership. Linda had claimed the jewellery had been stolen by a carer employed by her healthcare provider. The healthcare provider investigated and reporter it had been unable to establish a loss had occurred.
The insurer then appointed an investigator. Based on his enquiries with Linda’s family members and the healthcare provider, he reported there was no evidence to support the claim.
Linda’s policy covered “accidental loss” of contents where “loss” was defined as “[p]hysical loss”, and “accidental” as “[u]nexpected and unintended”. On the claim form, Linda stated the thefts occurred “several times … about two weeks ago” and, to the question “Do you think that any other person is responsible for the loss or damage?”, Linda answered she suspected the carer.
The police report contradicted the information in the claim, as it stated the jewellery had been taken from the house “over a period of two years”. The healthcare provider reported Linda had “noticed items being missing over the last few years … [and Linda had] said … ha[d]n’t seen them in months”.
There was no evidence of burglary or forced entry and the carer had been an invited guest to the house. There was no information or evidence of “[p]hysical loss”.
The insurer informed Linda it was unable to accept the claim, because she had not proven she had suffered a loss at the house during the period of insurance.
3. Gradual damage
Of all the general insurance complaints to the IFSO Scheme, 12% relate to gradual damage. “We hear from many people who don’t understand that insurance is there to cover you for damage which happens suddenly and accidentally, and not for damage that happens gradually,” says Karen. “Water damage is a recurring issue, especially when the damage is discovered suddenly, but has been happening over time. We explain it is not the discovery, but the cause, of the damage that must be sudden.”
Slow leak from washing machine
Jane’s* tenants did not tell her the washing machine had leaked, causing significant damage. Jane wanted her insurer to contribute to the cost of repairing the damage.
Flooded basement, sinking driveway
Sue’s* basement cupboard flooded in a sudden rain event, and months later she discovered the driveway sinking in the middle. The insurer declined the claim as it said it was gradual damage caused by the basement, but Sue said the damage was caused by the rain event.
4. Market v Agreed Value
“The difference between market and agree value in vehicle insurance is another really common complaint area,” says Karen. “Financial advisers could make a big difference by taking time at inception to explain to clients the type of vehicle insurance policy they are signing up to and what to expect if their vehicle is written-off in future.”
Both Bill and June disappointed by payouts
Bill* understood he insured his car for $8,000. After the car was written off in an accident, he was paid out $3,500 by his insurer.
June’s van was written off and the insurer offered a $4,000 payout. June said vans of the exact same year, condition, and kms were selling on Trademe from $6,000 to $9,000. June said the insurer was valuing her van low on purpose to drop its payout figure. The insurer asked June to get three valuations of the van. June said that was the insurer’s job. She said finding out what cars sell for is easy on the internet and using a valuer paid by the insurer is not independent.
*Not real names.