IFSO Case Study

Last year, the IFSO Scheme received over 1000 complaint enquiries about vehicle insurance. By comparison, we receive very few complaints about financial advisers. 

However, your guidance can significantly improve your clients’ understanding of insurance cover and the claims process. Complaints, and insights from complaints, can be help clients avoid declined claims and future issues. 

Often insurers and advisers assume clients understand policy wording. One way to demonstrate your value is to check whether your clients do understand their policy: simplify the language, clarify the cover and explain exclusions and the claims process. The best time to understand insurance policies is before you need them. 

Understanding vehicle insurance

Remind your clients to:

1. Check the policy 

While all policies are different, often clients assume they are covered for just about everything. One common question we get asked by clients is why they have to pay an excess. You may be surprised at how many clients don’t understand the limitations on excess provisions in policies.

Case study 00209471: 

Paying an excess when it’s not your fault

Diane’s* car was stolen and later found damaged. Diane made a claim and asked the insurer to refund the policy excess, as she had not been at fault. She understood the insurer would be able to seek payment from the offender, who had been charged by police.
Diane’s policy specified that an excess was payable except in limited circumstances, which involved an “accident with another vehicle”. As the damage was caused when Diane’s car was stolen, rather than damaged in an accident, she had to pay the excess.
Complaint not upheld. 

2. Check the amount your client is insuring their vehicle for

In the event of a total loss, clients can expect their policy to pay out the full sum insured. Many won’t appreciate the difference between agreed and market value policies. Taking a moment to explain this to clients could save them a nasty surprise at claim time.  Clients who disagree with the sum insured, or the value put on their car if it is a total loss, should be encouraged to get an independent valuation to support their challenge to the insurer.  

Case study 00209788: 

Car written off, pay-out less than expected 

Kelly’s* car was damaged in an accident. The insurer assessed repairs at $16,374.85. The pre-accident market value of the car was $6,500, which the insurer then increased to $7,500 to take into account the new alloy wheels. Kelly believed the claim should be settled for the $10,500 sum insured (as specified in her policy schedule), not the $7,500 market value.  The policy said the maximum the insurer would pay is the lesser of the sum insured or the market value. In this case, the market value of $7,500 was less than the $10,500 sum insured.
Complaint not upheld. 

3. Check the car, warrant, tyres 

Many car owners don’t appreciate that, if their car does not have a warrant or is generally unsafe or unroadworthy, then a claim can be declined. A simple reminder to clients in your newsletter or on social media might make all the difference. 

Case study 112531: 

No tyre tread, no cover

In March 2007, Charles* insured his Subaru Legacy. In May, he lost control in wet weather and crashed it. He made a claim, and his insurer’s assessor confirmed the car was a total loss. After the accident, the police issued Charles with infringement offence notices, which included reference to “operating a vehicle with a smooth tyre”. Reports from the police, the assessor and the tyre specialist confirmed one of the tyres had barely any tread. 

Having a warrant, which the vehicle did have, doesn’t automatically make a car warrantable at the time of the accident. The vehicle’s owner is responsible for ensuring it is safe and roadworthy. Charles’s claim was declined due to a policy exclusion which says there is no cover if an accident occurs when the car is not in a safe or roadworthy condition. Charles argued he didn’t know about the tyre, and it didn’t cause the accident. However, there was enough evidence to show he did know, or should have known, about the smooth tyre and it contributed to losing control of the car in wet weather.
Complaint not upheld. 

4. Tell all and tell the truth 

Many clients don’t understand their obligations to disclose all material information when they arrange insurance. We see many cases where claims are declined, because clients didn’t disclose because they forgot, or because they thought the information wasn’t relevant. Equally, some do not appreciate the consequences a “white lie” can have on a claim and their future insurability. Your role is key in helping clients understand why they must disclose everything and always tell the truth. 

Case study 13114: 

A car bumped into me – ah, no it didn’t!

Mr and Mrs Jones* held third party liability insurance and Mr Jones made a claim after his car was damaged, as he said another car hit him from behind. His insurer told Mr Jones that as he only held third party insurance cover, any repairs would have to be paid by the other driver’s insurer. Roger*, the other driver, told his insurer he was involved in the accident, but he didn’t hit Mr Jones from behind; rather, Mr Jones came to an abrupt halt at an orange light causing Roger to drive into the rear of the car. A claim was lodged with Roger’s insurer for liability only. When Roger’s insurer appointed an investigator to make enquiries, Mr Jones asked for the claim to be withdrawn, but it wasn’t his claim to withdraw. Mr Jones contacted the insurer and admitted to telling a “bit of a lie” in the original claim. But it was too late. The insurer cancelled the policy and a red alert was placed on the Insurance Claims Register (ICR)  against both Mr and Mrs Jones, as they were joint policyholders.

Complaint not upheld.

5. Drive carefully and safely and comply with licence conditions

“Drive carefully and safely, be aware of alcohol limits, and stay within your licence conditions or your insurance company may not pay out if you make a claim” is a key message for clients. If learner or restricted licence holders are in breach of their licence conditions when an accident occurs, they (or, in some cases, their parents) will have to pay for the damage - not only to their own car, but to the other car or property. 

Case study 130105: 

Teenage son flips parents’ car, restricted licence, no cover

Simon*, who was on a restricted licence, crashed his parents’ car. He got distracted by a noise coming from the gear box, the front wheel caught the side of the road and the car flipped on its side. Simon’s sister Denise*, who also had a restricted licence, was in the passenger seat. The claim was declined because, at the time of the accident, Simon was driving outside the conditions of his restricted driver’s licence. 
Simon’s parents argued the exclusion shouldn’t apply, because the breach didn’t cause or contribute to the accident. But there was no evidence to contradict the conclusion that a suitably qualified driver in the car could have helped prevent the accident.
Complaint not upheld.

Case Study 138950: 

Stan’s expensive unsupervised drive

One night after 10pm, Stan* was driving a car owned by his family Trust when the car in front of him stopped suddenly at a pedestrian crossing. The resulting collision damaged both cars.   The Trust made a claim, which was declined, as Stan was driving in breach of his restricted driver’s licence, without a suitably qualified driver after 10pm, and this was excluded from cover.

The law states that if the breach of licence did not cause or contribute to the accident, insurers can’t decline the claim on the basis of this exclusion. However, it’s up to the insured to prove, on the balance of probabilities, that the breach of the licence did not cause or contribute to the accident. In practice, this can be difficult to prove.
In this case, the Trust said Stan was an experienced driver, and the breach did not cause or contribute to the accident. The IFSO Scheme case manager accepted that Stan’s accident may still have occurred with a suitably qualified driver present. However, on the balance of probabilities, a suitably qualified driver could have assisted Stan by: 

•    identifying and navigating the pedestrian crossing hazard, particularly when he was driving in an unfamiliar area at night 

•    being a second set of eyes, alerting Stan to the stopped vehicle in front of him .

The Trust had not proven, on the balance of probabilities, that Stan’s breach of licence did not cause or at least contribute to the accident. 

Complaint not upheld. 

Case Study 114343: 

Blood alcohol excess, excluded from cover  

After attending a function and drinking some beer and a bourbon and coke, Tim* had an accident, injuring himself and damaging his car.

Tim’s wife’s claim for damage to the car was declined because Tim was over the legal blood alcohol limit, which was specifically excluded by the policy. 

Tim argued the road conditions and visibility were poor and he was not driving in excess of the speed limit. However, the ESR report said Tim’s blood alcohol level was more likely than not to have impaired his driving ability. Tim had not proven, on the balance of probabilities, that his blood alcohol level did not cause or contribute to the accident.  

Complaint not upheld

*Not real names

Sept 2019

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