IN YOUR CORNER
You can be dumped by your insurer, even if you play nice
Rather switch to another insurer if your payouts are in danger of exceeding the premiums you’ve made
“We hereby advise that we give you 30 days’ notice to cancel this policy with effect from September 7, due to a unsatisfactory claims history. We trust you find this to be in order …”
Well, no, Samantha Lapan of Primrose, Gauteng, didn’t find that letter from Frontline Insurance at all satisfactory, especially as it came via her broker, who added: “Unfortunately, we will not be able to place you with another insurer, as Frontline Underwriters is our preferred domestic policy underwriter.”
Lapan took out the policy in December 2014, paying a monthly premium of about R2,000 to cover two cars and household contents.
In the next two years, she claimed for three cracked windscreens, costing the insurer under R10,000, while she paid in the region of R48,000 in premiums.Then came a rash of claims, none of them major: in June last year, broken glasses (R3,500); the following month, a burst geyser (R10,600); and the month after that, another geyser claim (R10,250).
So the insurer paid out almost R25,000 in three months, and the red flag must surely have gone up at that point.
The next 11 months were claim free, but last month she put in a car accident claim of just under R30,000, and that’s what prompted the “unsatisfactory claims history” label, and the curt cancellation.
“Life happens, which is why we pay insurance premiums,” she told In Your Corner.
“No red flags were ever raised or discussed with us, nor was there any negotiation about charging us higher premiums or introducing an excess for claims. This has taken us totally by surprise and not in a good way.”
Having a policy cancelled by an insurer is usually catastrophic if you find yourself suddenly and involuntarily uninsured.
All insurers ask those applying for cover: “Have you ever had an insurance policy cancelled by the insurer?” and a “yes” answer means the application is declined in most cases.
The ramifications of that are huge – for starters, banks financing vehicles require them to be insured.
Most people who’ve been dumped by their insurers battle to find alternative cover. If they do find an insurer who will take them on, they have zero negotiating power so both the premiums and excess payments are inflated, and there can be exclusions too.
With that in mind, I asked Frontline why Lapan wasn’t warned that her policy might be cancelled and advised on how to mitigate that.“Why not warn policyholders that they are one major claim away from having their cover cancelled so that they can choose to cancel and seek alternative cover while they still have a chance?”
Responding, COO James Bonner said the company had “reconsidered our position and agreed to rescind the notice of cancellation for this policy. We concur with your sentiment and would certainly not wish to unduly prejudice any of our clients.”
The claims history since inception was “reasonable”, Bonner said, “yet the last two years or so has seen a deterioration”.
The determination of a client’s loss ratio – claims paid versus premium received – is usually conducted by an analysis of the previous three-year period,” Bonner revealed.
In Lapan’s case, the loss ratio for the preceding three years was 94%. “And prior to inception with us she declared five claims over the previous three years. But we agree that we could have handled this particular engagement in a better manner.”
Frontline is to propose a revised policy to Lapan, applicable from October 1.
Last week a Durban policeman, who asked not to be named, contacted me after King Price gave him a month’s notice of the cancellation of his policy.
Sadly my intervention didn’t change things for him because his claims history is an insurer’s nightmare: in the three years since he took out the policy, he’s claimed six times – for three burglaries and three car accidents – with a total payout of R261,000.“In coming to this decision, our ratings department considered his current loss ratio and specific circumstances with regards to the risks on cover,” said King Price’s head of legal, Wynand van Vuuren.
“We currently cancel less than 0.01% of our book due to the risk becoming uninsurable as a result of claims history,” he said. “We are working on a model where the client’s premium will be amended according to his claims history – this will avoid cancellations and their unfortunate ramifications in the future.”
But the policeman remains indignant. “I never did anything fraudulent, never missed a premium, the accidents were unavoidable, and I have spent a lot of money on home security. What else must I do?”
Rather jump than be pushed
Both insurance companies and their policyholders have the right to cancel the contract with a month’s notice, without reason, yet many consumers believe an insurer only has the right to “offload” them if they’ve committed fraud, failed to pay their premiums, or breached the contract in some other way.
“Insurance is based on the concept of the premiums of the many compensate the claims of the few,” said Susan Walls, technical advisor at the SA Insurance Association (SAIA).
“Each insurer has their own underwriting criteria which will result in different terms and rules. SAIA encourages consumers to engage with insurers and or brokers to understand the requirements.”
If you’ve had a spate of claims in a short period, and your payout was more than what you paid in premiums over that time – you run the risk of getting that cancellation letter from your insurer.
Rather switch to another insurer before that happens.