Business Brief

When concluding an insurance contract, disclosing all material facts relevant to assessing the risk and the premium to be charged is essential. Non-disclosure of some information, whether deliberately or by omission, may be considered a material misrepresentation, which can have dire consequences at claim stage. Misrepresentation is regarded as a statement of fact which is false or misleading. If this misrepresentation is material or substantial, it may lead to the validity of the contract to be re-evaluated. This could have adverse consequences for a policyholder.

In insurance, a duty of good faith is expected from both the potential policyholder and the insurance company, which attaches weight specifically to the responsibility of disclosure. Life insurance companies are within their rights not to pay out a claim and declare a policy void should it come to light that a policyholder was dishonest or failed to disclose important details when they took out the policy. The Association for Savings and Investment South Africa (ASISA) cautions that “anything other than full and honest disclosure” is a very short-sighted approach likely to leave policyholders or their families without cover when a devastating life event occurs.

It is generally accepted that an insurance policy applicant knows more about the risk being insured than the insurer, which is why insurers ask for complete honesty. All information influencing the assessment of the peril being insured must be disclosed. Information generally regarded as material includes medical history, health status, family history and lifestyle. It is better to give more information than to withhold some.

When insurers have information at their disposal, they can determine the exact risk relevant to each applicant. This is important because it allows the life insurance company to adjust premiums for different risk categories, ensuring that every person pays a fair premium without subsidising someone else.

More is always better

If an applicant is unsure whether the information is essential, it is better for them to disclose it and let the underwriters decide whether it is material. Depending on the information disclosed, a life insurer may request a medical assessment (e.g., blood tests, a doctor’s report or X-rays) to determine the severity of a condition.

Where an insurer deems an applicant’s health or lifestyle to have a higher risk, they may offer the cover with terms, i.e., with loadings (charge a higher premium) and/or exclusions (exclude a particular condition, but cover all other conditions), or they may defer the application – pending the outcome of a certain procedure, investigation etc. In a small percentage of cases, the applications are declined.

While it may seem tempting or innocent to keep quiet about specific medical conditions or pending medical investigations or procedures, investigations may likely be carried out if a claim arises.

Here are some tips to follow to safeguard a member from non-disclosure when applying for cover:

• Let members complete the application form themselves, especially the medical and lifestyle questions.
• Be honest about their lifestyle habits, e.g., if they smoke or drink.
• Never sign a blank application form.
• Disclose all medical conditions, past, present and future (if known).
• As some illnesses are hereditary, disclose any known medical conditions of parents and siblings.
• Let PPS know if their health or circumstances change, even after the cover is granted (e.g., if they start or stop smoking). Keeping us informed will allow us to price the new risk correctly and give the member peace of mind knowing exactly what they are covered for.

Non-disclosure of known material facts significantly impacts PPS and the life insurance industry as a whole. Having all the relevant information helps insurance companies to assess and price the risk pool and avoid cross-subsidisation between the different risk pools. PPS was founded by a group of dentists who wanted to protect each other, knowing that they would be there for each other. Now, 82 years later, this same premise is still what we stand for. We exist to pay all valid claims.

By each member being honest at the application stage and throughout their membership with PPS, we can price our risk appropriately, meet our members’ expectations by paying all valid claims and return operational and investment profits to our members in the form of allocations to the notional PPS Profit-Share Account^TM.  It is the virtuous circle of mutuality. 

By Motshabi Nomvethe: Head of Technical Marketing

PPS is a licensed insurer conducting life insurance business, a licensed controlling company and an authorised FSP.