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ombudsman news

issue 23

December 2002

insurance renewals

Insurers want to make it as easy as possible for their customers to renew their policies and it is normal market practice for them to notify policyholders when a policy is about to expire. It is now it is a requirement under the General Insurance Standards Council's Code that firms should do this in good time. This is a useful service for many customers.

Most insurers want policyholders - when they renew - to disclose any changes in their circumstances that might be material. But there are wide variations in how clear firms make this to their customers. Frequently, policies are renewed without any specific questions being asked of customers other than about their credit card details. And in a case 23/15, the firm's renewal letter to the customer opened with the words " If you want to renew then do nothing, it's that easy".

If a customer fails to disclose relevant information when renewing a policy, the firm might reject the whole claim. We take the view that if the firm wants to reject a claim on the grounds of a customer's failure to disclose information, then it should be able to show that it asked the customer clear questions when the customer renewed the policy.

Customers cannot be expected to remember all the details of information they provided perhaps several years earlier. So if firms ask them general questions such as "has anything changed in the information we asked for in your proposal form-" when they are renewing a policy, the responses are unlikely to be reliable.

We will not normally support a firm in declining a claim if it asked a similarly general question when a policy was renewed, and it then bases its rejection of the claim on the customer's failure to provide full disclosure of information in response to the question.

Our general approach to renewals is to apply the spirit of the Statement of General Insurance Practice. That is, to expect firms to ask clear questions about information that the policyholder can reasonable expect to possess.

If a firm wants policyholders to check and re-confirm all the information they provided originally, then it is good practice for the firm to send them a copy of that information, or to ask all the questions afresh. A firm that does not follow good practice may not be able to use a customer's failure to provide information as a reason to decline a claim.

Of course, the fact that a firm may not set out its questions clearly does not absolve the policyholder of all responsibility for disclosing relevant information. In case 23/15, for example, although the firm had not set out its questions at all clearly, the policyholder should have known that his insurer would have wanted to know about his drink-driving offence.

case studies - insurance renewals

23/11
household contents - renewal - change of policy terms - whether sufficient to note amendment on renewal documents

In 1984, Mr K took out index-linked household buildings and contents insurance. This included cover for his personal possessions, which were valued at £9,150 in total. He renewed the insurance every year. However, when he was burgled in 2001, the firm rejected most of his claim. It said that some of the personal possessions that had been stolen were worth more than £500 each and that such items were not covered unless they were insured separately.

Mr K was very surprised by this. He said he had no reason to think these possessions were not covered, as they were items of jewellery that his wife had owned since he first took out the insurance in 1984. He pointed out that the firm's promotional literature stated "New for Old Replacement means exactly that" and that it promised "Reimbursement in full at today's prices, whatever the original cost". The literature also said that index-linking "automatically takes account of inflation when assessing claims and renewal premiums". Since none of the stolen items of jewellery had been worth more than £500 in 1984, he considered that they should all still be covered.

The firm based its rejection of the claim on the renewal notices that, since 1991, had stated, "any item worth more than £500 is not insured at all unless specified". The firm said that Mr K should have noticed this and made sure that each item of expensive jewellery was individually specified.

complaint upheld
We considered that the firm's decision to exclude all personal possessions worth more than £500 constituted an unusual and onerous policy term. And such policy terms should be clearly drawn to the attention of policyholders. It is not sufficient for firms merely to print them on the renewal notice without giving policyholders any explanation or notice of the change. Most insurance policies contain a price limit on claims for any single article but it is not common for a firm to withdraw all cover for such items.

The firm knew that Mr K had over £10,000 worth of personal possessions and it should have made it clear to him that he had to specify any item over £500. We concluded that the firm was unreasonable to limit its settlement of Mr K's claim on the grounds that the claim did not meet strict policy terms that the firm had not made clear to him. We required it to meet his claim in full, although we said it could deduct the additional premiums it would have charged for the past five years if Mr K had specified the valuable items.

23/12
household buildings - change of policy terms - need for clear notification - swimming pool dome - dome specifically excluded from policy - intermediary stating policy covered dome - whether insurer entitled to reject claim for storm damage to dome

Before Mr and Mrs A took out household insurance with the firm in 1994, they asked their intermediary if the policy would cover the PVC dome over their swimming pool. The intermediary wrote to them confirming that the dome would be covered "at no extra cost" so they took out the insurance and renewed it each year.

In October 2001, a storm damaged the dome and Mr and Mrs A made a claim. However, the firm told them the policy specifically excluded swimming pool covers. Mr and Mrs A disputed this and said that if the policy wording had been amended, the firm should have informed them.

The firm argued that swimming pool covers had probably been excluded even in 1994, although it could not produce a copy of the original policy to confirm this. It said Mr and Mrs A should have checked the policy terms at the outset to see if the policy was suitable for them. Dissatisfied with this response, the couple brought their complaint to us.

complaint upheld
Mr and Mrs A had specifically asked whether the policy would include their dome and in our view they were entitled to rely on the intermediary's letter as confirmation that the dome was covered. It was not reasonable of the firm to expect the couple to have then checked the policy terms to see if the intermediary's statement was true.

The couple had every reason to believe that the dome was covered when they first took out the policy. There was nothing to suggest that the firm had subsequently altered the policy terms and notified its customers that it had done this, so we did not agree that it should have rejected the claim.

The firm agreed to meet the claim, but said it would not cover the swimming pool dome against any loss after Mr and Mrs A's current insurance expired.

23/13
motor - renewal - firm choosing not to invite renewal - whether policyholder entitled to compensation when policy not renewed

Shortly before Mr E renewed his car insurance in February 2002, the firm wrote to tell him that it was transferring customers to a subsidiary. It said Mr E would not be able to renew his policy. The subsidiary had different underwriting criteria and was not prepared to insure him because of the number of claims he had made.

Mr E was upset about this decision, saying it was a "one-sided variation" of his policy. He did not think the subsidiary was reasonable to have counted windscreen damage as a "claim". He said he was entitled to £300 for distress and inconvenience and he asked for his policy to be reinstated.

complaint rejected
The insurance contract was an annual policy and the firm was entitled to decide not to offer renewal. It was also entitled to decide how many claims policyholders could make before it would decline to insure them. We did not agree that the firm had exercised its discretion unreasonably or that Mr E's complaint was justified.

23/14
motor - renewal - automatic renewal - failure to pay premiums - whether policy should have been renewed - whether subsequent loss covered

Mr H had insured his car with the same firm since 1994. He renewed his policy every year and, from 1997, the firm had renewed the policy for him automatically.

So after he had an accident in October 2001, he was shocked when the firm rejected his claim, telling him he was no longer insured. The firm said that Mr H had telephoned in April 2001 to say he had decided not to renew. It said it had subsequently written to him to confirm his instructions.

Mr H denied this. He said he had no idea that his insurance had lapsed and he had not noticed that the monthly premiums were no longer being deducted from his bank account. The firm told him he should have realised he did not have a valid policy.

complaint upheld
We asked the firm to send us a recording of the telephone conversation in which Mr H had said he would not renew his policy. But it could neither do this nor supply any notes of the conversation. Nor could it produce a copy of the letter it said it had sent Mr H, acknowledging his decision to cancel the policy.

As the monthly premium was small, we were not surprised that Mr H had failed to notice that the deductions from his bank account had stopped. We thought he should have noticed that he had not received a new certificate, but we accepted his statement that he believed the policy had been renewed automatically, as usual.

We put it to the insurer that Mr H had intended to renew his insurance and his failure to do so was an innocent oversight. It agreed to reinstate the policy and to reimburse the cost of repairs plus interest, subject to his paying the outstanding premiums.

23/15
motor - renewal - non-disclosure - automatic renewal - whether firm made policyholder aware of need to disclose change of circumstances

Mr J's motor insurance was due for renewal on 30 January 2001. The firm sent him renewal papers, including a letter that opened with the line "If you want to renew then do nothing, it's that easy". Further on, the letter said, "If your details aren't the same, then please ring us".

The letter referred to the premium being based on "the details we already have on file for you. These are listed for you on the enclosed renewal notice". However, the renewal notice did not include any information about driving offences or accidents. At the end of the letter, there was a checklist that included a request to call the firm if any details such as "convictions or prosecutions" had changed.

Mr J's car was stolen in July 2001 and the firm found out that he had been convicted of a drink-driving offence on 11 January that year. So it told him that it would not meet the claim and that it was cancelling his policy from the date of the renewal.

Mr J said he had been away from home until February 2001, but that he had called the firm then and disclosed his conviction. The firm agreed that he had called, but it said he had not mentioned his conviction. It said he had only asked about reducing his cover from comprehensive to third party, fire and theft.

complaint rejected
We did not think that the firm's renewal invitation made it clear that policyholders had to disclose new information to the firm. So we did not think it was entitled to decline to meet claims on the grounds that a policyholder had failed to disclose routine information, including minor offences.

It was regrettable that the firm did not record its telephone conversations with customers, since a recording would have resolved the dispute. In the absence of a recording, we had to decide what had occurred on a balance of probabilities.

We thought it highly improbable that any member of the firm's staff would have overlooked the significance of Mr J's being disqualified from driving. If he had mentioned it, we thought the firm would have said it was not prepared to offer him cover on any basis.

We also thought that any driver would know their insurer would consider the conviction and disqualification highly significant and would realise they had to disclose this when renewing their insurance. So we decided that in this particular case the firm acted reasonably in cancelling the insurance from the date of renewal.

Walter Merricks, chief ombudsman

ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.