When a customer makes a claim, an insurer may find something which they think suggests that the customer misrepresented information when they took out a policy.
The insurer might argue that if the customer had given true answers, it would have acted differently. As a result the insurer might:
- want to charge more for the policy (where there’s been no claim)
- retrospectively apply a restriction to the policy – which means the claim may be declined
- settle a claim proportionately
- avoid the policy – which means the claim will be declined
Types of complaint we see
When we receive complaints, consumers tell us that:
- they haven’t made a misrepresentation
- their insurer has treated them unfairly by either not meeting their claim, or by altering the terms of their policy
Handling a complaint like this
When you receive a complaint about misrepresentation, you need to use The Consumer Insurance Disclosure and Representations (CIDRA) Act 2012. When a customer buys or renews an insurance policy, CIDRA says the customer needs to “take reasonable care not to make a misrepresentation”.
When you’re deciding if a customer has taken reasonable care, you’ll need to think about:
- the type of policy taken out
- any documentation you gave to the customer
- how clear and specific the questions were
- Whether they met the standard of care of a reasonable customer
- whether an agent was involved, like an insurance broker
If the customer didn’t take reasonable care and misrepresented some information that affected the policy, you’ll then decide whether the misrepresentation was careless or deliberate.
If the customer did take reasonable care, then even if there was a misrepresentation, you can’t take any action against the customer.
You should reply to your customer within eight weeks. If you don’t reply within the time limits, or the customer disagrees with your response, they can bring their complaint to us. We’ll check it’s something we can deal with, and if it is, we’ll investigate.
We’ll expect you to be able to show us that you’ve investigated the complaint thoroughly and that you have reflected carefully on the circumstances.
Find out more about how to resolve a complaint.
What we look at
We want to know that you acted fairly if you decide there’s been a misrepresentation. So if a customer complains to us that they haven’t been treated fairly, we’ll consider your obligations under The Consumer Insurance Disclosure and Representations Act 2012 (CIDRA) and look at whether:
- the questions you asked were clear and specific
- the information you were given was incorrect or incomplete
- you would have done anything differently if you’d been given the correct information
- you’ve been fair in the way you’ve handled the misrepresentation
If the information given to you by the customer was incomplete or incorrect. You need to provide evidence showing:
- what question was asked
- what answer was given
- that the answer was incorrect
Examples of evidence we might ask to see include:
- recordings of the sales call
- copies of the application form (also called a proposal or statement of fact) completed by the policyholder or showing the answers the customer gave
- screenshots of the online application
The questions you ask should be clear. If questions aren’t clear, this could lead the customer to give an incorrect answer.
Sometimes it’s acceptable that customers haven’t told insurers certain information. This could be when the information:
- is something the customer doesn’t know or couldn’t reasonably have been expected to know
- is something you should reasonably be expected to know
- isn’t relevant because you have waived your right to know it
- reduces the risk to be covered by the policy
- is covered under the Rehabilitation of Offenders Act 1974
If the information you’ve been given was incorrect or incomplete, we’ll look at whether you would’ve offered the insurance policy on different terms. You’ll need evidence to prove the misrepresentation made a difference. Evidence we might ask to see includes:
- your underwriting guide (or underwriting guidelines) which outlines what you would’ve done in certain situations
- an explanation of the sales process
- a written statement from an underwriter explaining what you would’ve done
The evidence we might ask to see will differ from case to case. We might be persuaded by a written statement from an underwriter in one case, but not in another.
We take the approach that whether or not the customer took reasonable care depends on a number of factors including:
- the exact question asked
- the circumstances of that specific customer at the time they answered the question
Customers are only expected to take the level of care of a reasonable consumer. It might not be reasonable to expect a customer to remember exactly when certain events happened, or to know off the top of their head the answer for a joint policyholder. In some cases, it might not be reasonable to expect a customer to know the answer to a question at all.
But the customer still has to take reasonable care not to make a misrepresentation. So if a customer is unsure of the answer to a question, it's reasonable to expect them to find out the answer.
CIDRA sets out what actions the insurer can take when the consumer fails to take reasonable care. What actions the insurer can take depends on how it’s treated the misrepresentation.
If the misrepresentation was deliberate or reckless the insurer can avoid the policy and keep the premium. If there’s an ongoing claim on the policy, the insurer would be entitled to refuse it.
If the insurer thinks the misrepresentation is either deliberate or reckless, they’d need it to show us why. If we’re not satisfied with their reasons, we’re likely to say the misrepresentation was careless.
Where the misrepresentation was careless the insurer’s response should be based on what they would have done if the consumer had taken reasonable care and given the correct answer to the question they were asked.
Charging more for a policy
If you would still have offered a policy but charged more for it, you should still consider the claim. If the claim is valid, you should settle it based on the proportion of premium the policyholder paid compared to what they should’ve paid.
So if the customer paid £100 premium, but they should have paid £150, they’ve actually paid two-thirds of the premium. This means you should pay two-thirds of the claim.
Offering different terms
If you would still have offered the policy, but on different terms (apart from charging more), you may retrospectively apply those terms. If there’s an ongoing claim, you may consider the claim subject to those amended terms. This might mean the customer's claim isn't now covered because you’ve applied extra conditions or exclusions to the policy, and the customer didn't meet them.
If you would have charged more and altered the terms, you can consider the claim based on the revised terms, and then settle it proportionately. For example, if you would have applied a limit for valuables of £10,000 and charged double the premium, it might be fair to apply the £10,000 limit if the valuables claimed for are over £10,000 and then pay £5,000.
But where you offer consumers the option of paying an additional premium to continue cover, throughout the lifetime of the policy, we’re only likely to think that’s fair if the consumer has understood that this is optional and has agreed to pay it. Otherwise, the usual remedies under CIDRA will be the only ones available to you.
Avoiding the policy
If you wouldn't have offered the policy at all, you’re entitled to avoid the policy. This means the policy will be cancelled from the date the misrepresentation occurred – either the start of the policy, a later renewal or if mid-term when the misrepresentation was made. If there’s an ongoing claim, you won’t have to pay it because the avoidance will mean that there was no policy in force when the damage occurred.
In these cases, you’ll need to refund the customer’s premiums back to the date of avoidance. That’s because the policy wasn’t in force for that time anymore. We wouldn’t expect a customer to pay for a policy they didn’t have.
Before the policy starts
It may be that your customer didn't tell you about something that happened between signing the application and the policy starting.
If you made it clear to your customer that you needed to know if any of the information they’d given you had changed – and they don’t tell you, we might consider it fair for you to take one of the actions set out in CIDRA.
After the policy starts
We also sometimes see cases where the insurer says the customer didn’t tell them about something that happened after the policy started. Usually, the only time a customer has to give the insurer information is when they buy a policy or when they renew it. So, if something changes after the policy has started, the customer won’t usually have to tell the insurer about it until they renew the policy.
You may find out there was a misrepresentation when the policy was taken out and it’s been a year or more since it happened. The policy may well have renewed one or more times since then. If you wouldn’t have offered cover originally, you may avoid the original contract and reject any claims in that first period of insurance. But you can only avoid later contracts if your customer misrepresented again at the later renewals and this would have made a difference to you.
Some insurers will avoid all the policies back to when they started as a result of a careless misrepresentation. But you should consider what you are entitled to do for each policy individually under CIDRA for each policy year as each one is a separate consumer contract.
When you find out that information the customer gave you was incorrect, you can:
- retrospectively amend the terms of the policy
- carry on with the contract you’ve entered into
Generally, if you choose to carry on with the contract, we think it’s unfair for you to later change your mind. We believe that if you carry on with the contract, you’ve essentially affirmed it and have waived your right to later retrospectively amend the terms of the policy.
However, if you choose to carry on with the contract, but then discover the incorrect information, you’ll still have the option to retrospectively amend the terms of the policy.
Putting things right
If we decide you’ve treated the customer unfairly, or have made a mistake, we’ll ask you to put things right. Our general approach is that the customer should be put back in the position they would have been in if the problem hadn’t happened. We may also ask you to compensate them for any distress or inconvenience they’ve experienced as a result of the problem.
The exact details of how we’ll ask you to put things right will depend on the nature of the complaint, and how the customer lost out. For example, if we decide that you’ve unfairly avoided or changed the terms of a policy, we may ask you to:
- reinstate an avoided or cancelled policy
- remove any retrospectively applied terms, so that the terms are the original ones
- reduce the price of the policy to what it was originally, and refund the extra premium charged, plus interest
Find out more about how we award compensation.
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