The perils of being declined by an insurer

By John Grant

If you apply for insurance and are declined, you must disclose this fact to any other insurance company you subsequently apply to.

Utmost good faith is one of the fundamental duties under a contract of insurance and this requires you to tell your insurance company everything that could possibly impact their decision as to whether insurance will be offered and if so on what terms.

This means that when applying for insurance, it is important to disclose anything even if you consider the information not relevant to the cover you are seeking. When insuring a risk an insurer needs to consider not only the risk of the loss or damage to the item, but the risk in the relationship of the person or entity they are going to indemnify.

For example, if you have had convictions for any criminal activity (this would include drink driving, assault, fraud, etc.) then regardless of the type of insurance you are seeking, you must tell your insurer about these convictions. An insurer could easily show that the insurance would not have been offered if they had known about the convictions. If this was the case then the insurance would be void and would be cancelled, as if it was never in place.

This also means that if an insurer decides to no longer insure you, then you must disclose this to any other insurer that you approach for cover. Many claims are declined due to non-disclosure by policyholders. The wise approach is to disclose everything and let the insurer be the one to determine its relevance. This will certainly be the safest course of action. Here's a comment from someone who had cover refused.

"My previous home insurance company refused to invite renewal after I had failed to disclose that I'd made claims on an earlier household insurance policy. Once I'd been refused insurance, many other insurers just didn't want to offer any kind of buildings or contents insurance quotes."

The simplest approach always is to avoid this from happening in the first place. Being open and honest will save the potential of being declined or refused. A refusal due to the nature of the risk is a lot more palatable than being seen to withhold vital information.

However if you do find yourself in the position of having insurance declined then it is really important to document the reason and to disclose this to any potential new insurer.

If applying for new cover then make an appointment with a senior manager of this insurer and take all the details including correspondence along to the meeting.

It may also be a good tactic to find a broker who can represent your interests. A broker will find it much easier to get to the decision makers in the company and discuss what has happened. Their insurance experience will also be valuable in quickly assessing your likelihood at getting insurance cover.

The insurer is likely to respond favourably if they can see you understand the seriousness of the situation and that you have disclosed everything and have an explanation for why it has happened.

It is also worthwhile to go back and see the original insurer that declined you. Discuss with them why this has happened and listen to their responses. It will almost always be useful to get it in writing from them explaining the basis of their decision. The Insurance Council (ICNZ) and several members participate in the 'Insurance Register' (see my earlier story here) and they have access to your insurance history, even when it was with another insurance company.