Canterbury earthquake insurance lessons yet to be put into practice, as people continue to be stumped by their insurers

Sad stories of Cantabrians denied insurance pay outs they thought they were entitled to after the 2010/11 earthquakes, haven’t opened up people’s eyes wide enough to spot the traps they can fall into when buying insurance.

Those who’ve hit a wall trying to resolve disputes with their insurers and financial service providers, have generally not got their way when resorting to laying complaints with the Insurance and Savings Ombudsman (ISO).

The ISO’s annual report released today shows only three (1%) of the 254 complaints it investigated over the past year, were upheld.

A further 10 (4%) were partly upheld and 56 (22%) settled through negotiation, conciliation and mediation.

This means 27% of complaints were settled favourably for consumers, while 72% were simply not upheld and 4% withdrawn.

In the 2013/14 year, 65% of the 300 complaints the ISO investigated were not upheld.

Just over half of the complaints the ISO investigated over the past year related to fire and general insurance, while 41% related to health, life and disability insurance, and small portions to credit contracts, financial advisers, superannuation and non-regulated financial services.

Insurers pick up the ball

The Insurance and Savings Ombudsman Karen Stevens says, “The complaints we are now investigating are more complex, and many of the straight-forward issues are being resolved earlier by our participants [insurers and financial service providers].

“Industry practice is changing for the better, so complaints can be resolved within the insurance or financial service provider’s own complaints processes.”

This (and the fact more Canterbury quake claims have been settled) has seen the number of complaints investigated by the ISO drop by 15% over the past year.

Financial literacy remains a problem

However the fact a greater portion of complaints have been denied by the ISO over the past year, indicates there’s still a large number of people incorrectly adamant they’ve been wronged by their insurers – fighting a losing battle if you like.

Stevens puts it down to financial literacy.

“Consumers aren’t really aware of the importance of the insurance documents they sign up to. They’re not fully aware of the consequences of failing to disclose material information, and of their obligations under the policy,” she says.

“They sometimes think if they pay the premiums and sign the contract, that’s all that they have to do.”

She maintains that our society’s demand for immediacy takes away from the reality that an insurance policy is a binding legal document.

“We are a generation, or a nation, of people who don’t read as much. There would be very few people who ever read their contract… and so they don’t fully appreciate what their obligations are, and even what the cover is,” she says.

Stevens maintains that as more insurers provide quick and easy ways for people to buy insurance online, the problems we’re seeing now will only be exacerbated.

“They don’t’ full appreciate that even though it’s easy, it will have fishhooks”, she says.

Stevens admits the insurance industry needs to take responsibility to make sure consumers know what they’re signing up to, when they buy insurance.

“The information is there. It is clear enough if consumers read it. But it’s not something that is hammered home sufficiently. It’s the job of all of us in the [insurance] business to do it.”

Read this story for more on making sure you have all the information you need when shopping for insurance.

Disclose, disclose, disclose

Stevens says non-disclosure is the most common barrier preventing people from having their claims paid out – a “silent killer”.

So that is people failing to disclose everything they have to, to indicate how risky they will be to the insurer, when taking out a policy as well as throughout the policy’s life.

Stevens says this is most often an issue with health, trauma, disability and life insurance, but is also an issue with the likes of motor insurance.

A number of people don’t realise for example that you have to disclose any traffic convictions you’ve had (other than parking tickets) to your insurer every year, and if you’ve had any modifications made to your car.

Stevens notes most insurers will remind you of this when your policy comes up for renewal, however this may not be something the insurer will absolutely drum into you, so you need to take responsibility yourself.

Controversially, there is no law defining how clearly insurers need to spell out what their customers need to disclose.

The ISO says, “Insurers’ responses to nondisclosure vary: some opt to exercise their legal right to avoid the policy in its entirety; and others adopt a more flexible response, based on what they would have done had the information been disclosed at inception.

“While legislation is highly desirable, the ISO Scheme works within the current legal framework for non-disclosure, making decisions that are fair and reasonable in all the circumstances.”