Insurance contracts are based on an implied duty of utmost good faith – everyone in financial services is aware of this.
Put simply, it is a legal requirement for each party in an insurance contract to act towards each other with utmost good faith.
Recent cases being highlighted in the media regarding Comminsure’s refusal to pay genuine life insurance claims show an obvious disregard for the concept. In certain cases, the insurer has relied on an archaic definition of a heart attack that is not commensurate with current medical practice – just to rationalise their rejection of otherwise legitimate life insurance claims.
Put simply, consumers have been duped into buying life insurance policies with definitions well past their use by date.
How is this considered acting in utmost good faith? More like feathering your own nest or making sure you don’t pay out on too many claims!
Outdated definitions in insurance policies could have devastating consequences for some people – virtually nullifying policies purchased to protect us from financial uncertainty at the very time they need it most.
But how do we overcome the issue? It would be near impossible for the average punter to be aware of outdated definitions in their insurance policies – it’s neither likely nor feasible.
The answer lies in adhering to the utmost good faith standard that’s there to protect both parties. Insurers, advisers, brokers, assessors and all other players must act ethically and scrupulously to ensure claims are assessed fairly and ‘in utmost good faith’, otherwise insurance policies aren’t worth the paper they’re printed on.
We struggle enough with encouraging consumers to mitigate risk by taking out insurance. If they fail to see any real value, what hope do we have?
There’s no doubt education and awareness can assist – both for the consumer and most definitely for the insurance industry in general. A good independent broker can be the go-between in many situations to make sure consumers purchase the very best product for their specific needs … but … basic education around insurance policies – really understanding the terms and conditions of the contract – is vital.