Misrepresentation and non-disclosure

What we look at

• Was there a 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

• Did the misrepresentation make a difference?

  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.

• Did the customer take reasonable care when answering the question?

  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.

• When a customer doesn’t take reasonable care

  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.

• Misrepresentation after the customer applied for the policy

  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.

• Waiving the right to void a policy/affirming the 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.