The importance of Full Disclosure endures
Whether you are applying for a new insurance policy or renewing or extending your existing policy, it is not unusual to feel some hesitation when you reach the Duty of Disclosure section of the insurance contract. However, new reforms introduced in October help reinstate some balance of power between insurers and their customers.
The only catch is - the changes will only apply to Consumer Insurance Contracts, not commercial insurance.
What is a Duty of Disclosure?
Under section 21 of the Insurance Contracts Act, an insured has a duty to provide full disclosure of any information deemed relevant to the insurance company's decision to offer a policy.
Based on the information provided, an insurer may decide not to accept the contract and may impose conditions or adjust the premium. Therefore, failure to disclose or misrepresent information can have significant consequences should a claim need to be made by the insured.
What are the changes being introduced?
Following the recommendations made by Commissioner Hayne in the Final Report of the Financial Services Royal Commission, important changes have been made to the Insurance Contracts Act 1984. For Consumer Insurance Contracts, the existing duty of disclosure will be replaced with a duty to take reasonable care not to make a misrepresentation. This will apply to any Consumer Insurance Contract entered into on or after 5 October 2021.
What does this mean for businesses?
The Duty of Disclosure remains as normal and will still apply to contracts other than Consumer Insurance Contracts. If you own a business, it is essential that you understand these implications. If you fail to answer questions honestly and do not keep insurers up to date on changes in business circumstances, you could incur serious consequences.
Also, if the non-disclosure was fraudulent, the applicant puts themselves at risk of having their contract made void. Again, this undermines the purpose of getting insurance in the first place, which is the protection it brings if disaster strikes.
If your cover is based on inaccurate information and you need to make a claim, your insurer is under no obligation to provide support - making the cover you've paid for worthless.
Being upfront about your circumstances is by far the better route. If your disclosure means a particular insurer won't cover you, there are other options which your broker can help you explore. Common examples of non-disclosure are criminal, credit, disciplinary, or claims history, pre-existing property damage, or the operational details of your business.
After making any significant business changes, make sure to keep your broker in the loop. By immediately letting them know, they can ensure the insurer is also aware of developments that could impact your risk profile and level of cover.
How Coverforce can help
At Coverforce, we understand the risks and exposures faced by businesses every day. Our expert insurance brokers will work with you to provide personalised risk advice and quality insurance cover to protect you and your business.
For more information or to arrange cover, please contact your local Coverforce Office.
The information provided in this article is of a general nature only and has been prepared without taking into account your individual objectives, financial situation or needs. If you require advice that is tailored to your specific business or individual circumstances, please contact Coverforce directly.
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