Common reasons insurance claims are denied: What you need to know

Nicola Mawson

While stories abound of people fighting with their insurance companies over one or other issue – although friends and family may not be a reliable source – a minimal number of complaints reached the office of the Ombudsman for Short-term Insurance (OSTI) last year.

And, based on the figures, it seems that those complaining are mostly not in the right. This, according to the report, was due to factors such as policy exclusions, a lack of people taking “due care” of their possessions, lack of maintenance or wear and tear when it comes to homeowner’s insurance, as well as “criteria for the insured event not being met,” which includes premiums not being paid.

Just more than 5.5 million claims were filed with short-term insurance companies last year. Over the same period, OSTI received 10 228 complaints – or around 0.19% of all insurance claims.

The bulk of these claims were wrapped up by OSTI, while 1 168 were resolved in favour of the insured party – or about 13%. And, in almost 92% of cases, the insured party felt they were not treated fairly, with many issues hinging around a lack of information.

As OSTI noted in a statement that people who sign up for insurance, admittedly a grudge purchase, simply don’t read the fine print, which contains crucial details about exclusions not covered by the policy. “These exclusions help insurers manage risk and keep premiums affordable.”

During the 2023 financial year, around 40% of all complaints were categorised as motor vehicle insurance, most of which were accident-related claims and were declined because of a policy exclusion.

Among these were claims involving speeding, followed by misrepresentation or non-disclosure at the time of taking out the policy or during the term of the policy, and at claim stage.

The second highest number of complaints, about a quarter, related to homeowners’ claims declined because of policy exclusions. Most of these claims related to damage caused by acts of nature and those declined were based on gradual deterioration, lack of maintenance and wear and tear, followed by defects in design or construction.

There are, however, instances in which the insurance company is totally in the wrong.

In one matter that was decided in the North Gauteng High Court, involving a car accident in which the other party claimed liability, Acting Judge, Takalani Ratshibvumo found that an insurance company was trying to get out of paying for a claim by relying on what it viewed as misrepresentations that were not vital to the matter.

In the ruling, Ratshibvumo was rather scathing about the fact that the insurance company wanted paperwork that wasn’t important, and that the claimant said he was alone in the car, while the accident report said there was a passenger.

“The only possible reason in the demand [for documents] by the first respondent could be to try and find a lie or misrepresentation on the part of the applicant in a desperate search for a reason to repudiate a claim even in circumstances where there appeared to be none.”

Ratshibvumo pointed to a key part of the Short-term Insurance Act of 1998, which states that insurance companies must pay out unless:

A “representation or non-disclosure is such as to be likely to have materially affected the assessment of the risk under the policy concerned at the time of its issue or at the time of any renewal or variation thereof”.

Hannes Bester, Manager of Adjudication at the National Financial Ombud Scheme, under which OSTI falls, said “if a complaint is dealt with by this office and the complainant decides to sue the insurer, we will close the complainant and let the court proceedings continue. We do not have jurisdiction on a complaint which is also litigious.”

However, going to court is costly. The best policy when dealing with insurance so that a claim doesn’t get repudiated is honesty, and to always read the fine print.

Ernest North, co-founder of Naked Insurance, told Personal Finance that it sometimes sees claims being declined due to misunderstandings about what is covered or, in some cases, dishonesty.

Examples it has dealt with include:

• A customer that reactivated full cover shortly before submitting a claim, but the app data showed he was near the scene of the incident at the time he reactivated. This raised red flags, and further investigation showed that the accident had likely occurred before he turned full cover back on. AI flagged this, and human evaluation confirmed the timing discrepancy, demonstrating how technology helps prevent fraudulent claims.

• A policyholder bought a new policy shortly after an accident, perhaps assuming that the claim would be processed as if the policy was active beforehand.

• Speeding can also play a key role in determining the outcome of a claim. One policyholder insisted they were driving within the speed limit when their car veered off the road and collided with a barrier. However, the post-crash analysis and the data obtained from the car’s computer system told a very different story, revealing that the vehicle was traveling well above the speed limit at the time of the accident. The excessive speeding contributed to the crash, leading to the claim being rejected for reckless driving. Luckily no one got hurt in this instance.

As Edite Teixeira-Mckinon, Lead Ombud of the Non-life Insurance Division at the National Financial Ombud Scheme points out:

• It’s important to read policy documents and understand how any specified exclusions can impact the validity of a claim.

• It’s essential that insurance clients tell the truth when making a claim because the claim could be denied due to misrepresentation.

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