By Chris Dougherty, General Manager, Westlawn Insurance 21 October 2014
This month, we examine some of the most common insurance myths and provide our verdict on each.
Will it be Myth Confirmed or Myth Busted?
Myth Number 1
Insurers avoid paying claims Contrary to what some might think, insurance companies exist to pay claims to policyholders. The Financial Ombudsman Service (FOS) reported in its 2009/2010 General Insurance Code of Practice Overview that over 98% of insurance claims (3,872,618 claims in total) were paid by participating insurers without dispute. And the Australian Prudential Regulation Authority (APRA) reported that Australian insurers pay an average of $95 million in claims each working day.
Of course, insurers will not pay claims that fall outside the terms and conditions of the insurance policy. Nor will they pay claims that are found to be fraudulent.
If you do have a dispute with your insurer over a claim, you can take your case to the Financial Ombudsman Service. It’s a free service and the decisions made by the Ombudsman are binding on participating insurers. So make sure your insurer and broker participate.
Myth Number 2
I’ve paid premiums for years, my insurer is obliged to cover me for any damage I claim All policies have specified limitations and exclusions. Without these exclusions the cost of insurance would be prohibitive as the policy would be required to compensate the policyholder for all manner of incalculable risks.
Policy terms and conditions protect the policyholder. Insurance policies cover a wide variety of circumstances that policyholders seek to protect themselves from through their insurance. It’s important, therefore, for both insurer and policyholder to carefully define and understand what is covered and what isn’t covered under the policy.
No insurance policy will cover every imaginable risk without limitation. You should carefully consider your insurance needs and research policies that provide the right cover at a price you’re willing to pay. Better yet, ask a Westlawn Insurance Broker for assistance.
Under Australian law insurers must provide a Product Disclosure Statement (PDS) to policyholders that explains the terms and conditions of the policy. You should read the PDS before purchasing any insurance policy to ensure that you understand how the policy operates and your entitlements for making a claim.
Myth Number 3
Acts of God are not covered by my insurance We can thank Hollywood scriptwriters for the often heard rumours following natural disasters that Acts of God are not covered by insurance. While it may be stated often at the movies, no such exclusions are included in insurance policies in Australia.
Myth Number 4
I can’t clear damaged or soiled items until an Insurance Assessor has inspected my property If there are damaged or soiled items on your property that present an ongoing health hazard you should contact your insurer and tell them that the items will need to be removed urgently. It’s generally acceptable to photograph the items or make a detailed list of what has been discarded. Your insurer needs to verify the existence and value of items that you’re claiming, however you should not put your health, or the health of your family, at risk by keeping them around the home.
Myth Number 5
Insurers can take as long as they like to assess my claim General insurers in Australia operate under a code of practicemonitored by the Financial Ombudsman Service. Under the code of practiceinsurers have 10 business days from lodgement of all required claims materials in which to provide an initial assessment of your claim (except for CTP claims). If this time frame is not met by your insurer, you have options under the code of practice.
Myth Number 6
It’s best to insure my home for less than full replacement value because it’s cheaper It’s important to insure for the full replacement value of your home or property. Chair of the NSW State Emergency Management Committee, Phil Koperberg, recently highlighted the issue of home owners being underinsured in the aftermath of last year’s Blue Mountains bushfires. “People found themselves with quite a surprise on their hands when the estimate of rebuilding under a different set of construction standards was far greater than the sum for which they were insured,” Koperberg said.
The Australian newspaper reported back in January this year on the case of one Blue Mountains homeowner whose house had been destroyed in the bushfires. Costing $300,000 to build 11 years ago, it was insured at $720,000. Quotes to rebuild the house using heat resistant glass as required by new building standards, however, ranged from $850,000 to $1 million.
“We can’t rebuild the house we had. We either have to reduce the size, or move on, which we don’t want to do, but unfortunately we probably have to,” the homeowner said.
Many insurers provide calculators to help you estimate the appropriate replacement value for your property. Another good way to determine the replacement value of your property is to get a quote from a local builder.