The Momentum uproar gripped the country this past week, as South Africans rallied to condemn the insurer for initially refusing to pay out a R2.4m life claim to a hijack victim.

At the heart of the saga is nondisclosure of information that could either determine your risk, premiums and payout or influence whether the assurer would or would not provide life cover.

In the Ganas case, Momentum rejected the claim based on nondisclosure of high blood sugar and argued that the contract was entered in bad faith. The public cried foul as the cause of Nathan Ganas’s death was very far removed from high blood sugar - he died in a hail of bullets protecting his wife during a hijacking at their home near Durban.

Momentum was pressured into reviewing its decision and decided to among others pay the claim from shareholder funds (instead of from the policy book) and launched a new product that would pay out up to R3m to victims of violent crimes.

Although Momentum had support from industry insiders, the ombud and industry regulator, the Financial Sector Conduct Authority (FSCA), for following the rules on nondisclosure, they acknowledged that the outrage had necessitated a need to engage society and the industry and focus on treating customers fairly.

This engagement could take many forms, but at the very least, and probably the most pressing and fundamental, is educating consumers about the rules on nondisclosure. According to the Association for Savings and Investment SA, nondisclosure accounted for more than 50% of all claims rejected in 2017, down slightly from 55.3% in 2016.

What is nondisclosure?

An insurance contract is signed in good faith. This means that all parties have the duty to be open and honest, as this information will influence the underwriter when calculating risk and the related premiums, or whether at all to take on the risk. If a consumer fails to disclose a material fact — such as suffering from a chronic disease — then the insurer and underwriter has been misled, and the consumer is seen to not have entered the contract in good faith.

Nondisclosure must be material for the insurer to have the right to repudiate. The long-term ombud’s office explains: “Material nondisclosure means that a reasonable prudent person would have disclosed the information that was not disclosed. If it is not material nondisclosure then the insurer cannot repudiate the policy. This is the legal position.”

Lesson 1: Nondisclosure does not apply only to the claim event

Earlier this week, deputy long-term ombud Jennifer Preiss told Money unambiguously, that “it is a common misconception that nondisclosure has to be linked to the claim event for the insurer to be able to repudiate the policy. That is not so”.

This was underlined on Thursday when ombud for long-term insurance judge Ron McLaren said the reason the cause of the claim is irrelevant to the nondisclosed information, has to do with the insurer’s initial decision to grant cover.

“When you apply for a policy and are asked questions about your health, hobbies etc, the insurer relies on the answers to these questions to assess the risk it is asked to take on. 

“If the questions are answered incorrectly, or incompletely, it is a pre-contractual misrepresentation. The insurer, when it becomes aware of the true facts regarding an applicant’s health or hobbies, can repudiate the policy, that is, cancel it from inception.” 

Lesson 2: Always share everything honestly and carefully

The insurer also has an obligation. According to Preiss, an insurer cannot disregard important information disclosed at application stage without making further enquiries to find out what the actual position is. “This is so in respect of all information, whether medical, financial or otherwise and whether the information is obtained from the applicant or other sources.

“Where the insurer has been negligent in not following up disclosed information, the [ombud’s] office will not uphold the insurer’s right to repudiate the policy and cover will have to be reinstated.”

Where would this matter?

Preiss illustrates with an example:

An applicant says “no” to the question whether he suffers from diabetes. He does, however, disclose that he is using the following medication: Glucophage (medication used for problems with blood sugar). To the question whether he has sought medical advice for any ongoing medical problems he indicates “yes” and without giving the condition he mentions the name of a specialist.

The insurer should have followed up on the disclosed information regarding the medication and the specialist, despite the negative answer to the question whether the applicant suffers from diabetes.

Lesson 3: It does not matter if it was unintentional nondisclosure.

What if I made a mistake?

If there is incorrect or false information provided, the ombud’s office says that in legal terminology, “it is a pre-contractual misrepresentation”. 

“The insurer, when it becomes aware of the true facts, can repudiate the policy (i.e. cancel it from inception).  It does not matter whether the nondisclosure or misdisclosure was intentional (fraudulent) or not. The insurer had relied on the wrong information to decide whether to grant cover or not and therefore can cancel the policy,” the deputy ombud told Money.

Lesson 4: How to avoid a nondisclosure dispute

Based on her proximity to disputed cases, Preiss shares this advice with Money for you to rather be safe than sorry.

Follow these five steps to avoid a nondisclosure dispute

  • Disclose full information in response to questions asked in the insurance application process.
  • Rather give too much information than too little. 
  • It can be difficult to remember all medical information. If this is the case, ask for more time so that you can check with your doctor or medical aid on the details before answering the questions. 
  • Name the medication that has been prescribed for your condition. 
  • If you have had any symptoms from which you suffer, even if your doctor has not yet given a definite diagnosis, disclose the symptoms.

Amid the Momentum furore, some people threatened to cancel their life insurance policies. This kind of consumer boycott threat was made widely on social media and on some radio stations.

If you are considering cancelling your life policy, the FSCA has some words of caution about the risks you face. Read more about the FSCA's warning about cancelling a life policy here