By Hassan Engelbrecht
Full disclosure is a fundamental principle in insurance, requiring policyholders to provide all relevant information when applying for a policy. This includes details about health, lifestyle, and financial status, which insurers use to assess risk and determine premium costs.
Unlike many other industries where information is verified upfront, insurance operates on the principle of utmost good faith (uberrima fides). This means insurers trust the accuracy of the information provided by applicants without immediate verification. However, when a claim is made, insurers will investigate to confirm that all information aligns with the agreed policy terms.
Providing false or misleading information—whether intentionally or by mistake—can have serious consequences. In Namibia, for example, the Long-term Insurance Act 5 of 1998 states that making a deceptive statement or concealing material facts can lead to fines of up to N$15,000, imprisonment for up to two years, or both.
Why is Full Disclosure Important?
1. Ensures Accurate Risk Assessment
Insurers determine policy terms and pricing based on the information provided. If key details are omitted or misrepresented, the risk assessment may be inaccurate, leading to unfair premium calculations—either overcharging honest policyholders or undercharging high-risk individuals.
2. Maintains Policy Validity
Failure to disclose material facts can lead to policy cancellation. If an insurer later discovers misrepresentation, they may refuse to pay claims or terminate the policy, leaving the insured without coverage at a critical time.
3. Enables Fair Claims Settlement
Transparency ensures that claims are processed fairly and efficiently. If all parties operate in good faith, there is less likelihood of disputes or delays in claim settlements.
4. Fulfils Legal and Ethical Responsibilities
Providing full disclosure is not just an ethical obligation but a legal requirement. Policyholders who misrepresent information risk facing legal penalties, while insurers must also ensure they assess claims based on accurate data.
Legal Implications of Non-Disclosure
The Long-term Insurance Act 5 of 1998 outlines strict penalties for individuals who provide misleading or false information to insurers.
Section 67 states that any person who:
- Knowingly makes a misleading, false, or deceptive statement.
- Wilfully conceals material facts.
- Negligently provides false information to induce another person to enter into a policy, is guilty of an offence.
Such an offence may result in:
A fine of up to N$15,000
Imprisonment for up to two years, Policy cancellation, loss of benefits and even loss of all previous premiums paid
Additionally, individuals who were misled into entering an insurance contract have the right to cancel their policies and recover any payments made, along with potential compensation for losses incurred.
Real-Life Example of Non-Disclosure Consequences
In one case, an insured person applied for a policy but failed to disclose a pre-existing medical condition. When they later submitted a claim for treatment related to that condition, the insurer investigated and found that the information provided at the time of application was incomplete. As a result, the insurer denied the claim and cancelled the policy.
In another situation, a policyholder submitted a claim after their insured vehicle was stolen. However, during the claims process, the insurer discovered that the policyholder had not disclosed prior criminal charges at the time of application. Since this was considered a material non-disclosure, the insurer was legally entitled to repudiate (deny) the claim, leaving the policyholder without compensation.
These cases highlight the importance of full disclosure—failure to provide accurate information can lead to financial loss and legal consequences.
Conclusion
Full disclosure in insurance is a mutual safeguard—it protects both the insurer and the insured. By providing complete and accurate information, policyholders ensure fair risk assessment, policy validity, and smooth claims processing. Insurers, in turn, can uphold their commitments with confidence, maintaining the integrity of the insurance industry.
Ultimately, honesty and transparency in insurance applications offer peace of mind, ensuring that coverage is reliable and available when it matters most.
Hassan Engelbrecht is a Legal Advisor at Momentum Metropolitan