Published on Mar 24, 2014

Managing an insurer’s instruction to cancel insurance from inception. Managing an insurer’s instruction to cancel insurance from inception.

Insurance policies can only be cancelled from inception in cases of fraud or by agreement.

In all other cases, valid cancellation by the insurer takes effect at 4pm on the third business day after a notice of cancellation is received by the insured.

Cancellation for non-payment

This also applies to cancellation for non-payment of the premium - even if the policy was renewed on hold covered terms. The insured continues to be covered from the date of renewal until cancellation takes effect. If a claim is made, the insurer will simply deduct the unpaid premium from the claim payment.

Recording cancellations

Some broking and insurer software can only record cancellations as if the policy was cancelled from inception. Remember, software is simply a record-keeping system. It doesn’t determine how or from when the policy was actually cancelled. If your broking system cannot accurately record that a client was partially insured for a period prior to cancellation, develop a manual workaround to ensure accurate record-keeping in case a claim arises during the on-risk period.

But the insurer told me to do it!

It’s surprising how often insurers still cancel from inception. The good news for your clients is that, unless the insurer can establish fraud as the basis for the cancellation, the policy remains in force until the third business day after the notice is received by your client This means your client will still have had some cover. You might want to point this out to the insurer to avoid future debates – although they really ought to know it!

Also, don’t make the mistake of telling your client the cancellation is effective from inception in cases that don’t involve fraud – you could be responsible if they don’t pursue a right to claim, based on that advice.

If you have any concerns about any of these issues, please contact us.

Author: Jaime Lumsden

Related Blogs: Cancelling Insurance by Post and Cancellation by Premium Funder

March 2014

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