Ask an Expert: Handling a mid-term shift to a high-risk occupation

Q: How do Australian insurers respond when a policyholder on an annual accident insurance policy changes from a low-risk to a high-risk occupation mid-term?

Firstly, my response to your questions are my own personal views and not necessarily the views of my employer.

The product itself is unknown to me in the Australian market, though there are still some considerations in this situation for any life insurance product.

It would be both rare and unusual for a life insured to change their occupation mid-way through the policy term, without them knowing they intended to do this before the policy commenced.

It can take time for the interview and recruitment process to take place, sometimes it can take longer than six months. This leads us to the personal statement. Is there a question that asks whether the life to be insured is planning on changing occupations? If not, then this is missed opportunity for the insurer.

In Australia, there is a Duty of Reasonable Care not to make a Misrepresentation. This means the life to be insured must answer all questions truthfully and accurately. It also means life insurers must ask questions that are necessary to make a decision on an application for insurance.

The life to be insured is not required to provide information an insurer does not ask about. So in this scenario, if a question is not asked about intended changes in occupation, the insurance company has waived any right to challenge the application and terms of the policy.

If a question on changes in occupation does exist, the insurer should investigate further as the life insured may have misrepresented their answer.

This would allow the insurer to adjust the policy to what should have been offered, had the misrepresentation not occurred (as permitted by the Insurance Contracts Act).

The final consideration is the type of product – guaranteed renewable or cancellable.

Guaranteed renewable means the insurer must offer renewal of the policy each anniversary, regardless of any changes in the life insured’s circumstances.

There are still rights under the Insurance Contracts Act for misrepresentation as already mentioned.

Cancellable products means the insurer may choose whether to offer renewal of the policy or not offer. If the insurer is aware of circumstances that alter the risk being insured to the insurer’s detriment, they could choose not to offer renewal. The life insured must then apply for another policy that adequately covers the altered risk.

Attributable to John O’Leary, Underwriting Quality & Training Consultant.

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