I heard someone say “How dare insurer XYZ cancel my insurance policy?! Can they even do this?!! Insured clients are often under the impression that the insurance company will be obliged for life or until they sell their car to provide them with cover once they have signed the policy document. This is not the truth – and we need to consider the nature of the agreement and some advice on how to protect oneself after receipt of a notification of termination.
An insurance policy is merely a contract like any other contract – a mutual agreement signed through consent and after a “meeting of the minds” of both parties. This contract gives both parties the right to cancel on notice and can be exercised without giving any reasons and without having to rely on a specific breach of policy. The insurer does not have to claim that there has been insurance fraud or false claims or even the suspicion of any such conditions!
If the Insured policy holder wishes to change his insurer, he may cancel the policy by giving the Insurer a proper period of notice (usually a month) as provided for in the policy document. There is no essential difference, if one thinks about the matter, between this situation and the case where a tenant gives his landlord proper notice in terms of the lease that he is leaving. No reasons are required. The policy holder also does not have to inform the insurer that he found a less expensive premium or that he likes the branding of the other company or he saw on the television that they do nice community work, that he wishes to support them etc.
Nor are any reasons required if the situation is the other way round and it is the Insurer who decides that it wants to terminate the legal relationship. But why would an insurer decide to terminate a policy contract? There may be specific reasons to cancel the policy contract with a specific client – or business reasons which are not related to that specific client. An insurer may decide that it is better for business not to provide home or car insurance in a specific risk area, to a specific age group of client, to insure a specific make or model of car or to discontinue a specific insurance product.
It should be kept in mind that the insurer is providing cover and indemnifying the client against the occurrence of specific risks. If it appears that a specific risk is increasing beyond control – the insurer has to either significantly increase the insurance premium – or to stop providing cover for those risks!
It should also be kept in mind that an insurance company has the burden to investigate the truth and validity of accident claims – a difficult task. If it appears that there are numerous dubious claims from a specific insured client, the insurer is within its rights to decide that the risk is escalating beyond control and to rather terminate the relationship with the client.
The insurer is therefore entitled to cancel the insurance policy – the insured client needs to be aware of this and have a plan B ready! We will in a follow-up blog provide advice and suggestions to the insured client on how to protect himself when receiving a notification of cancellation of his insurance policy!