There is a growing force in the insurance industry that could undermine many home and contents laws, and consumer groups are constantly protesting the “nonsense”.
When customers take home and contents they are always asked if any business is done at home. If the answer is no, and this is incorrect, or later becomes incorrect, there is a high risk of rejection.
At first glance it doesn’t seem like any other non-disclosure issue, and if consumers are dishonest, or careless about the truth, or fail to tell their insurer about climate change, then the consequences are on them.
There are good reasons why business increases risk – even more houseguests increase stress – and if insurers don’t want to do this, that’s up to them.
But is it that easy?
It is said that there are hundreds of thousands of Australians who are doing some kind of business from home, especially since covid. And business functions can be difficult to define.
Recent examples highlighted by ABC News where claims have been denied or withdrawn include eggs being sold from an honesty box, bicycle repair being done in a garage, and a food truck parked at – but not selling – a home address.
A broker told insuranceNEWS.com.au that its retired client has been told that continuing to sell $5 eggs to her carer every month will force her to foreclose on her home and its contents.
While we may not have all sides of every story, and insurers are free to choose the risks they want to cover, these documents do not pass the “pub test” of importance. And the more issues that are discussed, the more this threatens the company’s reputation.
The head of the Consumer Action Law Center, Gerard Brody, told the ABC that if a consumer has a policy that won’t cover it, “it’s pointless” and insurers should “look at the fairness of what they’re doing and come up with a better solution for their customers”.
Politicians are also getting involved, with ACT Independent Senator David Pocock writing to the Insurance Council of Australia, Financial Services Minister Stephen Jones and others.
“There is a real problem here,” a company source told the insurerNEWS.com.au.
“Many people have been doing small business to earn a little money. I wouldn’t be surprised if ASIC turned around and wrote a letter saying ‘check your home book to find out the extent of the issue’.
“It’s something companies have to think about just to make sure there’s no major problem that hasn’t happened.”
Returning the money from the bottom of the world is that we continue to hear stories about these stories.
Insurers are paying out hundreds of thousands of home losses due to natural disasters – and if flood claims were more likely to be blamed on anonymous garage sales or honest-to-goodness boxes of fresh produce, we’d be really worried about it.
Insurers don’t seem to be actively investigating this, and often, how would they know about it?
The Australian Financial Complaints Authority (AFCA) says complaints about the issue are rare, pointing to one positive decision in recent years.
That case about the fire caused by the incredible jewelry making going on in the garage.
The plaintiffs thought it was more of a hobby than a business, but AFCA said that money was made, there was a business bank account with an ABN.
Some have pointed out that the disclosure function changed on October 5 last year to a precautionary function to prevent falsehoods.
This swings slightly in favor of the consumer, and means that the insurer must ask questions clearly and directly, and communicate to the insured the need to answer correctly, and the consequences of failure to do so.
However, it may not have much effect in this case. Getting the wrong answer to a business question can ruin any business. And the same applies to not changing the previous response to the renewal, as long as the insurer has given the renewal notice correctly.
Contrary to popular belief, the claim does not have to be business related for the insurance provider to deny it.
But under the new work the insurer may have to prove that it was misrepresented, that due care was not taken, and that, had it known about the unknown matter, it would not have provided cover in the first place.
“It comes down to insurance denial,” AFCA’s Senior Ombudsman General Insurance Chris Liamos told insurers.NEWS.com.au.
“If it is a failure to disclose or a failure to take care not to create falsehood, it does not have to establish a connection between the claim and the non-disclosure.
“What we’re looking at, because it’s difficult, is what insurers would have done differently, and the discrimination they faced.
“The insurance still has to go through how it would have affected them. If they were to still issue the policy for the same reason then they would not deny the claim.
“If they were to give some extra money, they could remove what was asked for, or they would have made a decision that didn’t work, then there is no discrimination.”
As for how a business is defined, AFCA first looks at the definitions in the policy. If there were none, it would go to the ordinary meaning of the word.
Mr Liamos admits it is “complex” and there are “grey areas”.
“If your child is selling lemonade at the front door, it would be reasonable to say that it is somehow a business.
“On the other hand, if you have the problem of someone having an ABN and a significant profit they are making from their home, this may not be controversial.
“We would be looking at what the average consumer would understand at the time in terms of how the words are used. Then we can look at the actual insurance policy that the insurer claims contradicts that language.”
Does working from home as a salaried employee pose a problem? You may not think so, but can anyone make up their own minds?
One industry expert suggests that policies may need to be more clearly defined – with reference to their revenue or other services.
And although it’s hard for some to think it’s the case, insurers have every right to refuse to reimburse customers’ homes and contents due to low business, if that’s what they want to do.
“If they want to be stricter on certain types of businesses that don’t want to certify then they have the right to do that.”
Advice to buyers, as before, read the Marketing Disclosure Statement. If the customer does not know anything, they should call.
Don’t think that a small thing doesn’t matter – it can. And if something has changed, they must tell their insurance immediately, and listen during the renewal, to make sure that the answers given before are still correct.
A little extra money can go a long way in easing the burden when the cost of living rises. But it’s not worth canceling insurance on your capital.
And as far as the industry goes, get ready for more research on the subject – especially if more people choose to tell their story to ABC.