Insurance cover and compensation

I refer to Joe Borg's letter Insurance Deals (May 6).

Mr Borg raises a number of interesting issues about insurance and, as the regulatory authority responsible for financial services in Malta, the Malta Financial Services Authority would like to use this opportunity not only to comment on Mr Borg's letter but also to further inform consumers about insurance.

Mr Borg referred to insurance proposal forms, a document which prospective policyholders are invariably asked to fill out and sign prior to taking up a new insurance policy. Insurance companies rely on the truthfulness of one's statements and replies to the various questions contained in such form.

As a prospective policyholder, a person has a duty to give the insurer or the insurance intermediary (such as an agent, a broker or a sub-agent) correct and complete information that could influence the decision of the insurer to accept one's risk or not and at what terms. This is a fundamental principle of insurance called "duty of disclosure".

It is also quite normal that an official of any insurance company or intermediary fills out a proposal form on one's behalf. In these situations, it is imperative for the policyholder to check that all answers have been completed correctly. It is the prospective policyholder who would ultimately have to sign and declare that information supplied on the form is correct to the best of his knowledge and provided in utmost good faith.

If there are any questions in the proposal form which the prospective policyholder does not understand, a clarification should be sought from the insurance representative. We would also recommend that if one has other important information which the insurer has not asked for but which one may deem it appropriate to disclose in the proposal form the insurer or intermediary should be consulted whether to include it or not.

The "duty of disclosure" applies before the cover starts, during the term of the policy and at each renewal. Therefore, the insurer or intermediary has to be informed of any relevant and important changes to the risk of the insured. Indeed, Mr Borg appropriately comments that it would be a mistake for a policyholder to ignore any material question or to attempt to massage facts because if the insurer finds the form to be incorrect he may be entitled to reject the claim and, in some cases, terminate the policy before expiry.

Mr Borg refers to exclusions in insurance policies. One must keep in mind that an insurance policy will never provide blanket cover for any loss. If such policies were available, we are sure they will be prohibitively expensive because the extent and incidence of liability would be much higher than policies with exclusions and conditions.

"Exclusions" are present in every insurance policy, whether issued in Malta or not. Likewise, for "excess" or "self-insurance", where the first portion of a loss is paid by the insured himself, in the event of a claim. Insurers could provide full refund for claims (without excess). However that may entail higher costs for insurers - compared to when policies have an element of such self-insurance or excess - which would be reflected in a higher premium.

That is why it is imperative for policyholders to read the policy document carefully, to check it provides the cover they need and to note any significant exclusions. One appreciates that certain wording in policy documents may be confusing. This situation has lately improved as most insurance companies in Malta have revised their policies to make it easy for policyholders to understand the terms and conditions. Some companies have also translated the policy document into Maltese.

Policyholders should also shop around for the best policy which suits their needs. An insurance broker would be able to help by providing information on various policies available. Many insurance companies have also set up websites from where one can download specimen policy documents. Moreover, the MFSA has issued a set of six educational booklets about insurance which are available in print or online at www.mfsa.com.mt/insuranceguide. Indeed, the issues raised in this letter are exhaustively explained in these guides.

Lastly, we would also like to highlight an important feature of which Mr Borg must be unaware. This relates to the availability of compensation to victims of hit and run accidents. Since 1986, a fund known as the Security Fund has been in existence with a dual purpose: to effect payments in respect of claims against an insurance company licensed in Malta which remain unpaid by reason of the insolvency of such company and to compensate victims of road traffic accidents. In the latter case, the fund could intervene in respect of the payment of claims lodged by victims of hit and run accidents, specifically in cases where the victim has been unable to trace the driver. The Security Fund could also deal with third party claims against uninsured drivers.

The Protection and Compensation Fund, which has taken over the Security Fund in 2003, has widened the scope of compensation to include not just cases of death or bodily injury suffered by the victim but also cases of damage to property suffered by the third party. Motor claims falling under the Protection and Compensation Fund are handled by the Maltese Motor Insurers' Bureau.

The MFSA also offers a Freephone service (80075924) for those who would like to ask questions or complain about a service provided by a financial entity regulated by the authority. Mr Borg is invited to contact the MFSA if he requires further information or clarification.