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Tips and Traps – Cancellations and Mid Term Refunds
What to do when a Client asks to Cancel their insurance Mid Term
Return Premium
The first thing to do when a client asks you to cancel their insurance mid term is to check whether the insurer can impose a short-term penalty such as a “minimum” and “deposit” premium, or whether the insurer will only change ‘time on risk’ premium.
Adjustable contracts of insurance will require declarations.
Only tell the client the amount of premium that will be refunded after you receive confirmation in writing from the insurer
Don’t pay the return premium to the client until the insurer has actually raised a credit note to your account or given you written instructions to do so from the money you hold in your trust account on its behalf.
Commission Refunds - Before cancelling, also tell the client the amount of commission or fees that will be refunded, if any as well as any other amounts that may be deducted from the refund. You may need to explain terms such as commission and brokerage to clients who may not automatically know what they mean.
There is no legal requirement for a broker to refund commission to an insured if a policy is cancelled mid term. It is up to each broker to decide how you will handle this.
It is good practice to have a policy about whether you will refund commission and fees when a policy is cancelled (and how much you will refund - i.e. pro rata for time on risk or otherwise). If you tell the client about his before you arrange the insurance, e.g. in your FSG or Letter of Engagement, there can be no argument later about your right to do so.
Claims - Remember that cancellations can only take effect going forward unless the parties agree otherwise. This means that the insurer cannot cancel the policy back to the inception date. If a client requests that the policy be cancelled back to the inception date of the policy and the insurer agrees to this, ensure that the client understands that the policy will be treated as if it never existed and no claims on or after the inception date will be honoured by the insurer.
Alternative Cover – As a precaution, always ask the client if they still need the cover and want to obtain insurance with a different insurer. If so, then arrange the alternative insurance quickly. No matter how difficult the circumstances, keep the client fully informed at all times.
If they do not, ensure they understand the consequences of being uninsured.
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