What Is Insurance Misrepresentation? And Why You Should Avoid It
Reading and understanding the fine print in your insurance policy is just as important as being honest and transparent with your insurance company.
If you ignore the minor details listed in your insurance policy, you may accidentally commit insurance misrepresentation without even knowing.
Misrepresentation is an extremely serious issue in the Canadian insurance industry, and committing misrepresentation can come with severe consequences.
That's why you should be aware of the various types of insurance misrepresentation and learn how you can avoid them in the first place.
Want to learn more about misrepresentation in the Canadian insurance industry?
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What exactly is misrepresentation in insurance?
Misrepresentation is a term used to describe a false statement of a material fact (accidental or intentional) that sways a party into making a decision.
Insurance misrepresentation comes in a variety of forms, ranging from accidentally providing the wrong information to your insurance provider to intentionally providing them with incorrect details about you, your vehicle, property, belongings, etc.
Misrepresentation breaches your insurance policy and gives your insurance provider the grounds to deny your claim, drop you as a policyholder or, in severe cases, charge you with insurance fraud.
This is why you should always do everything that you can to avoid committing insurance misrepresentation.
What are the different types of misrepresentation in the insurance industry?
The three different types of misrepresentation include innocent misrepresentation, negligent misrepresentation and fraudulent misrepresentation. Knowing the differences between these types of misrepresentations can help you avoid similar situations in the future:
What is innocent misrepresentation?
Innocent misrepresentation is one of the most common types of misrepresentation in the Canadian insurance industry. You can commit innocent misrepresentation if you accidentally provide your insurance provider (auto, home, or otherwise) with incorrect information.
In most cases, your insurance provider will deny your claim or cancel your policy if you're caught committing innocent misrepresentation.
Innocent misrepresentation can include giving the wrong first licensed date, forgetting a traffic ticket or accident, or forgetting to pay out the balance owing on a prior insurance policy.
What is negligent misrepresentation?
Negligent misrepresentation is the act of providing inaccurate information that you didn't attempt to confirm before signing your insurance policy. For example, you didn't take the time to calculate your annual mileage before signing your policy.
Committing negligent misrepresentation breaches the notion of the reasonable care a policyholder must take before committing to a policy. In most cases, your insurance provider will deny your claim, cancel your policy or (in the most severe cases) charge you for insurance fraud. Negligent misrepresentation can also include not taking the time to calculate the actual true distance of your commute between home and the office, not disclosing other drivers in the home even if they have their own insurance policies elsewhere, or not advising of using your car to drive for a service such as Uber or Skip the Dishes.
What is fraudulent misrepresentation?
Fraudulent misrepresentation is the act of knowingly providing untrue information to your insurance provider. For example, you'd be committing fraudulent misrepresentation if you lied to your insurance company about your driving experience, address, age, etc. Another typical example is providing your insurance company with false information about an accident while making a claim. Fraudulent misrepresentation can also include something that seems small, like stating there is no pre-existing damage on the vehicle when there is, and asking for damage coverages.
Canadian insurance companies take fraudulent misrepresentation extremely seriously; if you're caught committing fraudulent insurance misrepresentation, your provider can cancel your policy, deny your claim and charge you with insurance fraud.
Additionally, if you're found guilty of committing fraudulent misrepresentation, you may not be able to obtain coverage through traditional channels, which means that you might have to purchase high-risk insurance.
What is material misrepresentation in insurance?
Material misrepresentation is the act of omitting necessary information from your insurance provider. A common example is telling your insurance company that you live by yourself and are the only driver in the home, when in fact, there is another licensed driver in the home.
Why is this important? It all comes down to how it affects the risk level of your vehicle.
If you live by yourself, you're generally considered less of a risk than someone who lives with another driver, as the other driver may have access to your vehicle, which could increase the potential for its usage and accident exposure. So, if you choose not to tell your insurance company of another driver in the home, you're failing to give them information that they'd need to make an accurate assessment of potential insurance claims.
How can you avoid the misrepresentation of insurance-related information in the first place?
Maintaining a good working relationship with your insurance company is an important part of being a policyholder, so you should do everything in your power to avoid misrepresenting insurance-related information.
Here are a few tried-and-true tricks and tips that you can use to avoid the misrepresentation of insurance information:
- Confirm that all essential details (annual km range, personal details, vehicle information, etc.) are up to date and valid beforehand.
- Do your research before committing to a policy to prevent avoidable issues down the road.
- Always read the fine print of your policy before making a final decision.
- Ask your insurance agent or insurance advisor to clarify any questions or concerns you may have about insurance misrepresentation.
- Be honest and transparent with your insurance company!
Always READ the application details before signing, to ensure all information that you provided has been recorded correctly.
By making use of these tips, you can drastically decrease the chances of experiencing any misrepresentation-related issues with your insurance company.
Why was your car insurance claim denied for misrepresentation?
Insurance companies in Canada are able to deny auto, home, tenant, etc., claims if they have reason to believe that you have misrepresented the facts listed in your claim.
Here's an example:
You get into a car accident, and you submit a claim to your provider. While assessing your claim, your insurance company realizes that you've provided false information about the event (the location of the accident, the parties involved, the total damages, the condition of the vehicle before the accident, etc.). After confirming this information, your car insurance company can choose to deny your claim.
Bonus tip — Learn why home insurance companies deny fire claims
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