New Zealand’s financial complaints ombudsman has aired concerns over consumers being disadvantaged by “onerous or unusual” insurance policy conditions, after recent dispute rulings went against insurers.

The Insurance & Financial Services Ombudsman (IFSO) says insurers are required by law to bring any onerous or unusual terms to the attention of their customers, and failure to do so may mean they are on the hook for claimed losses.

In a recent case, IFSO ruled in favour of the insureds who made a claim after their house was burgled while they were on holiday. The burglar had gained access through a small window that had been left open and their insurer rejected the claim, relying on a term in the policy that states the house must be securely locked when “unattended”. 

However, the IFSO found other insurers do not have a similar condition in their contents policies, leading the ombudsman to conclude it was an “unusual” requirement.

IFSO says because the condition in their policy was unusual and required the insureds to take steps they were not previously required to take, the insurer should have made them aware of this.

“While it’s common for travel insurance policies to have an exclusion for claims where items have been left unattended in a public place, it is unusual for a contents policy to include a condition or exclusion like this,” Ombudsman Karen Stevens said.

“Other insurers will also usually cover claims where a window has been unintentionally left unsecured.”

She says the law states that if a policy includes “onerous or unusual” conditions, insurers are required to bring them to their customers’ attention.

But in the case example cited, there was no evidence that the insurer had “specifically” notified the insureds about the “unique” policy condition.

“While the ideal situation is where an insured has taken all steps to prevent a burglary, homeowners shouldn’t be disadvantaged by an unusual or unfamiliar condition in their policy, particularly where it is out of step with the rest of the industry,” Ms Stevens said.

“We expect insurers to clearly communicate policy changes to their customers, so they know exactly what is expected of them, and what they have to do to ensure they will be covered under the policy.”

The Ombudsman had flagged similar concerns in its 2023 annual report in September.

In one of the cases mentioned, the complainant won his dispute as the insurer failed to “fairly” inform him of a 24% decrease in the agreed value of his car.
 
“As vehicles get older and depreciate, insurers normally reduce their agreed value at the time of policy renewal, however not usually as much as 24%,” the review says.
 
“The insurer hadn’t included any warning in its cover letter or email alerting [the insured] to the decrease, and the agreed value stated on page 3 of the [policy] schedule was not highlighted in any way.”