Mistakes, claims, disputes and official sources
Misrepresentation and underinsurance in car insurance: what you must tell your insurer
The duty to take reasonable care not to make a misrepresentation on Australian car insurance, how insurers can reduce claims, worked examples and how to avoid underinsurance.
For private car insurance in Australia, you must take reasonable care not to make a misrepresentation when you apply, renew, vary or extend the policy. In practice: answer every question the insurer asks honestly and carefully, including who drives the car, where it is kept, how it is used, its modifications and your claims and driving history, and tell the insurer when those answers change. If you make a misrepresentation that is not fraudulent, the insurer can generally reduce a claim to put itself in the position it would have been in if you had answered correctly. If it is fraudulent, it may be able to avoid the policy altogether.
This guide sits in the car insurance mistakes and claims section.
The duty since October 2021
From 5 October 2021, the Insurance Contracts Act 1984 replaced the old duty of disclosure for consumer insurance contracts (those obtained wholly or mainly for personal, domestic or household purposes) with the duty to take reasonable care not to make a misrepresentation. Key points:
| Point | What it means |
|---|---|
| Questions drive the duty | Your obligation is to answer what you are asked with reasonable care, not to guess what else the insurer might want |
| Reasonable care is judged on the circumstances | Factors include how clear the questions were and your particular circumstances |
| Silence can still count | Failing to answer, or giving an obviously incomplete answer, can be a misrepresentation |
| Applies to renewals and changes | Each time you renew or vary the policy, the duty applies again |
| Fraudulent vs not | The remedies are much harsher for fraudulent misrepresentation |
Business vehicles insured under a business policy may fall outside the consumer rules and remain subject to a duty of disclosure.
Typical misrepresentations on car insurance
- naming yourself as the main driver when your child drives the car most
- giving a garaging address in a cheaper suburb than where the car is actually kept
- saying the car is for private use when it is used for rideshare or deliveries
- not mentioning a turbo kit, lowered suspension or aftermarket wheels when asked about modifications
- not listing past claims or a licence suspension within the period asked about
How an insurer can respond (illustrative)
The remedy depends on what the insurer would have done if you had answered correctly:
| What the insurer would have done | Possible remedy |
|---|---|
| Insured you on the same terms | No remedy; the misrepresentation made no difference |
| Charged a higher premium | Reduce the claim to reflect the premium it would have charged |
| Applied an extra excess or exclusion | Apply that excess or exclusion to the claim |
| Not insured you at all | Reduce the claim, potentially to nil |
| Fraudulent misrepresentation | Possibly avoid the policy from the start |
Worked example: higher premium (illustrative)
Chloe's application said the car was parked in a locked garage; it is actually parked on the street. Her premium was $1,050. The insurer shows it would have charged $1,400 for street parking. The car is stolen and the agreed value is $21,000, with a $700 excess.
One common approach is to scale the payout by the premium ratio:
- Payout without the misrepresentation: $21,000 - $700 = $20,300
- Premium ratio: $1,050 / $1,400 = 0.75
- Reduced payout: $20,300 x 0.75 = $15,225
The $350 saved in premium cost $5,075 in the claim. Insurers and AFCA consider the specific facts, so the actual outcome may differ, but the direction is clear.
Worked example: undeclared regular driver (illustrative)
Jack lists only himself. His 20-year-old flatmate drives the car three or four days a week. The flatmate crashes, causing $9,000 damage. The insurer shows it would have accepted the flatmate as a listed driver with an extra premium and an age excess of $1,200. It may apply the age excess, reduce the claim for the premium difference, or both, depending on the facts. If the policy excluded drivers under 25 entirely and the insurer would not have covered the flatmate, it may refuse the claim.
Underinsurance: a different problem
Underinsurance is when the policy is accurate but the cover is too small for the loss:
- agreed value set too low for the car's real value; see agreed value vs market value
- accessories not covered: tow bars, canopies, roof racks, sound systems and aftermarket wheels may need to be listed or may have limits
- wrong cover level: third party property on a car you could not afford to lose; see fire and theft vs comprehensive
- personal items in the car: often limited or excluded under car insurance; home contents policies may cover some items away from home
How to protect yourself
- Read every question in the application or renewal carefully, and answer the question asked.
- Keep a copy or screenshot of your answers and the date.
- If you are unsure what a question means, ask the insurer and keep a record of the answer.
- Update the insurer whenever drivers, address, use or modifications change.
- At renewal, check the summary of the details the insurer holds. Use the renewal checklist.
If your claim has been reduced or refused for misrepresentation, see disputing a refused claim. For a large amount, get legal advice: the outcome depends on detailed facts. Free legal and financial counselling services are listed in the official sources directory.
Frequently asked questions
Do I have to tell my insurer about something they did not ask?
Under the consumer duty, your obligation centres on the questions asked. But if a change makes a previous answer untrue, such as a new regular driver, you should update it. Policies also often require you to tell the insurer about certain changes.
Is a mistake on an online form a misrepresentation?
It can be, if it was made without reasonable care. Correct any mistake as soon as you notice it.
Can the insurer cancel my policy for misrepresentation?
In some circumstances, yes, under the Insurance Contracts Act. The insurer must follow the procedures in the Act.
Does this apply to CTP?
CTP schemes are governed by state law and have their own rules on false or misleading information. The guide above relates to private car insurance.
Sources
- Federal Register of Legislation — Insurance Contracts Act 1984
- ASIC — guidance on the duty to take reasonable care
- Australian Financial Complaints Authority — how misrepresentation disputes are assessed
- Moneysmart — what to tell your insurer
