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Under-insurance

Under-insurance is when a motor vehicle owner or employer has a policy that does not adequately reflect an individual’s information or an employer’s business structure.

Under-insurance affects both workers compensation and compulsory third party insurance (CTP) insurance, however there is less capacity for under-insurance in the CTP scheme as Greenslips are calculated according to limited factors such as vehicle and driver details.

Workers compensation policies on the other hand, involve a large number of factors and these can change within the life of a policy.

Did you know? Under-insurance can be a fraud as it provides a financial advantage to an employer’s business or to a motor vehicle owner.

Under-insurance occurs when a person supplies false information when purchasing a Greenslip or workers compensation insurance policy.

Additionally, in workers compensation, under-insurance can occur when a policy is not updated to reflect changes in the business. For example, this might happen if:

  • at the start of the year a business declares wages for 10 employees, however during the year the business hires more workers and does not declare the additional wages in the final wage declaration
  • a small business grows and does not notify their workers compensation insurer to calculate applicable excess.
  • a business director relies on a broker to manage its insurance arrangements and fails to inform the broker that business activities have changed throughout the year, which go undeclared.

What happens if I’m under-insured?

CTP insurance

  • You must supply the correct information when purchasing your Green Slip or the insurer may ask you to pay the difference between the lower amount and the adjusted amount as well as the cost of recovering the difference in premiums from you (up to $5,000).
  • In some cases, you could be liable for a penalty.
  • If something happens and you submit a claim while you are under-insured, the insurer can identify any incorrect information provided when you purchased the policy. This may mean that they reject your claim.

Workers compensation insurance

  • An employer that supplies false information is liable for penalties that may include paying back the value of the correct premium or paying double that amount.
  • Sometimes employers mistakenly supply incorrect information because they misunderstand the factors used to calculate a workers compensation policy in relation to the make-up of their business. In other cases employers or their broker forget to update a policy when business changes occur.
  • Whether it‘s intentional or an oversight, you can still be penalised, so it is important to understand what information must be supplied when purchasing a policy and to update your policy as soon as business changes occur.

Update your policy

If you believe you are under-insured, you should talk to your broker or insurer and update your policy accordingly. You may still be liable for the gap in your policy’s value for the amount of under-insured months, but taking action now could help you avoid a significant penalty.

How to report

If you believe someone is doing the wrong thing you can report it. See preventing fraud in CTP and workers compensation for more information. For home building compensation fraud visit the Fair Trading complaints page.