Is flat cancellation an option for every insurance contract?
Let's start this off by first talking about what it means to flat cancel an insurance contract. To flat cancel an insurance contract means to cancel the insurance contract before that contract's effective date. The timing is significant because it means that the insuring company has not assumed any liability under the contract, since the contract has not begun. As such, the insured (customer) is entitled to a full refund of any premiums paid without any deductions of any kind. This stands in contrast to pro-rata cancellations and short-rate cancellations, which are discussed in other parts of this site.
Based on the meaning of flat cancellation, it is clear to see that this is an option for any insurance contract as long as the policy has not gone into effect yet. Once the policy has gone into effect, any cancellation will have to be done on a pro-rata or short-rate basis, wherein the insurance company will retain some of the paid premium for administrative costs and the cost of assuming partial liability.
In general, flat cancellations only occur when the insured decides not to renew the policy. Any errors in the issuing of the policy would result in a void policy before the policy even went into effect.
While this is by no means standard procedure, I have also heard of a dispute between an insured and the insurer that resulted in both parties settling via a flat cancellation of the policy. Again, I want to stress that this is not a typical case and there was most likely extenuating circumstances that lead to this type of resolution.
Written by Jacques Wong
Jacques grew up around the insurance industry and began actively participating in 2013. Since then, he has gotten a Level 2 license, won Insurance Council of BC awards in 2015 and 2020 for academic excellence in the insurance licensing courses. He educates insurance professionals through PNC Learning and as a Thought Leader at ReFrame Insurance.
In his day job as an insurance broker, he helps businesses with creative risk management solutions and strategic advice when it comes to insurance.
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