The term known event sounds like insurance jargon but it is an important concept.
As the term suggests, known event means something (ie the event) has happened and you know about it.
When it comes to insurance, it is really important you understand the term known event and how it may affect you.
Insurance is designed to cover sudden, unforeseen and unexpected events. Insurance is essentially risk transfer – by purchasing a policy you are transferring your risk of financial loss in the event something unforeseen happens. You are transferring your risk to the insurance company and for this you pay the insurer an amount of money (ie the premium).
Insurance does not cover you against something that you know about and which could reasonably be expected to result in you making a claim. This is where known event comes into play. If something has already happened and it is likely you will suffer financial loss as a consequence, it becomes uninsurable because it is not unexpected or unforeseen.
This may sound confusing so let’s look at some examples.
A known event can take many forms but if we look at travel insurance, here are some scenarios which would involve a known event.
Sally and Sam planned to go on a Contiki tour. They paid for the tour and their airfares but did not buy travel insurance. Two days before they were due to depart, Sally suffered appendicitis and required surgery. Sally’s doctor advised them to cancel the trip because Sally was too unwell to travel. Sally and Sam then bought travel insurance to cover them for the loss of their holiday.
The airfares and Contiki tour were non refundable. Sally and Sam lodged a travel insurance claim. The travel insurer reviewed the claim and declined it on the basis of known event. That is, when Sally and Sam purchased their travel insurance policy, they knew that Sally was sick and that she may not be able to travel. The appendicitis was a known event – that is Sally and Sam knew about it when they bought the policy. They tried to buy a policy because they knew they would suffer a financial loss. They were trying to pass their loss to the insurance company.
Richard was backpacking through Europe when he started to suffer stomach pains. He wanted to visit a doctor but did not have any travel insurance. Richard bought an “already overseas” travel insurance policy and went to see a doctor. Richard was diagnosed with gallbladder stones and admitted to hospital for treatment. Richard claimed compensation for these costs from the travel insurer. The travel insurer denied the claim because Richard was aware that he needed medical treatment before he took out the policy. Therefore, the stomach pains (and need for treatment) was a known event.
Tom and Sarah arranged a trip to Fiji but did not buy travel insurance. The week before they were due to go on holiday, a cyclone developed in the Pacific Ocean and was tracking to hit Fiji. They bought travel insurance in case the cyclone meant the trip would be cancelled. As they were aware of the cyclone and the potential that it would stop them from travelling before they purchased their policy, the cyclone was a known event. No claim would be payable if they had to cancel the trip due to the cyclone because it was already in existence when they purchased the policy. It was not unforeseen or unexpected.
Similar scenarios could relate to the declaration of medical epidemics/pandemics or instances where the government travel advisory for a destination country is upgraded to advise against travel. If you wait to purchase travel insurance until after an epidemic is declared or the government upgrades its travel advisory recommending against travel, it is too late because the event which might result in you suffering a financial loss has already happened – it is a known event.
Most if not all insurance policies have exclusions that relates to a known event. In travel insurance policies, the exclusions normally take the following form.
You are not covered for any incident that does not occur during the period of insurance.
You are not covered for circumstances manifesting between the date of booking your trip and the date you purchased your insurance.
We strongly recommend that you arrange travel insurance once you have started to make payment for any trip arrangements. When you hand over money, you are carrying the risk that something might happen which could cause your trip to be cancelled or disrupted. If you wait until something happens that might cause you to cancel your trip, it is too late – this is like waiting until the horse has bolted before shutting the gate. Don’t delay – once you have paid money (even if it is just a deposit), organise your travel insurance immediately.