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ISO supports disclosure law

The Insurance and Savings Ombudsman has added her support to calls for a law change to help consumers who accidentally leave information out of an insurance application.

Friday, May 1st 2015, 6:00AM 7 Comments

About 10% of complaints to the Insurance & Savings Ombudsman Scheme involve people who have insurance claims declined, or their entire policy “avoided” because they left out information on the insurance application.

“The two most common things people fail to disclose are their pre-existing medical conditions (39%) and any criminal convictions (29%),” Stevens said. “Some cases are clear, where people deliberately leave out information they were asked to provide, knowing that it will go against them. However, in other cases, people accidentally leave out information because they have forgotten, or do not realise it is important.”

The ISO dealt with one case where a health insurance claim for surgery was declined, because when the consumer applied for insurance she had not disclosed she had depression years before.
Although it didn’t relate to her claim, the insurer was still entitled to avoid the entire policy, because the information about depression would have changed the terms on which the policy was issued.

The current law requires a consumer to disclose to an insurer all information a “prudent underwriter” would consider important. “This is extremely difficult for consumers to understand,” Stevens said. “Insurers do tell their customers they need certain information, but my concern is that consumers don’t understand the consequences of not providing the information. That means we have a constant stream of complaints, and some very unhappy people. The ISO Scheme is often in a position where we can’t do anything, because it is the insurer’s legal right to rely on the law and the contract to decline a claim or avoid a policy for material non-disclosure.”

Legislation would mean that an insurer could only avoid a policy where it could show the non-disclosure was deliberate, such as when a consumer knew he had several criminal convictions, but chose not to tell the insurer on the application; or where a consumer knew she had had angina and chest pain, but chose not to tell the insurer on the application.

“Dealing with non-disclosure in this way would follow recent trends in Australia and the UK; at the moment, New Zealand is way out of step with these countries.”

Stevens says the new Fair Insurance Code for fire and general insurers was a step in the right direction.

“Industry self-regulation is not enough on its own. We need to review the law and make changes to stop consumers getting themselves into a situation where they are uninsured and, in many cases, uninsurable in the future.”

Tags: ISO

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Comments from our readers

On 2 May 2015 at 12:36 pm Newlands said:
So the end result of that is......more claims paid out, and as a result premiums must increase, which then means less people take out insurance. So I think that is pretty much a dumb idea. It's all about people being honest and "when in doubt" write it down on the application form!!
On 4 May 2015 at 4:30 pm Dirty Harry said:
"... people accidentally leave out information because they have forgotten, or do not realise it is important.” - Stevens.

Newlands, insurers have made big changes to Trauma cover over recent years, which made themselves pay more claims, and lifted the cost along the way. Result: More people buying more cover. Not less.

If dubiously declined claims, which feed and support all the worst negative perceptions, was reduced and trust and transparency was lifted, then how is that a bad thing?

It's marketing 101 to understand people will pay a little more for things they know and trust.

Doesn't seem like a dumb idea to me.
On 5 May 2015 at 12:58 pm Giles Thorman said:
At the risk of repeating myself, the example that Karen Stevens cites is of a client that had had depression years "before" but did not disclose it on her Medical Application. Karen then goes on to say that the Insurer should only be able to avoid a policy if they can prove the non-disclosure was deliberate. Is she really suggesting that the client had "forgotten" that she had suffered depression???

Depression can lead to many other Health problems aside from mental health issues and so the Insurer could well have been acting totally appropriately.

I am sure that Karen does not need to be reminded an Insurance Contract is a contract of good faith between two parties and not answering the questions truthfully because you may be embarrassed or because you cannot be bothered too is hardly fair on the Insurance Company OR its other policy holders who will have to pay for the Clients "memory loss".
On 6 May 2015 at 9:54 am Tash said:
In the Life Insurance industry (it may be different for the F&G side and I wish people would distinguish between the two when commenting on insurance)changing the rules to favour the irresponsible will simply cost the responsible, by increased premium, general exclusion of ALL pre-existing conditions, or both. This will reduce the amount of risk individuals can effectively cover privately and shift it to Society in general (mostly Government, i.e. taxpayers).

There is no excuse for non-disclosure, only more or less risk of it. If you choose to use a short form of application, one which does not have many detailed questions to aid memory and you choose not to use an adviser, who should be able to explain what "material" means and coach you properly through the application process, then the risk is high. The likes of the ISO would do much more good by educating the general public and encouraging the use of a professional to assist them with what is after all, a process likely to result in a contract that could be worth millions of dollars.
On 6 May 2015 at 1:28 pm w k said:
hope the people in authority knows the difference in the duty of disclosure in life and general biz.

and the difference when the application is completed by the client and the agent.

On 7 May 2015 at 1:43 pm Steven Popodopolus said:
A bit surprised at some of the comments here and indicates some naivety I feel. There is no doubt that the law is fundamentally skewed in favour of an insurer as they determine what is material. A specific example is that if you do not declare a running nose every winter then that is technically grounds for material non-disclosure as an insurer would "consider" say an exclusion for allergies. In these contracts material non-disclosure is legal grounds for avoidance from inception of a policy, and say a cancer claim therefore wouldnt be considered.

It is the determination of what is material that is the issue as it is solely falls with the insurers.

Dont believe that this would occur? That is the crux of a legal battle I have just been involved in.

The law is fundamentally flawed and needs to be reviewed with urgency.
On 8 May 2015 at 10:43 am Tash said:
Insurance companies have no choice but to rely on disclosure from applicants about their health. As far as the test for materiality goes, this is objectively determined by reference to the "prudent underwriter" test. Insurers cannot simply decline claims for the slightest non-disclosure. This is not supported by the law or good faith. Your example of a "normal" running nose every winter is unlikely ever to be "material" for any life, trauma or disability Cover, other than medical insurance. A persistent running nose with no obvious cause and not easily cleared up with usual medication is another matter as it may indicate something more sinister. Not disclosing this robs the insurer of the opportunity to investigate further to determine whether or not an exclusion should be applied.
It is my experience, of several insurers, that insurance companies generally try to give clients cover, follow international guidelines and accordingly underwrite in a way that is relatively predictable. If a customer uses a properly informed adviser with the necessary knowledge and experience to assist them through the application process the likelihood of "innocent" non-disclosure about a material condition is very small. Application forms with very specific questioning can further dramatically reduce the risk of non-disclosure because the client did not believe it was "material", answering all the questions fully and correctly should remove that risk. (Unfortunately not all insurers' application forms contain many detailed questions, some have relatively few but broad questions, and there the risk is much greater.)

Remember the insurance company only has one opportunity to make a decision to admit someone into their "risk-pool" and to protect others already in that pool, need to be able to make their decisions properly. I do not believe the law is fundamentally flawed at all but you are right, naivety and ignorance are not in short supply.

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