Get real on disclosure

David Whyte argues other countries have already tackled the question of what to disclose on insurance application forms - and it's time we caught up.

Thursday, July 6th 2017, 12:21PM

The issue of what to disclose on an insurance application form has been a frequent source of heated debate, discussion, and dispute.

In industry terms, non-disclosure of material facts – those that would have influenced an underwriter’s decision - has been used as a reason for declining claims in the past.

Some progress has been achieved. Declining a claim on the basis of an undisclosed condition that is unrelated to the cause of the claim has been less and less contested by insurers.

But this is papering over the cracks, as the fundamental aspect of non-disclosure – inadvertent or otherwise – needs to be addressed, as it has in other OECD territories.

Concerns range from fraudulent and deliberate attempts to mislead insurers at one end of the spectrum, to claims departments apparently looking for any possible way to reject a valid claim.

No doubt there are occasions when both occur, but these are the exception rather than the rule, and all stakeholders need to move forward to a regime where disclosure rules do not penalise the innocent, nor leave insurers exposed to meeting invalid claims.

Careful attention the wording of terms and conditions will help, as will spelling out in plain English the nature, meaning, and impact of any exclusions applied at standard policy level, as well as any applied at the underwriting stage.

But there needs to be more consumer-friendly parameters around the disclosure/non disclosure treatment in the transaction of the contract.

Falling into line with Australia isn’t always a good thing, but in this instance, NZ has to bite the bullet. Without going into detail, the ability of an insurer to avoid a claim due to non-disclosure has been rendered more onerous than previously.

Like it or not, and there will be some objections from the industry, this amendment to current practice in NZ is on its way.

There will no doubt be dire warnings issued about the consequences of adopting a more consumer-friendly approach and it is likely that more claims will be paid as a result of accepting the amended treatment of non-disclosure.

But there are too many incidents in the past where claims have been negatively impacted and rejected to maintain the status quo.

Sure premiums will rise should claims increase as a result – but they will rise for everyone – that’s one of the fundamentals of insurance.

And while it may come as a shock to some commentators that adviser commission is not the only expense that has an impact on retails premium pricing levels, the potential adjustments in claims experience are a strong argument for the FSC publishing more detailed analysis of individual company statistics.

The current high-level marketing releases are interesting and significant, but a breakdown of such information, and a greater level of transparency, would greatly assist those seeking to inform consumers how and why issues like non-disclosure disputes should be consigned to history.

Tags: David Whyte Disclosure