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FSCL warns: Roboadvice creates non-disclosure risk

Allowing personal insurance products to be delivered via roboadvice opens New Zealanders up to greater risk of having their claims rejected because of non-disclosure, a dispute resolution service says.

Wednesday, June 27th 2018, 6:00AM 1 Comment

by Susan Edmunds

The Financial Markets Authority is issuing exemptions that allow providers to offer personalised roboadvice.

Kiwi Wealth has been granted an exemption for its Future You product and Nikko Asset Management has applied for an exemption for its KiwiSaver plans.

In its initial proposal, the regulator had indicated that it would not include personal insurance in the scope of allowed roboadvice under the exemption – but it changed that after submitters argued that it should be made possible.

But Financial Services Complaints Limited chief executive Susan Taylor said it was not the right decision.

She said her scheme saw a number of complaints from people who had not disclosed their full medical history.

“In our view, this is a particular risk with roboadvice. A natural person adviser may be more likely to pick up on a consumer’s uncertainty about whether there is a pre-existing medical condition or not, whereas a roboadviser would have reduced capacity to do this.

“There may be reduced opportunity in the roboadvice setting for the consumer to explain their situation in more detail. By speaking to a natural person adviser, the consumer may be more inclined to explain their situation in more detail, and this in turn may lead to the natural person adviser asking further questions, or more in-depth questions (for example about a person’s medical history).”

She said one way to counter this risk was to require all roboadvice platforms to access clients' full medical records.

She told the Financial Markets Authority in a submission that, if personal insurance was included in the roboadvice remit, it should not be permitted when policies were being replaced.

“In the replacement advice setting there would, in our view, be too much reliance on the consumer accurately disclosing to the roboadviser what their existing cover is and what pre-existing medical conditions they have, to ensure the roboadviser can compare and contrast the existing insurance and proposed replacement options, in a meaningful way.”

Taylor said it was a high-risk area and consumers had "real difficulty" understanding the extent of their duty to disclose.

Clients would have to be warned of the potential consequences of non-disclosure and told not to cancel any policies until they had replacements in place.

Tags: FSCL roboadvice

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Comments from our readers

On 28 June 2018 at 11:35 am Barry Read said:
People keep saying 'Full Medical Records' are the answer to non-disclosure. Where are these full medical records kept? The current doctor? The previous doctor? The Specialist? The DHB? The overseas doctor? The overseas hospitals? The ACC? and remember not all medical records maybe relevant to the cover applied for, so aren't required but could affect the underwriting.

Also who will bare the cost of underwriters having to read all these records? (The answer is the policy holder) Also remember medical records don't cover occupational and recreational information which are also causes of non-disclosure.

Non-Disclosure is a risk, but it is not likely to increase due to Robo-advice or direct sales models (Does Pinnacle have a problem compared to industry stats?), and I would suggest some people may feel more comfortable disclosing online their medical issues rather than to a person they just met.

Does anyone have the stat's on this issue for NZ? I would imagine non-disclosure resulting in declined claims on life/IP/Med would be maybe 2% of all claims made? Maybe there are just 2% of people who tried it on with the insurer and new processes won't fix the issue?

Lets see what the Insurance Law Review uncovers.

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