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The single biggest challenge with existing policies

The single biggest challenge with existing policies would be passbacks. 

Tuesday, May 30th 2023, 9:24AM

by Jon-Paul Hale

As most advisers advising on existing policies know, what passbacks happen where is a dark art shrouded in mystery.

We've seen the recent AIA media case around passbacks on a policy, and getting a straight answer out of Fidelity Life on the subject has always been a challenge. Even the distribution staff have struggled to get the answers over the years, and they work there!

I've had vague to non-existent answers from most of the rest; the only exception to this is Partners Life, where their book of business has had it from the start and isn't polluted with mergers and acquisitions. I suspect from past experience with the rest even their approach to the BNZ Life purchase has been clear.

This area is potentially the biggest issue for advisers at claim time, where an older policy, expected to be relied on, doesn't respond as well as it should. Was that policy you advised on several years ago actually subject to the passback rules you expected, or not?

Do claims have the same story as distribution? Or worse still, does the product know when things happened because the whole product team has rolled through and changed in the last decade?

The more I dig for clarity on "well-known and understood aspects" of our industry, the more horrified I am by the lack of standard operating procedures (SOP) that insurers have.

We hear all the time is the contract, it's the policy wording, yet when it comes down to it, there's a significant amount of unpublished SOP and guidelines that sit outside the policy wording that insurers use to determine if a claim is payable that we don't see.

This is just as much an issue for clients as advisers; how do they know what's covered if they don't have the updates and information?

If advisers are to provide client-focused advice that is accurate and reliable, we need accurate and reliable standard operating procedures from our providers. (Including dates on documentation)

The number of processes that seem to be made up on the spot or need legal or management input is concerning and potentially terrifying. In a role where we are expected to provide certainty of outcome for our clients (it's embedded in the original Life Insurance Act of 1908), the present situation doesn't deliver this.

I recently had a client on a claim with an AIA-originated disability cover, which lapsed for non-payment while on an accepted and paying disability claim.

It took the claims manager and team some 6-7 weeks to provide an answer to what was going on. While the policy had a waiver of premium on it, it doesn't extend to the other lives on the policy. 

  • The policy schedule is unclear on this, and the policy wording says nothing about it other than if it's shown on the schedule.
  • The schedule for the disability cover lists premium cover without any other details. As in [ Premium Cover], and that's it!
  • The partner has the same denotation with a premium cover and no other details.

The only way you know the partner doesn't have premium coverage? I don't know, it's not stated or listed, well, anywhere, and customer service isn't much help either.

And yes, those familiar with the original product and have had the associated experience will know, but most of the industry doesn't! The discussions I've had with older advisers about this particular situation have garnered, meh, don't know, have never known; good luck!

The fact that claims took their time to figure it out says it's not good enough. The rest aren't immune to this either; I have more recent specific examples where this has been a nightmare!

Another was a conversation with a Southern Cross client that was adamant that their Wellbeing Two policy didn't cover ultrasounds unless with surgery or cancer treatment. Umm… yes, that's right for the Wellbeing One, but not the Wellbeing Two.

Looking at the policy document, I can understand the misunderstanding, as the layout of this bit in the document isn't as clear as it could be; read on a smartphone, you could be forgiven for not aligning the layout correctly to get the misunderstanding. How many others are there?

Then there are the examples of timing on things that are vague. One insurer has two different dates for passback application, Policies from August 2012 and August 2014, for the same product range. The rule is the same in both documents, but the date differs. So how's that supposed to work again?

Like my comments about policy start dates, we need to get this stuff around passbacks clear and published because our advice to clients relies on it. It is critical to the decisions clients make and the resulting situations they must contend with.

Resolution Life; I have to say it's finally started to improve; for a while there, it was a serious question if anyone was alive over there. Three requests for proof of life that I sent didn't get a response!

Kudos to Resolution Life, as they are an example of it can improve after losing a substantial amount of institutional knowledge with the transfer from AMP. More recent correspondence around things has been far more coherent and timely.

The FMA has a focus on replacement business with its data collection and reporting, but this is somewhat at odds with the certainty we're expected to apply.

Without clarity on passback, advisers looking to advise on product response are more likely to rely on the certainty of the new policy wording over a vague statement of passback on an existing policy.

I'll say that a bit clearer for those in the back; if passback is not clear, that policy will be moved to a newer policy wording for better certainty of the outcome.

This isn't churn in the current environment; it is good advice following our rules, provided all the disclosures, etc., are managed as they should be, and the client can deal with pre-existing medical issues.

This is especially so when insurers are not standing behind their public correspondence of coverage.

  • I have had two in the last two years where the product manager's written confirmation on the cover was not the approach at claim time. Escalating these written product manager communications, they were discounted. Yup, an excellent way to destroy trust.
  • I have a third provider where the industry and my understanding differ; that is adamant that their policy works a particular way; we'll see at claim time. But hey, it's in writing, so let's see if it really works that way, aye?

The problem with these examples? They raise significant trust issues with insurers; if we can't trust what they tell us, how do we trust them at claim time? Like we don't have enough problems with insurer trust already!

I've even seen situations where insurers have stated they didn't say something, yet I have a video of one directly contradicting their denial.

This is part of the reason I collect every single publication from insurers, yes, even the ones they have removed and think are gone. I probably have a copy…

When it comes down to it, those clients impacted by this mess only have the court process to overturn these claim decline decisions.

That process for clients is expensive and places potentially compromised and financially stressed clients in a space where they can not take the necessary action.

The system works for the insurers when it comes to complaints to overturn policy response determinations, as the court is pretty much the only pathway here.

The DRS schemes have their place, but determining a contracted claim outcome of this nature isn't exactly their scope, but I'd be interested to see if anyone has seen any DRS complaints look at this problem.

I'm out over 1,200 words and could go on, but I'll leave that for the next one.

I'm interested to hear more from the market; the more information we have, the better picture we have and the more certainty on client outcomes. Because that's what we're here for!

Tags: Jon-Paul Hale

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BNZ - Mortgage One 8.69 - - -
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China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 6.79 - -
Co-operative Bank - Owner Occ 8.40 6.99 6.79 6.65
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 7.49 7.29 7.15
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
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Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 6.69 6.59
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Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 7.99 7.79 7.55
Kiwibank - Offset 8.50 - - -
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Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.65 7.25 -
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Resimac - LVR < 80% 8.84 8.09 7.59 7.29
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Resimac - LVR < 90% 9.84 9.09 8.59 8.29
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
Resimac - Specialist Clear (Full Doc) - - 9.49 -
SBS Bank 8.74 7.74 ▼7.09 ▲6.95
SBS Bank Special - 7.14 ▼6.49 ▲6.35
SBS Construction lending for FHB - - - -
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TSB Bank 9.44 7.79 7.55 7.45
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TSB Special 8.64 6.99 6.75 6.65
Unity 8.64 6.99 6.79 -
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Wairarapa Building Society 8.60 6.95 6.85 -
Westpac 8.64 7.84 7.35 6.99
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.24 6.75 6.39
Median 8.64 7.19 7.17 6.65

Last updated: 12 June 2024 4:04pm

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