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Burning down the house

Some will look at my recent antics as akin to burning the place down. My response, if I have to!

Saturday, September 9th 2023, 6:00AM 12 Comments

by Jon-Paul Hale

The reality of our present environment is we have a huge amount of regulation and responsibility on financial advisers. At the same time, the providers continue to play stupid games, looking for stupid prizes.

I'm somewhat astounded by the FMA and RBNZ thermic reviews that state all is well and we don't have problems. At the same time, we find Southern Cross stealthily removing benefits without advising policyholders.

One has to ask, were those doing the reviews looking under the rocks or were they dazzled by the provider's marketing departments?

In the last 12 months, we have had a range of things hit the media on the poor behaviour of providers, including fines, and all is well?

Also, remember that the providers did most of the work, resulting in fines through their own self-reporting.

One does have to wonder what exactly is being looked at and investigated.

For now, I'll continue to light fires like a rabid pyromaniac. I've been in this industry for 23 years, 11 as an adviser, and essentially, not enough has changed to remove the BS that goes on.

This is a new one; I noted in September 2022 with AIA, and looking back, it likely dates earlier than this with their updated shiny new and simpler policy split process. (Yes, this is how it was presented.)

Nope, it is horrible, worse, and predatory.

For as long as I can remember, when it comes to policy admin, the most challenging part of a policy split for separation was getting the now-separated couple to sign the forms to split things.

I contacted AIA in September 2022 with questions and justification for this change, but I didn't get a reply.

And with the example I'm going to talk through, I reached out again recently about it, and I've also had continued silence.

What's going on?

Under the justification of unfair contract terms with the updated Fair Trading Act, AIA is forcing the upgrade of old policies on their books to new policies that meet this arbitrary requirement.

On the face of it, this sounds like a good thing, right? Not so much.

When those policies commencing 2001 to 2010 are split, they have to be moved to new AIA products.
* Ok, if the product and premium are largely similar, many will be.
* This is horrible for those policies that are joint life assured and have level to age 65 or 80 premiums!

With those policies with level premiums, these are actively being broken and moved.

This is forcing a repricing of policies that were guaranteed premium rates.

It doesn't sound very fair to me; it really questions the understanding of unfair contract terms when you strip away that AIA is increasing premiums substantially to the detriment of the client for what is an administrative function most of us deal with regularly.

Where does this fit in the unreasonable contract terms thinking?

Ok, that's just pricing, right?

They get fresh contracts and updated wording at a higher premium, but it's all good, right?

No way!

The extension of this change applies to policies before 2001 that don't receive passbacks and have always needed to be underwritten to be brought up to present-day policy definitions.

Yes, you're getting the idea.

If the policy is before 2001 and you're splitting the policy, AIA is insisting that ALL lives assured must go through underwriting and be upgraded to new cover. Not one or the other, all of them!

Hang on, wait a minute! After having the policy issued for over 20 years, the client is forced to be re-underwritten for an administration requirement?

Where does the basic premise of once cover is issued, the provider can't review the policy terms to be worse than they started with?

This is a real-world example. She has heart issues, and he has had cancer. They are not healthy specimens of humans for the underwriting process!

Now, the really interesting bit.

AIA allowed the clients to restructure the policy in situ, move the accelerated trauma to standalone and drop one of their life covers. It's not ideal, but relationship splits force all sorts of decisions.

Hang on, so the policy's fundamental benefits can be restructured without triggering upgrades and underwriting, but splitting the policy (an admin process) does?

Someone somewhere there seriously doesn't understand policy administration!

The moral and ethical issues coming out of providers at the moment are astounding, and over the years, none have been squeaky clean. Most do try their best, and that's good aspirational stuff.

This area with AIA really astounds me on the decision-making to force underwriting on people when they are going through what is already one of the more significant stressors of life.

Not to mention how inappropriate this is.

This whole mess is justified based on unreasonable contract terms.

I have to ask, are the existing terms of the policy as it stands undisturbed a problem? Nope, it doesn't appear to be.

If they are when the policy is split, there is a failure of logic somewhere!

Secondly, upgrading and applying new underwriting on an existing assessed and paid-for risk is to be done because of unreasonable contract terms.

What about the unreasonableness of the resulting underwriting and contract terms with premium loadings, exclusions, and breaking of level premiums as unreasonable contract terms?

I'm here to advise clients on the best way to manage the financial risks they face.

It is damn hard to follow through on that when the insurer can just decide they want to apply onerous requirements on existing policies with their admin processes.

I can understand the change of risk driven by the client (increased benefits, etc.); that's BAU; this issue is about administration.

Like the Southern Cross issues highlighted recently, this becomes a massive trust issue for AIA.

If you can't trust your insurer to treat you fairly, what is the value of your policy and the premiums you pay?

While I continue to find these issues lurking in the shadows, I'll continue to light bonfires around them, that I promise!

Again, insurers do better!

Tags: Jon-Paul Hale

« Authority Documents - What’s too far? Let's talk about trust »

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Comments from our readers

On 10 September 2023 at 11:46 am JPHale said:
Following this example, I have also been raising the process on legacy policies with those that have them, and so far, Fidelity Life also has a problem here.

However, their approach with the legacy policies is to force the "upgrade" on only one of the people being split off. On the basis that there is a new policy being created for one of them, and this is the trigger for the underwriting being applied.

For AIA, that too will be part of the justification; at the same time, it falls apart when you can restructure benefits in situ, but a policy split is underwriting?

Not ideal with Fidelity Life on this, at the same time, you can make the call on the one going through underwriting, so at least you can manage minimising the impact on the client to some degree.

For both, neither approach is fair to the clients concerned, as they are long-standing bought and paid-for policies, and the insurer should not be tinkering with them in the way they are.

Many of us don't have a lot of old policies in our client bases that get impacted like this, as changes over time typically mean that splits for good underwriting reasons have already been done or the policies were individual life policies in the first place.

Because of an unfortunate set of personal circumstances not related to the risk covered by he policy, clients should not be impacted like this. (Well, excluding special events increases that may, but probably are not, available)

On 11 September 2023 at 11:58 am lifeadviser1 said:
Another in a great series of articles Jon-Paul.

Something that hasn't been mentioned so far in relation to the Southern Cross removal of the NSH benefit relates to your following question:

"One has to ask, were those doing the reviews looking under the rocks or were they dazzled by the provider's marketing departments?"

While this is directed at the FMA and RBNZ reviewers, I think that the question must also be asked of the research houses. It is all well and good to bemoan the lack of transparency from providers (in this case Southern Cross), but I am yet to hear anyone decry the fact that this has slipped under the radar of some or all of the research houses. Are they also guilty of relying on provider spin, when they should have been looking under the rocks? (Rocks make good paperweights for stacks of policy wordings, where all is revealed.)

This is neither a recent nor a minor change. Perhaps a few words of explanation from the research house/s that dropped this ball would be a useful way to round out this series of articles?







On 11 September 2023 at 4:05 pm JPHale said:
@lifeadviser1 That's a good question and one that I have discussed with two research houses offline.

Having been through the Southern Cross policy wordings numerous times per month in the last few years and writing about guaranteed policy wordings here on Good Returns in 2021 referencing the policy wording that had just changed and missed it myself, I'm not exactly in a position to throw stones at the research houses on the subject.

As I have said most places this is talked about, the lack of realisation by the whole industry over the last three years, including the research houses, says more about the communication from Southern Cross than it does about the industry response.

Was there a cognitive bias present in the review of the changed policy wording? Probably. This bias is in the form of being overly familiar with the products and not noticing a small change that has a significant impact on coverage. It's a benefit we all assume is there!

Compounded with the communication from Southern Cross focusing on new benefits, and there were quite a number of changes, the loss of this in the context of the new benefits added wasn't easy to spot. It took me a few goes through the wording when I found out about this at the time, and I recall feeling a level of disbelief that it wasn't there. It's a fundamental benefit.

I discussed this with 7 advisers before I took it further, three of whom said, "It's there; they moved it into the surgery benefit" Nope, it's not. Demonstrating that even those familiar with other products as advisers had also missed it.

The only place that Southern Cross stated non-surgical hospitalisation benefit had been removed was in the adviser briefing video that had been unavailable since about May 2021. (When I wrote the guaranteed policy wordings piece and I couldn't access the video then) So this video, restricted to advisers with an agency, was offline for over two years before being "fixed" in the last week or so. Cynically probably because they did say they removed it in the video. (I was on a disability claim for a piece of Lego in my lung for half of 2019 and almost all of 2020, so I didn't attend the adviser briefing in October 2020)

The specific communication to clients around the change is as follows (this was not provided to advisers or research houses unless they held a Southern Cross policy themselves):

Administration of non-cancer IV drugs change
IV infusions for non-cancer indications were previously covered under specialist consultations or the non-surgical hospitalisation benefit. They are now covered under the separate IV infusions (non-cancer) benefit, providing up to $1,000 per claims year for Medsafe indicated drugs.

Not only does it not say non-surgical hospitalisation is being removed, but in referencing the benefit they have, it suggests it is still there! Specialist consultations are still a benefit!

The removal of the benefit in the policy wording was one line: Non-surgical hospitalisation $60,000 per claims year

I understand the sentiment about the research companies, and I also appreciate the gap that not picking it up represents. At the same time, with the extent of the oversight and the wider lack of industry understanding or pick up on it, the fault lies squarely with Southern Cross on this one.

It's going to create some difficult discussions for the research providers, I'm sure; at the same time, I don't think they will be leaving themselves open to such bait-and-switch techniques in the future. I certainly won't be!

Blaming research companies for this is the wrong direction; the culture and conduct of an insurer hiding changes is the issue, and that's where we need to maintain the focus.
On 12 September 2023 at 1:33 pm Lifer said:
Insurers forcing clients on to less advantagous products/terms is just plain wrong, and it erodes the public's confidence in the indusrty, and could even potentially be seen as bringing the indusrty into disrepute. IT is widely acknowledged that there is an underinsurance problem. Reducing confidence/trust in the indiuustry will hardly help matters.

As for the Southern Cross non-surgical hospitaisation benefit removal debacle, can someone explain to me how its exceution/communication was not misleading? Implying benefits were enhanced/added when in reality they were materially decreased? Am I missing something here?
On 12 September 2023 at 3:35 pm jake lester said:
Thanks JP

I am not a lawyer and I not sure you are so I cannot comment on your assertions concerning fair trading laws.

Ther are two sides to all stories and I think the pricing and underwriting components need to be split.

Any insurer needs to be prudent and protect the quality of the pool of risks. So if clients are electing (this seems to be client initiated and the insurer seems not be be initiating contract change) to change and the new product has higher benefits then the insurer is being prudent and protecting all customers by asking for the improvement to be underwritten. It may not suit the client but the insurer is trying to balance the needs of one against the needs of all customers in the pool.

The re pricing of level premiums on the facts JP has presented (noting we only have his side) does seem most unusual. Such an approach will create windfall profits for the insurer at the expense of the customer. It seems to go against the whole point of level premiums .

jP raises important points but we do need to consider the wider picture.

As a former salesperson / BDM and now adviser clearly JP seems to be a strong advocate of individual customers which is needed. underwriters need to think about the wider pool.
On 12 September 2023 at 3:43 pm danzy senna said:
Are Goodreturns going to give AIA the right of reply as this article makes some strong statements ?

Of course JP can get in the weeds about companies.

The problem for insurers is that when JP has a go and gets in the weeds the insurer cannot talk about granular cases.

The premium increase from supposedly level that JP mentions is a concern though and one would struggle to attribute the case to JP drinking too much Partners koolaid
On 12 September 2023 at 9:24 pm JPHale said:
@jake you don't seem to have grasped the issue here.

The change in risk, restructuring the life and trauma did not trigger an upgrade of the policy.

It was the splitting of the policy due to the clients' relationship split that triggered the policy upgrade.

And AIA cited in their communication the unfair contract terms of the FTA they were addressing.

Tell me, and this is quite simple, are the terms of the existing policy in place more onerous to the client than the terms applied through undergoing for someone that has had cancer or a heart attack?

If you refer back to, oh you can't because it expired, communication advising this change of approach in September 2022 you will find that prior to this, underwriting did not apply to this situation.

It's purely a case of the insurer acting in their interests impacting otherwise stable products on their books.
On 12 September 2023 at 9:58 pm JPHale said:
@danzy that door is always open, and Philip and his team only push the button on my stuff that has been substantiated.

As I stated, I have requested clarification of this issue multiple times from AIA, both last year with the announced changes, being repricing of L80 & L65 contracts, and more recently the underwriting impacts, and I have had nothing back.

When an insurer doesn't respond to being called out on this stuff after multiple requests it usually means one thing, they don't have a reasonable reply that is justified.

I'm all ears to understanding why breaking terms of contracts and security of cover for clients is going on, but they have chosen not to respond.

As a direct result of this article, I've had three more cases passed to me on Monday by advisers that have been impacted in similar ways.

The article is about the change in the operational process communicated in September 2022 with an example of a client to demonstrate the unreasonable impact of that change.

I'm not asking for the client situation to be debated, it's the policy decision by AIA that is the subject, if you can't see that, maybe spend more time understanding the subject?

The point is the operational processes, AIA, and the other insurers I have called out, are free to respond and explain the unreasonable impacts on clients their changes are having.

As to kool-aid, yeah, given that I take a wider lens than those suggesting kool-aid is involved, they likely have a vested interest and their own flavour of kool-aid?

I’m surprised at the continued suggestion of PL kool-aid as I've said more against what PL has done in the marketplace than most others over the last few years. But then, there's those out there that have a view about PL regardless of the subject.

The reality of PL that we can all take a page from is on the most part they have had a clear focus on better client outcomes, the ones they already have.

The changes we’ve seen and had to contend with have been largely about new business rules. They have been consistent with existing business and claims. And premiums were always going to increase to the market, first rule of markets.

Similar can be said for nib, Fidelity Life, and Asteron Life in these areas too. I guess that's the point.

Even with Fidelity Life implicated here in my comment above, they're engaged in talking about doing things better.

There are providers who try to do better when they get it wrong and providers that dig deeper holes, we’re seeing that play out here and I'm happy to shine a light on stuff that is unreasonable and causing harm to clients.

Not all advisers work with all insurers, I do. As a result, I don't get distracted by other product specialties, they aren't my area.

I will bring to market what's going on that isn't client-friendly. And that too was my opening point.

Another apt point; The Only Thing Necessary for the Triumph of Evil is that Good Men Do Nothing

Where do you stand?
On 12 September 2023 at 10:15 pm JPHale said:
@Lifer, nope you've got it right.

Jake made a comment I didn't respond to but you've also covered it as I see the situation too.

The idea that the insurer has to think about the wider pool misses the point that these are contracts that are in place, some with guaranteed premiums, and the insurer is using a predatory admin approach to disrupt them.

There is nothing in present legislation that supports this activity. If that were the case they would be reviewing the whole book and not just policies that have had the unfortunate situation of a relationship split! As too we would see this from the other providers.

In reality, for a lot of those policies, the relationship split is a special event that is able to be actioned to increase cover on the existing policy.

To suggest that this is about the insurer looking after their book is exactly right, and completely misses the fundamentals of insurance contract law.

Once a policy is issued the insurer has NO right to make the terms of the policy worse, unless allowed for in the contract.

These contracts impacted do not have policy terms that enable this level of BS to be perpetrated on what are at this point vulnerable clients.

Sure I'm not a lawyer, but I've been around long enough in the right places with the right people to understand what's right and wrong on this stuff. And some of it is very very wrong.

Follow the money they say, that's exactly the point here, and it's not in the interests of clients. You know that little amendment that's the largest piece of legislation in NZ history…
On 12 September 2023 at 10:19 pm JPHale said:
@Lifer, nope you've got it right.

Jake made a comment I didn't respond to but you've also covered it as I see the situation too.

The idea that the insurer has to think about the wider pool misses the point that these are contracts that are in place, some with guaranteed premiums, and the insurer is using a predatory admin approach to disrupt them.

There is nothing in present legislation that supports this activity. If that were the case they would be reviewing the whole book and not just policies that have had the unfortunate situation of a relationship split! As too we would see this from the other providers.

In reality, for a lot of those policies, the relationship split is a special event that is able to be actioned to increase cover on the existing policy.

To suggest that this is about the insurer looking after their book is exactly right, and completely misses the fundamentals of insurance contract law.

Once a policy is issued the insurer has NO right to make the terms of the policy worse, unless allowed for in the contract.

These contracts impacted do not have policy terms that enable this level of BS to be perpetrated on what are at this point vulnerable clients.

Sure I'm not a lawyer, but I've been around long enough in the right places with the right people to understand what's right and wrong on this stuff. And some of it is very very wrong.

Follow the money they say, that's exactly the point here, and it's not in the interests of clients. You know that little amendment that's the largest piece of legislation in NZ history…
On 12 September 2023 at 10:22 pm JPHale said:
As an aside, if you're a Life Insurance Adviser and you don't understand the issue I'm covering here, take your level 5 qualification and hand it back and do it again!

The issue I have covered here is a fundamental basic principle in NZ life insurance law covered in Level 5.
On 13 September 2023 at 3:26 pm JPHale said:
Further to my direct comments last night, I have been talking to Asteron Life about this situation.

This issue was an identified issue with the old SmartPlan range that was specifically accounted for in the design of the current product range to be single-life policies to not force the underwriting of clients in these situations, even if it was only one life.

The prior experience with SmartPlan has been similar to Fidelity Life, where one life in the split had to be moved to a newer policy.

While we complain about the additional policy documents and numbers with Asteron Life, this is why we have it, and frankly, good on them for addressing it as they have. They could have told us about this a bit earlier, though...

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