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Industry researchers also in the dark on Southern Cross benefit

Others in the health insurance industry had been unaware that Southern Cross had removed its non-surgical hospitalisation benefit.

Wednesday, September 13th 2023, 11:12AM 7 Comments

by Jenny Ruth

Russell Hutchinson of industry consulting firm Chatswood Consulting says in a blog post that his team had been unaware of the $60,000 a year benefit's removal in late 2020 until alerted by adviser Jon-Paul Hale of  Willowgrove Consulting.

Hutchinson also pointed to Good Returns' subsequent stories on the matter.

“We know that when an insurer makes changes like this one, they may not want to shout it from the rooftops,” Hutchinson says.

“We would rather that we picked this up ourselves in 2020 but, in the midst of a pandemic and regular lockdowns, this update was missed,” he says.

But he clearly found that unsatisfactory and has instituted a major review, beefed up his firm's processes, hired two new people and “invested considerably in improving how we approach insurer product changes.”

Southern Cross has said that it advised advisers in a presentation in October 2020 – Hale, who was on disability leave himself at the time, had reported back to GoodReturns that he couldn't access that presentation on the company's adviser portal.

However, Southern Cross has since reinstated the links and also provided GoodReturns with a link so we could verify the situation ourselves – normally such presentations are available to advisers only.

What Southern Cross said

Just over an hour in to that presentation, Southern Cross does clearly state that the non-surgical hospitalisation benefit was being removed, but assured advisers their members would still be covered by other benefits.

It said it was removing it “to avoid confusion” that it said was occurring and the accompanying slide said that the changes would affect only about 25 of its members

The company said the benefit was most often used for non-cancer IV infusions.

What Southern Cross failed to make clear in the presentation was that a $60,000 a year benefit was being replaced by a benefit worth $600 to $1,000 a year, depending on the type of policy, to cover non-cancer IV infusions.

Good Returns has already reported that so-called advisories sent to members at the time focused on new benefits and talked about “changes” but nowhere did the company say the non-surgical hospitalisation benefit had been dropped.

Good Returns has already reported that other companies continue to offer non-surgical hospitalisation benefits ranging from Unimed Hospital Select Plus coverage of up to $65,000 a year to Partners Life and AIA's benefits of up to $500,000 a year.

Hutchinson says he gathered his research team last week as part of ensuring that they will pick up on such changed in future.

Chatswood's review

“In our review, we will consider comments made by Southern Cross in the media that claims payable in this feature are now covered in other benefits,” he says.

“We reviewed recent Statistics New Zealand data which show many tens of thousands of non-surgical prival hospital visits, many of which lasted many days.”

Hutchinson is also calling on advisers to let his firm know about any non-surgical hospitalisation claims their clients have made on any medical insurers.

Partners Life managing director Naomi Ballantyne provided Good Returns with data showing her firm's largest single medical payout last year was $280,000 for gastrointestinal cancer treatment.

Her company's three largest categories of claim against this benefit last year were cancer, costing $12.4 million in payouts, digestive tract conditions, costing $9.1 million, and investigations and tests, costing $8 million.

While nib, which provides non-surgical hospitalisation cover of up to $300,000 a year, didn't provide any data on its payouts, Hale says nib has provided him with data.

In June this year, it payed a total of $455,000 in claim and its third and fourth lagest claims paid $81,000 each to a man aged 60 for cardiac investigation and another man aged 69 for cancer treatment. The two largest and fifth largest claims that month were for surgeries.

Tags: Southern Cross

« Other health insurers are much more generous than Southern CrossFMA aware of but won't comment on Southern Cross benefit removal »

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Comments from our readers

On 14 September 2023 at 7:52 am JPHale said:
Thanks for continuing to cover this Jenny. It's too big an issue to let slide through a news cycle and have it swept under the carpet through apathy.

A point in the article that's not quite accurate, I have asked for, but not yet received, the claims information from nib. Once I have this, if I get it, I will share it for completeness.

However, Russell's team and their data crunching from data sources, both larger and paid for, that I don't have the time or budget for will likely give a better picture of the issue.

One that Southern Cross will likely point to and say those should be public hospitals despite clients paying premiums for policies; clients regularly tell me they want to have access to the best treatment available and not have to endure a public hospital room with 3-5 other people for their treatment or recovery. And they don't like hearing that acute is only provided for in public hospitals.

One adviser I spoke to has more recently had a month in hospital, public but not acute. They could have transferred to private and had a far better time of it, but they didn't. With Southern Cross, if they had a SX policy, they would not have been covered.

I myself, between Covid and my Lego experience, if I was hospitalised with either of those, I would not be covered under today's policy.

My time off in 2019 and 2020 was a result of pneumonia which discovered a piece of Lego in my lung that had been there for 40 years. If I wasn't fortunate to be so full of hot air, with 20% of my lungs impaired at the time with active double pneumonia, I would have had a lengthy hospital stay. With nearly 7 litres of lung capacity, I was fortunate; most are not. And yes, we found my baseline pretty much my whole life was low-grade pneumonia that was never picked up or diagnosed. And yes, there is a medical record about age 5 where this was likely where I asperated a single round one price of Lego.

I have had another SX client come across my desk from an adviser; this client needs $19k of treatment every 6 months. It is hospital level but not surgery, and it is off-label chemotherapy, but it is not cancer. The medications aren't covered by SX as it's unfunded and not cancer, with the hospital stay no longer covered. This is one of those minimally impacted clients SX talks about. Sure, everyone has $20k they can find every 6 months to stay alive.

The public system won't help because this is the management of the condition; they will only step in once the treatment is funded; that's when the client is stuffed, and it becomes a life-threatening situation. While they have this treatment, they remain in remission. Hardly a fair situation for a premium-paying client.

Another who called me demonstrated the power of guaranteed wording when the claim they made was initially turned down by another provider; when they referred them to their original policy wording, the claim was reviewed and paid. This was about a $45,000 claim.

My original client, who brought this to my attention, was fortunate they had most of their problem solved before SX changed the policy wording. They would miss out now, and their condition was both unmanaged and unacknowledged by the public system.

The issues with this condition go far deeper into our health system, where our central labs also refused to test and acknowledge the client's situation and today still will not run tests that have to be done in Australia to manage the client's conditions.

The reality here is people rely on the medical system to step up; when the public system doesn't, they're paying for the private system to do so. And many have private medical cover, and they expect it to work! They do not expect it to disintegrate just as they try and use it, which is happening with Southern Cross.

As advisers advising clients on medical policies, you can't do much about the existing covers that have issues like SX does, but sure as hell, you're going to get yourself in trouble if you are advising on policies that do not have guaranteed wordings.

I'll help you out here for those who don't subscribe to research providers; this means you only have two options available in the market today, Partners Life and nib. Both have excellent medical policies that are comparably the same, but they do have differences that you will need to match to your clients' needs.

The other two policies that have guarantees are the old Sovereign Majorcare before November 2003 and the Major Medical Deluxe cover with nib that came through from Club Life - ING Life - OnePath Life before ending up with nib.

If you have clients that have 30-day changes in wordings, then look at adding PL's medical alongside clause 3.3.1 means any contribution from the existing provider is considered a contribution to the PL excess; a base plan with an appropriate excess will assist in filling the SX holes. If you don't understand this, talk to your PL BDM, that's what they are paid for ;)

End of the day, right now today, if you are advising on 30-day policy wording policies for clients and not making them aware of the potential issues in the security of cover, you can expect complaints, and you can expect to be calling on your PI cover. Even with the disclaimers and still proceeding, that may not be enough to protect you in the future.

I'm interested to hear what the PI insurers say about this mess, because I'm guessing they don't want a bar of it either!

On 14 September 2023 at 4:12 pm Very Frustrated Adviser said:
Surely this is an issue for FMA?

Would us Advisers get away with only giving the good news in comms and hiding or minimising the bad news or major changes - pretty sure we would not!

SX are very good at changing things like commission etc without consultation or warning and now removing such a large benefit during Covid with minimal information about it - if Advisers, Clients and Industry experts missed it then it wasn't clear.

I think the only way to show our feelings is to stop writing for SX a lack of new business will stop them in their tracks and perhaps help them understand the need for transparency, honesty and clarity!

So do we as Advisers need to send comms to clients affected advising them that this has been removed or will SX send out clearer communication.
On 15 September 2023 at 9:06 am Lifer said:
@Very Frustrated Adviser I wouldnt be surprised if adviser generated business is ány more han 10% of Southern Cross business.

Stopping writing with them won't make any difference to their monopoly and monopolistic behaviour.

What would lead to better client outcomes would be seperating the product manufacture and sales/distribution parts of the business.

As NZ governnments let them operate as a non-tax paying monoply, ensuring that all Southern Cross clients receive unbaised advice when purchasing cover is the least that can be done to help balance things.

On 15 September 2023 at 2:40 pm Steve Wright said:
Very Frustrated Adviser raises an important question – should advisers raise the removal of benefits with their Southern Cross clients directly?

I’ll ask Very Frustrated Adviser one question: “Would anyone expect you to?”

I think that answer is “yes”; because I believe guaranteed wording is a fundamental issue for life and health insurance (all insurance where poor health might prevent a move to another provider).

But there are bigger questions here, for instance:
1. “What action should advisers take for all existing clients currently holding policies that can be changed unilaterally by the insurer, not just those with Southern Cross policies?”; and

2. “What justifies recommending a policy that is not guaranteed?” Put another way: “What would someone like to see in the client file, that shows a properly informed decision has been made by the client to accept a policy which is not guaranteed?

On 15 September 2023 at 9:58 pm JPHale said:
Well said Steve. We know you no-longer have a PL hat on and this had been a view across successive companies for many of us.

The advice issue for the rest of us is an interesting one, as we haven't got it right either. Ignorance isn't a defence and many advisers won't have discussed the guaranteed wordings bit in their advice.

I have covered the ability to change issue from day one, so it's been covered though maybe not appreciated by client's to this extent.

However, we have a stunning example of why it is important and what can go wrong.

Ad I've also said, it's a bit rough to blame advisers for the omission on the loss of benefits when it is both the whole industry and includes the research people too.
On 18 September 2023 at 2:24 pm Steve Wright said:
To be clear JP, I wasn’t blaming advisers for anything. Until now this issue (unilateral rights of the insurer to change policy wording) has not been widely appreciated or given much prominence.

However, Southern Cross' actions have now put the potentially adverse consequences for clients clearly in the spotlight, so I’m asking what actions advisers should take, considering the new environment they now operate under? I think this issue has now been shown to be important enough that it should be specifically dealt with by advisers.

Incidentally, another big question is... “What other equally important issues should advisers be dealing with specifically when advising clients?” Under the new regime I doubt we have the luxury of waiting for these to blow up: aren’t they best considered proactively?
On 19 September 2023 at 9:22 am JPHale said:
Sorry Steve in my effort to be brief, I know I'm challenged for brevity, I added that point for clarity and wasn't directed at you or your comments.

It is a logical step with the new rules as the FAP and the FA are ultimately responsible for their advice, flawed or otherwise.

Including being responsible for the accuracy of the material they use and rely on. The present law doesn't capture research or other advice tools for responsibility. It all sits with the FAP and the FA.

As to other issues.

The AIA contract splits, which Fidelity and Asteron also have aspects of.
Another is congenital and hereditary exclusions when no family questions are asked on the application. Surprises at claim time aren't fair contract terms
Passbacks and their management, I'm working on this as a resource article.
And a few other bits and pieces around contract admin.

As Chatterbox put it, in the weeds might be the drowning of me :D

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