By Bryan Tucker 15 January 2021
Sometimes insurers can decline a claim for seemingly obscure reasons.
One of Vesta's existing clients passed away suddenly from an undiagnosed heart condition. Besides being a smoker, he appeared to be a healthy 59-year-old with nothing remarkable in his past health history. We submitted the family's claim, expecting that the insurer would accept it quickly and without issue. To our amazement, the insurer declined it after obtaining the client's medical records.
REASONS GIVEN FOR THE DECLINE
When the insurer reviewed the man's medical records, they noticed repeated recommendations by the doctor to undergo a precautionary colonoscopy to check on his bowel health. His brother had previously been diagnosed with 'Lynch Syndrome,' a hereditary condition that dramatically increases a sufferer's chances of developing colon cancer. His brother had indeed developed bowel cancer but had been treated and was alive and well. Since it is a hereditary condition, there was a possibility that our client also had the disease, so his doctor recommended he get checked.
Because our client should have known all of this information before he applied for life insurance, the insurer reviewed the health declaration when he initially completed the cover application. They noted that he had answered 'no' to a question about family members with a hereditary health condition - including cancer. He had also responded 'no' to any recommendations by his doctor to undergo investigations or tests.
Both of these answers were incorrect. The insurer then made the decision that, had they been told about the hereditary condition and the recommended test, the cover would have been 'deferred' until after the results of a colonoscopy were known. Deferring an application means they delay the decision to offer cover for a set time or until required medical investigations are undertaken by the insured. The deferral can sometimes be for more than a year.
The insurer's stance at claim time was that if they had known this information initially, they would have deferred the cover from the beginning, and so the policy would be canceled as though it had never existed. Although the client had never had any bowel cancer symptoms, had never been tested, had never suffered from bowel cancer, and had died from a completely unknown heart condition, the claim was declined.
IS IT FAIR TO INCLUDE FAMILY HISTORY INFORMATION WHEN ASSESSING AN APPLICATION FOR COVER?
With other kinds of insurance, like car, house, and contents, the insured must notify the insurer at each policy anniversary if the risk of a future claim were to increase. If the insured has modified the vehicle or been convicted of drunk driving, s/he must tell the insurer, and they have an option to back out of providing cover for the next year. Alternatively, they can charge an extra premium to offset the increased risk.
When it comes to personal insurance, like life, income, trauma & disability cover, the insurer doesn't have this luxury. They must determine fair terms based on the information that the person to be insured provided initially. If the life insured develops diabetes a year after implementing cover, they cannot change the terms to offset the increased risk. If s/he answered all the questions fully and truthfully, the insurer is contractually bound to the terms they offer for the policy's life.
For this reason, life insurers need as much relevant information as can be reasonably obtained to make a fair assessment of the risk of covering a person. To the insurer, a relevant disclosure is anything that could potentially increase the risk of the insured having a significant change in their health or circumstances in the future. Like personal health, an applicant's family history can indicate what may happen in the future. Saying that your father has diabetes, your brother has diabetes, and your two sisters have diabetes, but you don't probably won't sit well with an insurer. They would think you have a high probability of developing the condition in the future and will charge increased premiums accordingly.
Information is reasonably obtainable if the insured is aware or should be aware of that information when they applied for the cover.
Being penalised for family medical history can seem inequitable in situations where the person to be insured was adopted. S/he may not know of any hereditary health conditions in his/her biological family and isn't penalised for this risk.
Lack of knowledge can also apply to personal health issues suffered by the person to be insured. If a claimant can prove that the insured wasn't aware s/he had a health condition when s/he applied, the insurer can't penalise the applicant for not disclosing it. Not knowing about a health issue can sometimes happen when GP's fail to mention an abnormal result or if a patient has poor English or education and wouldn't understand complex medical terms in a foreign language.
The insurer must decide what is reasonable and relevant. If your immediate family has a hereditary health condition, and you know about it, it's essential that you should disclose this information to the insurer.
THE CLAIM WAS COMPLETELY UNRELATED TO THE NON-DISCLOSURE - HOW IS THIS FAIR?
This is a crucial point to remember when applying for personal cover.
When reviewing the medical notes for a claim, the insurers don't just check for any known signs of the medical condition when the insured applied. They also check to see if there were any other significant gaps in the applicant's disclosure that could have influenced the terms offered initially. Suppose they find that the insured missed important information about a completely unrelated issue. In that case, they can re-assess the policy terms as though the insurer knew about it at the beginning. The reassessment can mean:
- No change to the terms and the claim accepted
- The insurer reducing the cover because the premiums paid were insufficient to cover the actual risk
- The claim being paid less a deduction for the extra premiums that the policyholder should have paid
- The claim declined
- The claim declined, and the policy canceled
Insurers may or may not refund the premiums paid if they think the non-disclosure was intentional or blatant.
...insurers don't just check for any known signs of the medical condition when the insured applied. They also check to see if there were any other significant gaps in the applicant's disclosure that could have influenced the terms offered initially.
GETTING HELP FROM AN EXPERT
This case was a perfect example of why you should always buy insurance through an independent adviser. Unlike a direct purchase from an insurer/bank, where an employee of the insurer/bank provides the advice and claim support, buying insurance from an independent insurance adviser means the adviser:
- Works for you - not the insurer
- Has a broader view of how other insurers would treat the same situation and can see the loopholes
- Has a financial interest in keeping you as a client
- Has professional indemnity insurance that may pay if the adviser is at fault
Your independent adviser should not accept a claim decline without a fight on your behalf. However, they sometimes lack the experience or are reluctant to help because they know the fault could be theirs. In these instances, it's usually advisable to get the help of an independent expert like Vesta. The expert will look at your claim, give an unbiased opinion, and may offer to help on a no-win-no-fee basis. Lawyers are also an option, but they will charge you for their services whether they win or not. Lawyers can also lack the industry experience, relationships, and everyday precedents that can be crucial to getting the right decision.
GETTING THE DECISION OVERTURNED
There were a few reasons why we felt the insurer was being particularly harsh in assessing this client's claim. We had dealt with the insurer for many years. We knew that they usually only adjusted a client's policy terms if they had at least two close family members with a hereditary health condition. This client only had one family member with the disease. For them to come back now and claim that just one family member was now enough to defer an offer of cover smelt a little like an insurer using hindsight in their decision-making process.
We called an underwriter for the insurer in a recorded phone call and posed hypothetical client details that exactly matched the information for this client. We were careful to include the brother's diagnosis of Lynch Syndrome and the GP recommendation that the client has a colonoscopy. The underwriter advised that they would likely offer borderline standard terms for this hypothetical client. They would have provided the cover without any adjustment or special terms. We then made the same recorded call to two other insurers, and they also confirmed that they would give the cover without adjustment.
We then wrote to the insurer with this evidence and some background information about Lynch Syndrome - that the condition typically showed symptoms before the age of 50. So our client, in his late 50's, would not have considered himself a candidate for the disease.
On review, the insurer paid the claim in full with interest and a thoroughly heartfelt apology letter from the CEO.
- Take great care to answer the insurer's questions fully - even if you don't think they are relevant
- Ask your doctor for an electronic copy of your medical records and supply these with your application
- Use independent insurance adviser's wherever possible
- Don't assume that a clear or apparent non-disclosure necessarily disqualifies you from a claim
- Talk to an expert if you're getting nowhere with your adviser or lawyer