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You may have heard in the media about insurance claims that insurers have declined for what appear to be feeble reasons. This article will discuss why claims are sometimes declined and give an example of some of the recent advocacy work we've done to get the client's claims paid. At the end of the article, we also offer seven less obvious ways to fight your declined claim.

THE FAIR GO EXAMPLE

Fair Go did a story in May 2018 involving a client who applied for income protection only to have a later claim declined when the insurer discovered he had not disclosed some other completely unrelated (to his claim) health issues.

In short, the client completed the initial application form and indicated to the insurer that he had no past or present health issues at all. As it turned out, he had some history of the very first 2 conditions listed in the application form (blood pressure & high cholesterol) as well as sleep apnoea - a combination of conditions that insurers treat very seriously. As the client told the insurer in the original application that he was in great shape, the insurer decided there was no need to write to the doctor to confirm this.

The insurer's response when discovering the non-disclosure was to decline a later claim made by the client. The justification was that they wouldn't have offered the cover in the first place had they known about his health issues. So, although the claim stemmed from something unrelated, he still couldn't claim because he wouldn't have had the policy if all the correct information was presented upfront.

Cancelling cover and/or declining claims is not the only way an insurer will deal with non-disclosure when they find it. For relatively minor non-disclosure, they might still accept a claim but go back and add some retrospective exclusions to a policy, adjust the premium or reduce a claim payment.

IS IT FAIR TO DECLINE CLAIMS - NOT EVERYONE AGREES?

Insurance is just a way for a group of individuals to share the risks that they collectively face. The concept was born in Babylonian times when ship merchants would spread their risk by splitting their goods into smaller parcels and transporting them on multiple ships. If one of the vessels sank or was attacked by pirates, each merchant only risked losing some of their goods. The amount they each lost could be considered the 'premium' that we pay today. If one of the ships had a slow leak before leaving port, all the merchants would want to know about it because this would dramatically increase everyone's risk of loss.

A healthy insurance pool works the same way. All the risks 'the pool' face need to be accurately quantified. If they aren't, everyone loses because they must pay higher premiums to cover the higher potential losses. 

So, in most cases, it's pretty reasonable to decline or adjust a policy holder's claim if they haven't fully and fairly answered all the questions they have been asked.

One of the advantages of telling the insurer everything upfront is that you are far more likely to get a better offer of cover from them at this stage of the process. They want you to buy the policy, and they aren't facing any impending claim, so everything is working in your favour. You're really at a disadvantage if they discover new information while they're considering a claim from you.

AN EXAMPLE OF A DECLINED CLAIM - WHY HAVING A COMPETENT ADVISER COUNTS

A while ago, one of our clients died very unexpectedly from an undiagnosed heart condition. Besides being a smoker, he didn't present any of the usual risks associated with heart disease. When we submitted the claim to the insurer, we were amazed to be told that the claim was declined.

The insurer had written to his doctor and found in the records multiple references to the doctor's strong recommendation that he undergo a colonoscopy. The client's brother had been diagnosed with a survivable form of bowel cancer - but one that was known to be inheritable. Our client had never had any symptoms, but the doctor just wanted to be sure.

Understandably, when applying for life insurance, our client didn't think to disclose tests he'd never done for an illness he'd never suffered. However, the application had asked about family medical history and whether he had been advised to undergo any tests. Technically answering 'no' was non-disclosure.

With a 6-figure life insurance claim in the balance, the insurer then weighed in this new information. It determined that they wouldn't have offered the cover initially until the recommended tests were completed. So, despite his death being entirely unrelated to bowel cancer, the client having no history or symptoms and not dying of bowel cancer, his claim was declined.

BUYING INSURANCE - BANK VS. INDEPENDENT ADVISER

One of the disadvantages of buying life insurance direct from a company or bank that employs its advisers is that the insurer's staff work for the bank/insurer. The employed adviser's first responsibility is to their employer, and so when a claim is declined, they will often encourage the client to accept the decision.

The situation is very different if you buy your insurance through an independent adviser/broker. Their first responsibility is to their client, and they will not accept a decline unless overwhelming and undeniable evidence is produced to support the decision. They also have the benefit of experience. They know how the insurer has treated other clients with similar health issues previously, how other insurers would deal with the same situation and where the weaknesses are in the insurer's position. 

GETTING THE DECISION OVERTURNED

Going back to our client's declined claim ... Vesta Cover did not accept the decision. We were convinced that the insurer was giving excessive weight to the colonoscopy and that the pending claim was possibly influencing the insurer's thinking. We then started working with the family to appeal the decision.

Between Vesta Cover and the family, we provided the insurer with proof that other insurers would have accepted cover on the client despite the recommended tests. We could show them other examples where a health issue affecting just one family member didn't stop them from offering cover. We also pointed out that our client's brother's particular cancer had usually only presented in much younger people. Because our client was older, he was unlikely to be at risk.

Subsequently, the insurer overturned the decision to deny the claim, and the widow received full payment plus interest.

7 LESS OBVIOUS WAYS TO GET THAT CLAIM OVERTURNED

1. Advice compliance - When you applied for the cover - Did the adviser who sold you the policy satisfy all of his/her legal requirements. Were you provided with a disclosure statement? Was the advice given to you in writing? Did your adviser clearly explain the importance of disclosure? Can s/he prove it?

2. Conversion options - If your current policy doesn't cover the issue being claimed are there options to transfer to a policy that does without needing to complete a new health declaration (called a 'conversion'). We recently had a $750,000 claim paid for one of our clients by transferring his ineligible and out-of-date policy to the company's current policy that did cover his situation. All of this was done with the full knowledge of the insurer. As experienced advisers, we used the terms and conditions we knew existed for our client's advantage.

3. Claims philosophy - Does your insurance company have an 'If it's grey, we will pay' claims philosophy? If they do, your job is to focus on why you believe your situation falls into a grey area. The insurer might have this philosophy and sometimes need to be reminded of it. They might think you're case isn't grey at all, but an ombudsman, the Commerce Commission, or a court might decide otherwise.

4. Moving goalposts - Is the insurer applying the same rationale for assessing your claim that its new business underwriters use when considering a new application? If the company thinks that two family members need to have the same health issue before it becomes a relevant family history, they can't change this to one family member when deciding on your claim. If high blood pressure that is medicated and managed well doesn't affect a person's ability to get cover, then discovering you forgot to disclose this when claiming shouldn't make a difference. Ask an experienced adviser for help with this.

5. Timing is everything - If you discover you have an illness or death claim after cancelling a policy, you might still be able to claim. We once helped a widow claim over $300,000 on her husband's death even though he wrote and asked for his policy to be cancelled six weeks before being diagnosed. We were able to convince the insurer that the client was terminally ill when he applied to cancel the policy - he just didn't know it.

6. The wrong policy - Have you discovered you don't have the kind of policy you thought you did? Can you prove that your adviser or insurance company knew, or should have known, that you wanted to cover particular kinds of risks? It might seem hard to believe, but sometimes a client asks for a pear but is eventually given an apple. If this has happened and you have not been given suitable advice in writing about a change to the recommended solution, the insurer may have no choice but to retrospectively change you to a more suitable policy. In doing so, they can't take account of any recent changes in your health.

7. Unpaid premiums - Was your policy cancelled because you missed premiums? Can the insurer provide evidence that they notified you of the cancellation in writing to the address on record? One of our advisers once worked for an insurance company that was forced to pay out a $500,000 claim because the company had suspended all mail for the client when mail was returned to sender in error. In that case, the client hadn't paid premiums for over six months. Failing to send out written advice of cancellation will leave the insurance company on the hook in many cases.

As you can see, there are many and varied ways to fight the decline of a claim. You must seek advice before just accepting a decision. Sometimes this might involve a lawyer, or sometimes your adviser will be the person to help.

There's no harm to seeking the help of a third party adviser in these circumstances. If your existing adviser is potentially at fault or too inexperienced to help, getting a third party involved might be essential.

VESTA COVER'S ADVOCACY SERVICE

Vesta Cover offers an advocacy service for the general public on a no-win-no-fee basis. Our service is called 'Decline'. If you would like us to look at your situation and give you an initial free opinion go here.