By Bryan Tucker 27 January 2021
I'm probably biased, but I think anyone who buys life insurance from a bank asks for trouble.
Not only are the products they sell almost always inferior to the rest of the market, but you are also in a precarious position. You're only able to choose from the bank's products, and it's a bank employee (whose first loyalty is to the bank) providing you with advice. When push comes to shove, the bank adviser can't advocate for you the same way a completely independent adviser would.
This example of our claim advocacy service demonstrates how a very experienced insurance expert can make the impossible happen.
In 2013, Mr. and Mrs. F visited their bank to arrange a home loan for the house they had purchased. While they were there, the banking adviser recommended that they also take out some life insurance to cover the debt. They hadn't planned on taking life insurance but felt it was a requirement of the loan, so they agreed to implement the cover.
The couple were relatively new immigrants and didn't have a perfect grasp of English. Their banking adviser asked them the relevant questions and typed their answers into the bank computer system. The only health issue declared by Mrs. F was high blood pressure (hypertension). A few hours later, two $300,000 life insurance policies & the home loan were in place. The couple got on with their lives.
In 2017, the couple applied for a top-up to the home loan, and another banking adviser recommended they top-up the life insurance to $500,000 at the same time. Assuming it was a requirement, they agreed, and the banking adviser again typed their answers into the banking computer system. This time Mrs. F declared no health issues.
In 2018, Mrs. F became very unwell at an event. Within minutes she had collapsed and died. Her death certificate listed her cause of death as Intracerebral haemorrhage with additional notes of "Hypertension Years."
When Mr. F's lawyer submitted the claim, they were surprised that the decision to accept it seemed to be taking months. After some prodding, the bank finally wrote to Mr. F to tell him the claim had been declined because of non-disclosure.
REASONS GIVEN FOR THE DECLINE
When the bank reviewed Mrs. F's medical records, they noted repeated references to her poorly managed high blood pressure. She rarely took her medication and, consequently, had very high blood pressure readings every time her doctor checked her. They noted that she had disclosed high blood pressure in her 2013 application but did not tell the bank about her poor management of the condition. The bank had asked when Mrs. F last checked her blood pressure and if it was in the normal range. The answer typed into the banking system by the banking adviser was "last 2 months, was normal". When asked if she took any medication, the answer supplied was "no."
The bank felt that they would not have offered cover had they known this information at the outset. So they declined the claim and kept the premiums paid for the five years the policy had been in place.
THE INITIAL FIGHT
Over two years, Mr. F's lawyer tried to negotiate with the bank. Despite multiple requests, the decision did not change. The bank reiterated their position that:
- Had Mrs. F provided the correct information; the bank would not have offered the cover
- She was in an occupation that suggested she was an intelligent woman who should have understood the questions
- She never needed an interpreter for any other part of her life, and so language should not have been a problem
- The bank had given Mrs. F a copy of her disclosures when she signed up, and she had ample opportunity to check the details
Mr. F was left with a large mortgage, two young children, and no wife. He was devastated and had no choice but to stop working to care for his family.
VESTA ADVOCACY SERVICE
Towards the end of 2020, Mr. F decided to Google search for someone who could help him. He found the Vesta Advocacy service and made contact with us.
Vesta agreed to an investigation into his situation without initially committing to taking the case on. We posed more than 40 questions to the bank, asked them for copies of all documents and even had Mr. F make a Privacy Act request to ensure we had every piece of evidence related to the case. We then began an almost forensic investigation of every aspect of Mrs. F's medical records, the purchase of the cover, assessment process, the eventual decline, past industry regulator reviews of the banking industry, and past decisions by the Banking Ombudsman.
After Vesta completed its review, we agreed to take on Mr. F's case on a no-win-no-fee basis. We would take a percentage of any claim payment. What that percentage would be depended on how long the claim took to resolve. If we got it settled quickly our share would be small. If we had to spend more than four months on the case, the fee would be as high as 20% of the claim amount.
WHAT WE FOUND
After nearly two months of investigation and multiple meetings with Mr. F, we prepared a 197-page submission to the bank, including all of our findings and all of the evidence we relied upon in our claim. Some of our key findings were:
- The bank had recently changed its insurance sales process after stiff criticism by the Reserve Bank and Financial Markets Authority
- For the bank to be able to decline the 2013 application, they would have to convince a court that Mrs. F had fraudulently non-disclosed
- Mrs. F had only emigrated to New Zealand a few years before taking the insurance and didn't speak English when she arrived
- When Mrs. F answered the insurance questions in 2013, she accurately declared her weight, but somehow the banking adviser had grossly overstated her height (by 9 cm).
- Although her Body Mass Index (BMI) was indicated to be 34 it was actually over 38. The banking adviser would have known that a BMI of 35 or more would have prompted further investigation
- In the 2017 application, the client had declared she was shorter but somehow, the banking adviser recorded a weight that gave Mrs. F a BMI of 27. Her actual BMI was closer to 37.
- The bank rewarded banking advisers with a quarterly performance bonus based solely on their insurance sales.
The bank's difficulty was that their staff did not act as typists for Mr & Mrs. F when helping them apply for the cover. They were supposed, experienced advisers who had an obligation to provide appropriate advice. Because the bank staff had completed the 'in-person' application on behalf of Mr & Mrs. F, it should have been evident that she was extremely obese. That they could type into the computer that she was almost normal weight raised some serious red flags. If the client had somehow got her height and weight very wrong, it was still the banking adviser's duty of care to correct this obvious error.
This failure allowed us to raise doubt about the application process.
POOR APPLICATION WORDING
Vesta Advisers work with most major insurers, so we have an opportunity to compare each company's application forms. We know companies that have excellent wording and others that are particularly bad. A poorly worded question can leave an applicant in a situation where they may unintentionally non-disclose important information because they were not asked questions the right way.
In our review of Mrs. F's application, we were able to identify multiple examples where a question was poorly worded.
The bank asked, "When did your doctor last check your blood pressure, and was it in the normal range." Other insurers will ask for the last three readings and if the patient's doctor thought the results were in the normal range. The danger of asking someone if their blood pressure result was in the normal range is that they may believe inadvertently that normal means 'normal for them'. It just so happened that Mrs. F's blood pressure had been high for years but didn't vary that much. A test just weeks before applying in 2013 was lower than she was used to - but still terrible.
When the bank asked, "Do you take any medication" Mrs. F correctly answered 'no.' Although her doctor constantly harangued her about her poor compliance, she rarely took any medication. If she had answered 'yes' she would be lying. Other insurers ask questions like "what treatment or medication have you most recently been prescribed" along with "If you do not always follow the prescribed treatment or take medication as prescribed, please explain." This question helps to identify clients who have been prescribed medication but don't take it.
These flaws in the wording and other doubts we were able to raise about the process left the bank in a very awkward situation. What made it even more difficult for the bank was that we could provide an example of an Ombudsman's case that was very similar to this case. In the other example, the Ombudsman found in favour of the client.
Because the bank staff had completed the 'in-person' application on behalf of Mr & Mrs. F, it should have been evident that she was extremely obese. That they could type into the computer that she was almost normal weight raised some serious red flags.
WHAT WE ASKED THE BANK TO DO
Because the 2017 increase to Mr & Mrs. F's policy was only a few years before she died, legislation was not on our side. There had been no disclosure of any health issues, and so it would have been an uphill battle to get the bank or an independent adjudicator to find in our client's favour. We decided that the best course of action was to claim the initial $300,000 of cover applied for in 2013. That, along with interest over the previous two years, would have made a total claim of over $320,000.
Within ten days of the bank receiving our submission, they agreed to make an ex gratia payment of $300,000 plus interest. Vesta's fee was 11% of the total claim.
- Take great care to answer the insurer's questions fully when you apply for cover.
- If you're aware you have a health issue, make sure you disclose it no matter what questions the insurer asks in the application
- 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 an apparent non-disclosure necessarily disqualifies you from a claim
- Talk to an expert if you're getting nowhere with your adviser or lawyer