Fairy tales

There was a client who claimed under their trauma contract for one of the accidental conditions just two years after taking out the policy. On a routine check of the client’s medical history, the company discovered the client actually weighed twice as much as they had disclosed on the application form at the time and that they also had a history of other serious health issues, which had not been disclosed.

Here’s another tale. Once upon a time…

There was a client employed in a very physical occupation, who claimed under their income replacement cover in the first year of the policy for surgery arising from a recent illness. This was a replacement business case and the application form was a ‘clean-skin’ with no disclosures. The routine claims Private Medical Attendant’s Report (PMAR) identified ongoing multiple serious musculoskeletal issues, none of which had been disclosed on the application.

And another. Once upon a time…

There was a client who claimed for cancer under their trauma product but who did not disclose a very extensive family history of cancer and a personal history of pre-cancerous growths.

Over many years in the insurance industry, I have certainly heard many stories similar to these.

In the case of the three examples above, each claim was declined and the covers were voided from inception. When the company re-underwrote the covers – based on the non-disclosed information – it determined that in all these cases, it would have declined the initial applications.

Consequently, even though the first two claims were unrelated to the non-disclosures, the fact that the policy should never have been granted in the first place meant there were no claims to pay.

This seems straightforward to us as the decisions were taken on the basis of extensive, deliberate non-disclosure, which would have been material to the underwriting decision. The policies were therefore voided and the claims were not paid.

However, the reaction from advisers in such circumstances can be interesting to say the least, ranging from “yes, I agree, the client has non-disclosed and they deserve to lose their policy,” to any of the following:

• “I understand the non-disclosure issue but I write a lot of business for you and you should therefore pay the claim as a service to me.”
• “You are ruining my reputation with my clients and I’ll have to think seriously about where I place my business from now on.”
• “All life companies are the same; they just try anything to get out of paying claims.”
• “Even though the application was clean-skin, you should have obtained a PMAR at application time, so this is your fault”.

I can certainly understand the difficulties advisers face when delivering news that a claim has been declined. I also know personally just how abusive some clients can be when faced with evidence of their non-disclosures, and the realisation they have lost almost any chance of getting insurance coverage again.

However, the fact remains, that some people simply do not tell the truth and, consequently, the outcomes are of their own making.

It is also a fact that if we ‘PMAR’d’ all cases, irrespective of the client’s disclosures, premiums would have to escalate significantly to cover the costs. This would also add a lot of extra time to processing.

It is simply not reasonable to expect a life company to pay a claim in these circumstances, just to avoid angering the client. I for one do not believe other clients should pay the price for one client’s fraudulent behaviour.

Let’s not forget who the bad guy is in this instance. Advisers should target their frustration and anger at the client who has cost them time, effort, money and peace of mind for nothing. Nobody likes declining claims, but sometimes it has to be done and we are more likely to get the best outcome by working together rather than against each other.

The best way for an adviser to avoid ending up in the middle of such a situation is to use a process to ensure the client is made aware of the importance of full disclosure and the consequences of non-disclosure at application time. Advisers who do not take the time to ensure applications are completed correctly leave themselves and their clients wide open to serious claims issues in the future.

Here’s a tale with a much happier ending. Once upon a time…

There was a client who submitted a trauma claim six months after the policy commencement date. The claims PMAR found no non-disclosed health issues and the claim was admitted. The cheque was given to the adviser to hand-deliver to his client, and everyone lived happily ever after.

Now that’s a story we all want to hear.

Naomi Ballantyne is the Managing Director of ING Life (NZ) Limited

Naomi Ballantyne ONZM, is the Managing Director at Partners Life.

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