Non-disclosure case divides advice industry
A news story about a declined claim has sparked a divide in the insurance advice sector.
Wednesday, July 22nd 2020, 6:51AM 
13 Comments
Tony Vidler
Ailepata Ailepata made news last month.
Ailepata was turned down for a $100,000 claim for gastric cancer because he had been switched to a new insurer, with less cover, and he had not disclosed his “impaired glucose tolerance” when the policy was issued.
Some were quick to decry the “churning” insurance industry and advisers looking to make money from vulnerable clients.
Adviser coach Tony Vidler described the actions of the NZ Home Loans adviser who shifted Ailepata from a Westpac policy to a Fidelity Life one, with half the amount of trauma cover, as a “shocker”.
“Hope that has an impact on their licence application …,” he wrote on LinkedIn.
But insurance adviser Katrina Church said there was not enough information available to condemn the advice process.
“Sadly guys this is all about the client understanding their obligation about their disclosure requirements If they had disclosed the high sugars he may not have been accepted and still be insured at Westpac,” she wrote in reply to Vidler’s post.
“It is also about protecting a client through the underwriting process to ensure they know their obligations with a view to reduce the risk of this happening. Is Fidelity a better product than that of Westpac surely is where trauma comes into play. No product is good however [if] it isn’t underwritten carefully.”
Vidler said he was surprised by that point of view, which he said sounded like she was blaming the client.
“Which part of this ‘advice’ (and I am being generous referring to it as such) do you think was appropriate? If you are publicly condoning replacement where the client ends up with less cover across the board and a higher premium and was only minimally involved in completing the application form all under the pretext of ‘better service’ and a ‘better’ deal then you are contributing to the problem the industry faces. It seems likely also that this is also a vulnerable consumer where extra care – not less – would be required and expected by professionals.”
While Church said “keyboard warriors” had taken the debate in an unhelpful direction, both Church and Vidler agreed that the issue of non-disclosure was a pressing one for the industry to deal with.
Vidler said: “Clients often, with the best of intentions, tell you everything they think you want to know then later say ‘I didn’t think that would matter. A doctor told me I needed to get my blood pressure under control 17 years ago but that doesn’t matter, does it?’”
Clients were in a poor position to judge what would be important to an insurer, he said, and it was the adviser’s job to step up.
“I always take the view that the adviser should be the frontline underwriter … if there’s any doubt or questions you’ve got to draw attention to it.”
If there was a concern about something from a client’s past, the adviser could suggest the insurer requested medical files, he said.
“The reality is the overwhelming majority of good risk advisers do that already.”
Church said there was not enough in the articles written about the case to condemn any adviser. “My experience is most clients don’t truly understand what their obligations regarding disclosure are. And as advisers I would ask do we do enough here to help out clients? Are we training this as well as we can in the industry?
“Advisers are the first underwriters and we should do all we can to derisk the situation for clients – this is something that online or applications made direct to providers can't. That’s our point of difference.
“Advisers should be thinking, is this client really understanding what they have to do when they are filling out this form? That’s the first thing. The industry could do better, insurers could do better.”
She said it was the adviser’s obligation to underwrite all business and “derisk” the situation for clients in a way that online or direct-to-provider applications would not.
She said the level of non-disclosure picked up through her own business’s processes was “huge”. It was a concern that there was so much business being written on standard terms, she said.
“There are many ways an adviser can lower the level of non disclosure – ensuring the client reads their application post-submission and confirms this prior to issue, obtain medical notes from the outset, obtain ACC claims histories.
“This all gives you the tools to understand if a client knows and understands their medical history – this protects the client. Your own business picks up a huge amount of non-disclosure from highly intelligent people who just forget things.
“If I have a proposal with nothing disclosed – that’s a red flag.”
Many people did not understand what was in their medical notes, she said, and sometimes GPs had added information that clients did not even know was there.
She said, on the facts available, she might have suggested a shift from Westpac to another insurer, too. But it was important to help the client through the disclosure process, seeking medical notes if there was doubt – or flagging with the insurer that more investigation could be required.
Industry organisations could do more to train advisers, she said, as could insurers.
BDMs could be tasked with helping to teach advisers to help clients fill out forms properly. If there was a run of non-disclosure from a particular adviser, that could signal action required from the insurer, she said.
“Could we as an industry have a serious conversation about how to protect clients? Because quite frankly this wouldn’t have hit the news if a claim was paid. And isn’t that what we are all here for.”
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MP Kris Faafoi banged the table on this with Fair Go and I had the opportunity to eyeball him directly in a meeting and explain why its a problem and how he can change it. As it is his Privacy Commissioner that is setting the rules, not the insurer.
On the other side, I commented in another article here around the process behind this case, and I echo Kat's comments. There is a client responsibility here just as much as there is an adviser responsibility to act appropriately.
We are in an environment where the world is happy to blame everyone else, while we are working with a law that operates on the good faith of the individual disclosing and the insurer assessing it.
Outdated maybe, but we have to have a level of trust somewhere otherwise nothing works.
The answer is for all for policy replacement business a PMA is a mandatory requirement. This cost (maybe $250) is shared equally between the Insurer and the Adviser recommending the replacement.
This process protects the customer, the Insurer, the Adviser and the industry's reputation.
Re: Privacy commissioner's 2009 directive. Most insurers do request broad medical notes when non-medical limits are surpassed anyway. Is there something special about these areas? All I'm suggesting is they add a line in their existing U/W guides suggesting business replacement requires PMAR.
Regarding this case in particular, yes there is client responsibility I don't dispute that - the problem is that there seems to be such an easy solution but no one is implementing it.
Blame, yes I agree entirely. From all sides. Even advisers are even trying to score points on each other at the moment. Every couple of weeks there seems to be some adviser posting something on Linkedin to the effect of 'OMG just met a client, they had X cover I don't know why their old adviser would have done this, so bad etc". I guess it's just the times we're in, also, it's why it's easier to run a pseudonym.
@Brian Klee - thank you! Say it one more time for the people in the back.
The broad request for medical notes on a PMAR for business are related to an overview of the medical situation, typically this is supposed to be a report written by the doctor not the supply of medical notes.
But often results in a more extensive return by the doctor as it’s easier just to print the medical notes rather than write a report which is the intention. And the insurance company doesn’t complain because they’re getting better information than they requested.
This is where the insurance company request in line with the privacy act versus the doctors response which gives us a level of confusion.
Yes, I agree the use of this for general kitchen table applications could be extended but I also suspect we come up against the privacy commissioner ruling If the practice becomes widespread to request a PMAR and it results in the doctors primarily sending medical notes.
Under the current guidelines insurers pushing the boundaries on this aspect has potential to reduce access to information rather than enhance it. Which for everyone concerned including the insurers is undesirable
The present law is one where the client needs to disclose what they are reasonable expected to know from a perspective of good faith conduct with the insurer and vice versa.
I have a number of situations in more recent times where we have discovered things at underwriting and claim where a view of non-disclosure could be taken.
However, in these specific situations, while there have been medical notes, there has not been any communication of that information to the client by the GP. And in all of these cases, they would change the terms of the cover from standard. The outcomes from the insurers in these cases have been to set aside the information at the point of application as unknown by the client and assess the risk on that basis. Because that was the true case of the situation.
That may sound bizarre to many, at the same time it is the application of the applicable law in this regard. Is it reasonable for the client to know about that situation to be able to disclose it at the point of application? And the answer for these was no. One was 5 years of very abnormal thyroid tests that the GP had not advised the client of, so this situation can be quite extensive time-wise too.
So the counter to wholesale medical notes requests is it would substantially change the terms on a significant number of contracts as it would highlight the gaps at the time of underwriting, and give the insurer the opportunity to apply terms that would otherwise not be applicable under the good faith conditions.
I'm for full disclosure, don't misunderstand me there, at the same time any action that is taken to address an issue is going to have unintended consequences too. We see it every time there is a change.
The flip side from a client going through an application is "I didn't know I had that going on and that is my GP's fault, so why am I being penalised about something I knew nothing about?" Which we have all seen to some degree in the past, and this gets seen by clients as insurers taking the opportunity to make claims difficult too.
It really is a rock and a hard place situation for the insurers, and also us as advisers with whichever path is ultimately taken.
Personally I like the idea of utilising good process, with good education of clients on what disclosure is, with the rules we have. It drives an increase in knowledge and leaves wriggle room for clients and advisers negotiation on things that are a bit grey.
Fraught with issues, yes, as too the other options have different issues that will appear. The balance of power needs to be with the client, as they are the ones paying the premium, and with that comes the responsibility to make sure they have it right.
We need to be careful about a major change to sort a minor number of issues, dumbing things down doesn't address the underlying issue and won't necessarily solve the wider problem, providing good insurance coverage to the issue of underinsurance of people in NZ.
The first question on most application forms is, “Do you suffer from high cholesterol?” Most people on an online application, with no one to guide them or caution them, will answer “No” if they are not on medication. Theoretically right, but technically wrong.
I typically rephrase the question for people. It really should be: “Did the doctor ever ask you to exercise and diet to bring down your cholesterol?” Many would respond yes, even if they think they are okay because the doctor said cholesterol was under a certain limit and did not prescribe any meds.
Revamp and refrsh the insurance medical questions.
Clearly a friendly chat with the Privacy Commissioner makes sense. :)
Clearly a friendly chat with the Privacy Commissioner makes sense. :)
And I would add to wonder why nobody has alrady raised the point that the consequences of a non disclosure are often out of all proportion to the severity and importance of it when a claim arises.
The good faith basis is totally outdated and needs to go. That is the reason for the Insurance Contract Law Review - By way of example the scenario of a knee injury causing cancel and avoid, for a heart claim. In other jurisdictions the policy would not be cancelled and the claim not avoided, but perhaps a sensible re-assessment, exclusion applied, and the claim considered.
I don't think the privacy settings are wrong. Defaulting to PMARs you may as well not have an application form at all. But if the insurers end up having to write terms for a whole bunch of stuff they never would have asked about, who really wins? I'd argue nobody. The insurers would have massive costs, tunraround times blow out, the GPs wont be able to keep up, and the clients get higher premiums and worse terms.
Only thing that I would add, I am by no means advocating for wholesale medical notes. I'm suggesting if a deal is being moved from one provider to another the insurer should apply a greater deal of scrunity on the case. The best tool in my eyes for this is a PMAR.
I don't necessarily agree with you that being blissfully ignorant to your own health problems as a way to not have exclusions is actually a benefit.
Ultimately, the way I see it, there are three possible outcomes:
1.) We continue to operate the way we are and come under constant scrunity from the media, the regulatory, clients and even the govt.
2.) We make some small changes to alleviate the issues that are easy to identify
3.) We wait for the regulator to come in and make uneducated, wholesale changes.
The biggest question is how many instances of these 'I didn't disclose everything' replacement cases will it move from 1.) to 3.) while we wish he had of done 2.)
In General Insurance if there is a let's say a "didgy" claim. The insurer does a "prudent underwriter" test. That is they re-underwrite with all the new information and apply whatever terms they'd apply and back date those terms. Might be a loading, exclusion or the policy being avoided - if cancelled they cancel to inception and repay all premiums.
Why isn't that the case with life insurers? This case is a classic - would Fidelity have insured this client having known of the impaired glucose tolerance? I'd suggest they would. With a diabetes exclusion on the trauma and maybe a loading (in fact I've just had a client accepted with these very terms by another provider). If they would have, they have no business declining this claim - apply those terms, and if there's a loading, deduct the additional premium from the settlement.
So much for "Insurer of the year 2017, 2018, & 2019".....
The insurer is requesting the PMAR which is a written report from the clients attending doctor.
What is being sent back is the medical summary from the client's medical notes.
One is not the other.
And my somewhat subtle point in my previous comments (I've had more than a few conversations since this post where my thoughts were not understood) is this is the medical practices taking a short cut by not providing the PMAR rather supplying the medical notes, which suits the insurer as it is more detailed than the PMAR would have been.
However, the rub is the rule from the privacy commissioner; requests for wholesale medical notes are not allowed. Only medical notes relating to a known condition that the insurer is able to make a better risk assessment with additional information.
And while in general terms I agree that the insurers should be requesting medical notes to mitigate the non-disclosure risk, right at the moment they are not allowed to.
However, I also understand that there is enthusiasm to exploit the current shortcut to the medical notes with the laziness of the medical practice's current approach.
But:
We still have the issue of the insurer only being able to make the request where there is a need to expand on the information known to the insurer. So if it is a clean skin or there is enough information on the application form to make a reasonable insurance decision with no other information, this isn't going to fly.
Secondly, if we ignore my last point for a moment, and fire through thousands of additional medical requests, we are likely to have the privacy commissioner come down this like a tonne of bricks.
For a couple of reasons:
1. The medical practices complain about the additional workload and the privacy commissioner gets involved.
2. A client complains that the insurer has requested too much info and they were trying to hide something (not understanding how it really works) and doesn't like the terms they got.
(And yes, I have seen both of these numerous times in my 20 years in the industry.)
Which if we have the privacy commissioner wade in as it presently stands, we run the very real risk of a higher bar being set for the access of medical information and that doesn't help anyone involved.
Additionally, because of this sh%$show insurers have to take the very real approach of balancing this disclosure risk and subsequently premiums too. And they do. Insurers directly calculate the risk associated with non-disclosure in their pricing and come down hard on it when they find it.
At the same time, the majority of claims teams here in NZ take the approach if the non-disclosure is not clear and evident in the information supplied, they don't go looking for non-disclosure either.
Short story long: As I said to Hon Kris Faafoi, if you want the disclosure and medical notes process to change, you need to have the privacy commissioner update their guidelines to allow it.
And in doing so you will increase both the cost of transacting life insurance and the workload on already stretched GP practices. Which is likely going to slow down what is already a slow process.
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Can you please make it mandatory to request PMAR on every replacement deal. This mess will all go away. Drop the commission to pay for it, who cares, just please do it. Regulators will disappear, complaints will disappear. All of it.
Look at this way, someone has a home they bought 20 years ago through a 2nd tier lender and wants to refinance it. They apply with another bank, the bank accepts it without requiring an RV/LQR/CCC - the client borrows up to as much as they possibly can despite it being monolithic plaster cladding sitting on years of leaking.
Noone would be surprised in the above example if mortgagee sales went up.
Why are we surprised that there's a discrepancy between the original application, their state of health and their new application?
But hey, the example I gave was for houses - the human body can't possibly be more complex, tricky and carry several thousand unknown risk factors, can it? Oh wait.