When really does a life insurance policy start?
Jon-Paul Hale picked apart the disclosure requirements for clients in his last article. But one thing that struck him, and a few colleagues, was one simple fact. When does a policy actually start?
Friday, March 17th 2023, 10:13AM 
16 Comments
by Jon-Paul Hale
Why is the point a client's disclosure ceases and a policy commences such a difficult, contentious point?
There have been far more words written about this than there needs to be, and that's just my words.
And sure, the commencement date is the commencement date, but is it?
If you look around the industry on the policy schedules littering your client files, you'll see a vast range of terminology and differences on this point.
AIA's old Sovereign system is a classic example. You have the system's policy start date, issue date, and commencement date.
The commencement date is the 20th of the month following the date of the actual policy issue.
- Issued on the 15th of May, commencement date is May 20.
- Issued on the 23rd of May, commencement date is June 20.
The start date is the date the client intended the policy to start, the billing cycle that suited them, and the day they pay the premiums usually.
The issue date is the date that the cover commenced, the day the policy went into force, and the cover actually began. Yes, the policy issued on the 15th claim on the 19th, technically before the commencement date.
This variety of definitions results in questions like the ones I have been asking. Because when it comes to claims early in the policy, like the out-the-window example I gave, it's pretty important.
From a servicing perspective, it's pretty important, too, as that date of first symptoms for a condition for a client often dates back close to policy commencement dates too. Unless that commencement date is the 20th of May and the policy was issued on the 21st of April, then we have an extra month to play with on the old Sovereign system.
This stuff can be quite important when considering a 30-90 day post-issue first symptoms clause for something. And it's astounding how many new trauma claims have the first symptoms 91-92 days after the policy was taken. (Old Sovereign stats of the time)
Though several providers have updated their stance more recently to be the date of application or signing of terms for these post-issue stand-down periods.
As an adviser assessing existing cover as suitable, dates of first symptoms relative to policy commencement are quite important and is the difference between saying this policy looks good or bugger, we will have to look at the disclosure. And there's been plenty of these land in my lap over the years too.
In the past, the attitude and approach may have been "don't worry about the old one, just go with the new one", but under the present rules of the client first, not advising on the existing cover as suitable is a fundamental point in the advice needs analysis, research, and due diligence, and fails the basic expectation of a regulated advice process.
Now if you don't want to go into that detail, you don't have to, but you do have to be clear in your scope of service to your client that you are not investigating the suitability of their existing cover and you're only looking at new policies... That's not necessarily going to go down well when terms arrive, and they say, what about the old one?
As advisers, we now have a triad of responsibility.
- The client
- The insurer/provider
- And the FMA.
We have to be able to meet the expectations of all three at the same time if we are to remain within our professional obligations.
To do so, we have to have a few things simplified and really really clear from insurers/providers.
Vague statements of "when they are on-risk" or "when the policy is issued" don't provide specificity on when that actually is and leave significant interpretation around something that should be very simple.
We need these statements to come with the glossary definitions the insurers love to put in their contracts, for other words that have meaning but are different just for their contract.
We need to have precise clarity on what and when key points in the client and policy life cycle mean to navigate this new minefield with any hope of staying out of trouble.
This means when you boil it down, those providers that can be really clear in their documentation and processes will gain more favour with FAP compliance managers.
Because compliance managers can write unambiguous rules and processes around those points for their FAP, and this will drive preferred provider policies inside FAPs
Something many of our providers are yet to wake up to, as it hasn't been hard tested yet, but it's coming. The days of the policy being recommended because the adviser likes the business development or sale feature of a product are numbered.
Anyone who thinks the FMA will be sitting back and taking a softly softly approach, as they have for the past five years, has a hard thing coming.
The FMA has been waiting to have everything we now have in place so they can focus on being far more effective, as the past rules gave them no teeth to do anything, even with AFA's doing insurance.
Times have changed, and I'm not about to have my business and livelihood put at risk because a provider can't get the basics straight.
It needs to be really simple. The commencement date of a policy is ... and this is within/at the/something time.
Something is a reasonable time frame after a policy is accepted, standard terms or not, by the provider so we don't have situations where clients are exposed for weeks before they actually have coverage.
We are expected to do better as an industry, and we can be significantly better. We need to get on with it.
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Fidelity Life, like AIA and Asteron Life, states in their policy wording the commencement date. However, their policy schedule also states the day the policy schedule is processed as the policy's the start date/commencement date, so their approach is a genuine 90 days from the policy issue.
Delayed processing creates a gap in stand-down time frames against the ceasing of client disclosure, but not nearly as difficult as the other two I have commented about.
Timeline
The total number of days from 13 March to 27 June is 106. 3 months, 14 days
Notice how every time the insurer or GP has to do something multiple days pass by.
13 March Application signed
20 March app assesses by u/w
21 March medical info, GP exam and bloods requested
23 March additional info passed by me to u/w
26 March additional info reviewed
28 March bloods received
30 March bloods reviewed by u/w
10 April Gp followed up, waiting on outside results
17 April GP followed up (short staffed)
18 April GP info received
24 April u/w assesses info, new issue mentioned. Further info requested
26 April NB team actually requests info from GP about new matter
10 May requested further info arrives
15 May u/w notes that some of requested further info was not provided by GP
17 2nd request for further info is actually sent
31 May Gp is followed up. Mark request urgent
6 June GP info received
8 June u/w accepts with special terms
8 June offer of terms sent
18 June offer of terms received back to insurer, instructions to DD 28th of each month
19 June policy was "issued"
27 June "Policy Commencement Date"
28 June first DD operates from client account
Client was diagnosed with Breast Cancer on 22 August. They had paid two monthly DDs. But this was more than 5 months after they signed the application.
Trauma claim was declined because date of dignosis "falls within the three month period following the commencement of your trauma benefit."
There are four dates at the end of this, the date the terms were signed (same day submitted to insurer), the date the policy was issued, the commencement date and the first DD. Of all of those, the commencement date makes no sense. It is random. It has nothing to do with any of the events. Why was the issue date not the commencement date? Are they not the same thing?
This is the reason that the timing of starting the stand down at date of application is so important. The factors that made the policy start in June instead of May had almost nothing to do with the clients presence of an existing condition, or disclosure. The delays were outside the client's control, caused by slow processing at the insurer and GP.
And that's what makes this outcome so bloody unfair.
Not the expected outcome for your client, and certainly not the outcome the majority of the adviser community would expect given the initial timeline.
All this customer outcome work is important and this is the sort of issue the FMA or heads of conduct at manufacturers aka insurers need to address.
But isn't his real beef about the time it took to get the policy underwritten?
3 months prior to 22 August diagnosis takes us back to May 22.
And none of the 4 dates for policy commencement were before then. Sure its crazy that there are 4 possible dates but in this case, that wasn't the apparent cause of the decline.
that was one of several beefs.
Say it all happened in May.
Say the terms were offered 8 may, signed and returned 18 may
issued 19 may
commenced 27 may
first DD 28 May
we are now bridging 22 August with those dates.
We would now be discussing the vital importance of the DATE the 3-months starts.
The fact it took sopooooo long to issue due entirely to circumstances beyond the client's control only adds to the woe. This client didnt wait 3 months, she had to waitd 6.5
Largely we have little control over that, and we roll with the punches on underwriting. The time impact comes from a range of places, clients taking their sweet time on follow-up information, tests needing to be done, and GPs' returning notes, often incomplete and having to take another run at it.
While we can gripe about the underwriters requiring more information, which drives this, it's not the underwriter's or insurers' fault for all of it either. Prudent underwriting keeps premiums in check and manages the risk appropriately, which is a good thing for all of us as policyholders.
The idea of the stand-down on trauma that's triggered here is about someone going, "I have a lump; let's get insurance and then look at it", where 90 days are typically the outside point of where this behaviour is being excluded. (Typically, anyone with a serious issue is driven to seek medical help at this time, but there is a clear collection of first symptoms on day 91/92 with insurers too)
The time from the 18th is the point where the client no longer has any control over the process, and the insurer has done their due diligence on the client. The decision is made on both sides pending admin and final paperwork.
The insurer, in this case, issued the cover within 24 hours, suggesting this was an older case as most can't achieve that turnaround in the last 3-4 years. So the 19th was when the policy was all sewn up and on risk as such.
The 27th is then listed as the client's commencement date; add 8 days to the time the 90-day wait for this insurer operates. Meaning it's not 18 September that the 90 days expire but the 26th.
In this example, that delay doesn't directly change the 90-day decline calculation, which we can all agree on.
However, if we look at Cigna and Partners Life at the same time, they apply their approach to the client going, "I have a lump, let's get insurance and then look at it", from when the insurer is genuinely managing this behaviour, from when the client decides they're going to get cover; the date of the application.
This means in the example given, if Cigna or Partners Life were proposed at the time, the client would have had a claim outside the 90-day window, being the 12th of June when the 90-day standdown ceased, and their diagnosis on the 22nd of August would have been a valid payable claim.
The outlined approach, which applies to AIA, Asteron Life, and Fidelity Life, means that it is possible that unintended delays in processing mean clients have a much longer exposure with the underwriting window and admin processing delays on issues developing than if they were with the other two providers.
Not to mention that most insurers' cover notes have expired well before underwriting, in this case, has got near completion.
The message here is; the insurers are both inconsistent, and potentially unreasonable, in how this is managed, and it has impacts on clients.
Now, there is the sales aspect, where an insurer going 90 days isn't enough but doesn't want to change due to perceived disadvantages against competitors. So they do what they are doing. It's not so obvious to the market and impacts a claim here or there that largely never sees the light of day, so they roll with it.
But times have changed, advisers don't have the protection of the insurer, as they had 10-15 years ago if it gets out of shape, and the insurers are just as likely today to point at the adviser as the cause as they are to accept any blame, and that's a precarious way to operate if you're an adviser.
Both underwriting and processing timeframes need a tidy-up, and the mouthful of confusing dates policies commence. We're told to simplify things, but a core issue about when a policy is issued has turned out to be one of the more complex and unclear aspects of insurance policies...
It needs to be simple, it needs to be consistent, and it needs to be fair. We have 5 insurers for new underwritten life insurance cover in adviser land; it shouldn't be hard for the FSC members to have a chat and make a decision on consistency here.
(I know Southern Cross and nib have trauma products too, and I'm excluding the bank assurance as different because it is.)
Despite the 1000s of words written on these similar threads by you and others, you appear to be no clearer to the fundamental question - when exactly is the insurance contract made.
I guessed the answer - David Whyte differed.
In Dirty Harry's 3.41pm 21 Mar, on 18 May the terms had been offered and accepted. The oustanding question would be when was the consideration paid. Was it when the consumer offered a signed DD, or was it when the executed it for the first time when they did their monthly run on the 7th of the next month because that was how they processed DDs.
I can't believe the latter process would hold up - the client doesn't know when they are on risk depending on the vagaries of the insurers processing system.I would be horrified if a Court adopted the reasoning that the consideration was received only when the insurer processed it
That’s the point I’ve raised and invited comment on, and no one has managed to clearly articulate it in a simple way.
And yes, I have come with a problem and no clear solution. Suggestions yes, but no solutions, they are way above my pay grade.
Sure as I stated the disclosure piece for clients is elegantly simple with Fidelity Life, but that’s about where elegance and simplicity end. Even Fidelity’s contracts suffer from the same challenge as Dirty Harry’s claim example of drawn out 90 day clauses.
There is an issue here and between the insurers, legislators, and the FMA they need to come up with a solution that is workable.
I accept prudent underwriting and all justification however, staff working from home, their speed of movement, lack of confidence and training and overall productivity is a major cause of slow down in turn around.
We have more technology available now for communication and efficiency and everything takes longer, i call BS and believe this is a major leadership issue for insurers right now!
I am tempted to include several timelines on that as Dirty Harry has on that unfortunate claim.
18 days to get to new email, not doing anything with it just getting to it, reported by one insurer is far from reasonable.
More the intent was to outline to those less aware of what goes on with underwriting that there are things outside the control of the insurer as much as us advisers.
I fully agree with your perspective and welcome the examples, as this stuff has been hiding in the bushes for too long!
While the process I had outlined above, and in my comments, was the documented approach, the operations team has been approaching it differently. It seems as a response to the delays that Covid imposed on everyone.
And looking back through the detail in some of my cases with terms, the team has been doing this for a while and I hadn't picked up on it. I’ve gone with the process I was advised for my comments after I asked the question of them.
Where Asteron Life has a policy clear to issue, and it's taken some time to get it issued (admin delays), the commencement date on the policy schedule is being backdated to the date of terms received and the policy is clear to be issued.
Effectively setting the commencement date to the date the client was actually able to control the policy and thus had disclosure obligations too. Fidelity has a similar approach for the disclosure part I had commented was the best approach we had.
This is significant and is an improvement to both the documented process and the policy issue process we have seen historically.
The caveat, if the client delays the issue date of the policy, for whatever reason, the date the policy is actually issued will be the commencement date. And this also drags the disclosure date later with the 90-day stand down.
This puts Asteron Life’s approach in the middle of the pack time-wise for the 90-day stand down. Chubb and Partners from the application signed and AIA and Fidelity from the policy issue date (actual processed date).
At the same time, Asteron Life has significantly improved the transparency of when a policy starts and a client's obligations for disclosure end. Exactly what I was asking for.
This represents an improvement for clients on both the disclosure and policy issue date that the rest of the providers are yet to fully match.
Now for the rest to follow? ;)
Nice work, AIA, with improving clarity around this for clients and better determining the actual risk from clients.
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I talked about the 20th of the month thing with Sovereign above and how there are several dates on a policy. Digging into policy wordings, there are a couple of fish hooks to consider. And yes, some will say we're way out in the weeds here, I get that.
But say we have a trauma policy that is "issued" on the 15th of the month, but for some reason, the first premium is delayed until the 20th of the month following?
Most of you would expect the 90 days for the 3-month stand down on trauma conditions would start on the 15th, when it's issued. Yes? It would expire by say the 14th of June?
With both of the current policy wordings with AIA and Asteron Life, they state the 3-month period starts from the policy's commencement date. Which isn't the date the policy is issued...
i.e, the policy is issued on, say the 15th of March, its first premium is deducted on the 20th of April (because it got pushed for some reason), and the 90-day clause on both of these providers' trauma covers does not expire until the 19th of July.
That's 126 days after the policy is considered inforce! Sure, that push-out for the first premium is a bit extreme, but it also happens, and makes the point. I have old policy schedules here where I can see this exact example played out with the client's original cover I took over.
I've also had an adviser send me a trauma claim decline with a similar timeline challenge in the last 24 hours...
Do you still think we're playing in the weeds?