Insurers of all kinds have recently been distributing flyers purporting to respond to frequently asked questions (FAQs) explaining how their risk insurance products will respond to COVID-19.
If the assumed intent of these documents is to provide advisers and/or their clients with factual information enabling an informed assessment of the current position or an informed decision of a future action to be made, one would be forgiven for hoping that information provided would at least come close to satisfying these intents.
Sadly, in some instances, the documented responses are about as useful as the proverbial.
- "There are no specific exclusions for COVID-19 in any of our policies" – To the extent that the virus appeared without warning fewer than three months ago, this is not surprising.
- "We'll continue to assess claims according to the terms of the relevant policy" – Crikey, good to have that clarified.
- "We encourage all our customers to check the Australian Government travel sites and recommendations regarding overseas travel" – That's incredibly sweet of you but how is this relevant to the FAQ?
- "All existing customers are fully covered for COVID-19" – a bollocking brave call at the best of times.
Not only are the documents arguably anorexic on detail but they assume the only relevant questions are those that are “frequently asked” which may be shown to be an erroneous assumption.
1. Range of in-force insurances
As a starting point, it is crucial to remember that there is a vast array of in-force risk insurance policies and thus, information provided needs to consider not only the five risk insurance types: term, trauma, total permanent disability (TPD), income protection and business expenses, but it should at least acknowledge that in-force policies may have been written many years ago, some even at a time when drafting was only in the male gender.
To add to the complexity, there are not only products being made available via the advice process but also non-advice products emanating from employer-sponsored group, public offer superannuation and direct insurers with the icing being traditional general insurers with their own range of life risk insurance products.
Clearly, not all scenarios can be covered in a detailed and specific way, and to attempt to do so might well be both misleading and counter-productive.
With the above in mind, this article will not attempt to provide all the answers but rather alert to generic issues such that advisers, or the insured in the absence of an adviser, might recognise a relevant issue exists or could arise, and seek by way of insurer questioning, greater detail for their own unique circumstance.
2. COVID-19 related claims
There will no doubt be claims directly related to the presence of the COVID-19 virus with these claims potentially being covered under any of the policies mentioned in (1) above.
In the absence of any of the issues mentioned below, it would be expected that these claims would be ‘fully covered’ and paid expeditiously, professionally and respectfully.
These claims may well represent the majority but they will certainly not represent the entirety of claims made or situations that can arise.
3. Policy exclusions
As above, it is correct that until recently no specific exclusion existed for COVID-19 but it is relevant to note policies contain other exclusions which may need to be carefully considered.
Falling into this category would be the presence of a ‘pandemic exclusion’. These are unlikely to be found in retail risk insurance, but do exist in some policies issued by general insurers. Relevance for a financial adviser arises when the matter of a client’s existing insurance portfolio is being assessed.
Also, within all risk insurance policies there is commonly an exclusion for ‘self-inflicted acts’ with some child trauma policies including a clause to the effect that a claim will be void if the claim event arises out of a deliberate and malicious action of the policy owner.
Underpinning the above is the insurance principle of mitigation of risk i.e. the requirement for the insured to take reasonable and necessary steps to reduce the risk of loss.
Bearing the above in mind, how would a policy respond if the insured:
- Knowingly and/or recklessly socialised with a person known to be infected with the COVID-19;
- Acted as a carer for an infected friend, relative or partner; or
- Travelled overseas to a country that the Department of Foreign Affairs and Trade (DFAT) rated as a no-go zone... which, when you think about it, may be the relevance of the reference in (i) above.
Another common exclusion is that covering ‘criminal acts’ and ‘insured events arising during incarceration’ both of which can now come out of conduct breaches associated with COVID-19.
It may not be possible, or even prudent, for an insurer to give a definitive answer to the above but, as previously inferred, their presence and potential relevance should at least be made known.
4. COVID-19 exclusion for new insurances
If an insurer is looking to impose a COVID-19 exclusion on new insurances and an application in suspense completes after the non-exclusion cutoff date; there may be merit in an adviser checking the new business chronology to see if unnecessary delays occurred leading to the client’s position being prejudiced.
5. Following medical advice
The aforementioned flyers oft include the question “Can I make a claim for IP relating to COVID-19 for having to be away from work because of self-isolation, even though I haven’t been diagnosed with this illness?”
The thrust of the answer is generally “The policy is designed to cover loss arising out of the presence of an illness or injury, so don’t even think about claiming”. This response may, however, be an over-simplification.
It is widely known that, after the aged, those most at risk from COVID-19 are people suffering from an underlying medical condition that of itself or by way of treatment, renders them immuno-deficient.
People in this medical category may be otherwise fully occupationally capable i.e. working full-time and without restriction or partially occupationally impaired i.e. working part-time and/or with restriction.
Those in the latter group that hold income protection insurance may even be on a partial disability claim.
Irrespective of the claim status of an insured person, the question that might be asked is “How would the policy respond if the treating medical practitioner advised the insured to cease attending the workplace for a period of time and, for those not on claim, such period of time was longer than the policy waiting period?”
The above circumstance appears to be similar to that of the surgeon who is physically capable of working but is prevented from doing so by virtue of the presence of a contagious blood-borne disease.
Thus the reason why an unequivocal ‘no’ to the question may be an over-simplification.
6. Partial v total disability claims
A further consideration coming out of (4) above is whether an insured in receipt of a partial disability benefit might become eligible for a total disability benefit in so far that the insured is ‘not working’ and the relevant income protection insurance policy does not include a so-called capability clause.
Another FAQ is “can I make a claim for having to be away from work because of self-isolation?”
The response tends to be “no, income protection insurance provides cover arising out of an inability to work as distinct from the unavailability of work”.
Whilst technically correct, there will be genuine cases of stress, anxiety and depression related to a business failure or the financial stress following same. The assessment difficulties associated with claims of this nature are acknowledged but these difficulties do not negate the right of the insured to lodge a claim and expect it will be assessed on its merits.
Similarly, albeit more severely, claims may arise under trauma, TPD and tragically, even term insurance contracts.
Additionally, many income protection insurance policies include an ancillary benefit providing for a limited premium waiver in the event of involuntary unemployment; this may well apply.
8. Rights to terminate policy
An income protection insurance policy may include a clause to the effect that cover will terminate if the insured ceases work for reasons other than total or partial disability.
The clause may or may not include a timeframe safety net e.g. cessation of work must be for longer than three months.
Either way, prudence dictates that the client be made aware if for no other reason than the insurer might be approached for individual consideration and dispensation.
9. Suspension of cover
Again, in regard to income protection insurance, the policy may include a provision to the effect that premiums can be temporarily suspended with cover similarly being suspended and/or cover being automatically suspended during a period of leave without pay.
The first may be a facility the insured can utilise in order to retain the policy for future re-activation with the latter being a relevant consideration coming out of a need to possibly retain employment for future re-activation.
10. Policy lapses and reinstatements
Some insurers have indicated that new policies will contain a specific COVID-19 exclusion. If this is the case, care would need to be taken to ensure existing insurances remain fully paid to date as the reinstatement of a lapsed policy could see the inclusion of any new standard exclusions.
11. Indexation and underwritten policy increases
Whilst all bets may be off in regard to a COVID-19 exclusion on new policies, there remains the question of how will increases to existing policies be treated?
Underwritten increases would likely see the inclusion of any new standard exclusion but the same may not be the case for automatic indexation increases?
12. Policy replacement
An adviser considering whether to replace or retain existing insurances may, in some situations, have a new matter to consider, i.e. what value rating should be applied to an existing policy that does not contain a COVID-19 exclusion (vs) a new policy that may include an exclusion for same.
13. Other issues
Whilst the intent of this article was in part to raise and consider risk insurance issues potentially relevant to COVID-19, there may well be matters that have not been discussed. If the reader has questions or suggestions that fall into this category, there is an invitation to contact the writer.
It’s at time like this and in regard to topics such as this, that the adviser value-add might be detailed, in this case by invoking, plagiarising and appropriately amending the conclusion of a Money Management article (“When crime doesn’t pay” 13 January 2006):
"Bearing the above in mind, the best an adviser may be able to do is:
- Make known and document the existence of issues relevant to the client;
- Within the advice document, inform the client of the practical difficulties surrounding the application of these issue at the time of a claim; but
- Reassure the client that, at the time of a claim, yet another value-add of the adviser will be to scrutinise the conduct of the insurer and ensure it is not only in line with the policy terms and conditions but is also in line with the insurers duty to act in good faith.
Perhaps in this way the promised peace of mind will in fact be delivered."
Please stay safe out there!
Col Fullagar is principal of Integrity Resolutions.