In an article headed 'Insurers Behaving Badly' (Money Management, 9 August, 2019), a number of examples were provided of inappropriate insurer conduct, including:
- Requesting additional claim proofs without providing reasons for the relevance of the proofs to the policy and the claim – a requirement under Section 8.5 of the Life Insurance Code of Practice;
- Failing to alter an insured’s mailing address resulting in policies lapsing and claims being denied; and
- Underpaying a claimant for several years and then compounding the error by making a lump sum catch-up payment resulting in an excessive tax bill.
All gave rise to issues where the assistance of the experienced adviser was invaluable in having the client prejudice corrected.
Unfortunately, equivalent situations continue to arise, arguably with greater frequency and detrimental impact than before.
If you have ever doubted the potential for a financial adviser value add, please read on.
(i) Making the simple, difficult, and dangerous
John held various policies with his insurer. Illness struck and it reached the point where an income protection insurance claim needed to be lodged.
The new Financial Services Council (FSC) standard authority was completed and sent to the insurer designating a third party as the claim point of contact and requesting a claim pack be sent to that person.
Several days later an email was received: “An income protection insurance claim has now been registered for this member”. So far, so good… but the email went on: “In order to send you the claim pack, we need a certified copy of the members driver’s license or passport to be certified at a police station as the current copy we have is not clear”.
For reasons explained below, the third party responded with what appeared to be an eminently reasonable counter-suggestion “Can you please send the claim pack now and we will undertake to get certified ID when the documentation is returned. Also, please confirm certification can be by other than the police, for example, a Justice of the Peace”.
Another several days later, “Please be advised, as per previous email, we need identification for the subject claimant… etc.” and, of course, the response repeated the request for police certification.
What are the reasonable concerns, apart from dealing with what seems to be an inflexible and dogmatic mindset:
- Even if the ID requirement was reasonable, the police arguably have better things to do;
- In this COVID-friendly environment, why would the insurer deliberately — and arguably unnecessarily — send someone to a police station particularly as the insurer is unaware what the claim condition is until the forms are lodged, for example the claimant may be bedridden or would be placed at a heightened risk of contagion if they stray outside the home environment;
- There are clearly many other, and safer, ways in which ID can be certified, for example the insured could get the treating doctor to do it when the medical claim forms are completed; and
- Why is ID needed by an insurer to enable blank claim forms to be sent to a third party representative?
What was an essentially simple request, turned into an escalation matter, further delaying the sending of the claim pack and wasting the time for all involved.
(ii) Generated earnings V Government subsidies
As part of its economic stimulation initiatives, the Federal Government has made available various subsidy payments, including JobKeeper, JobSeeker and the cashflow boost payments.
A number of claimants have recently had their partial disability benefits reduced or stopped as the insurer has deemed these payments to fall within the definition of post-disability, personal exertion, generated earnings. To add insult to injury, one claimant was even instructed to repay many thousands of dollars of allegedly overpaid benefits as a result.
In so far that the “at least three” insurers involved appeared to be drawing a longer bow than Robin Hood, an informal legal opinion was obtained in regard to the cash flow boost payments. The response:
- “The Cash Flow Boost Benefit (CFBB) is not money generated by the business due to the insured’s own exertion. This interpretation is supported by the following:
- The money is not ‘generated’ by the business — it is granted or gifted to the business by the Government in an effort to stimulate the economy;
- The eligibility criteria make it clear that the CFBB is only payable upon satisfaction of four stated criteria, and none of these criteria relate to the activity of the insured;
- The CFBB is only payable if the business has employees. Therefore, the activity or inactivity of the insured is not a relevant consideration for the assessment of eligibility to receive the benefit;
- The business does not need to pay tax on the amount of the CFBB and it is not subject to GST because there is no supply for the payment.”
(iii) Application of exclusion clauses
Full insurance cover, even with a loaded premium, has long been held as the preferred alternative to insurance cover subject to an additional exclusion clause.
Some respite was provided years back when the true purpose of an exclusion clause was translated into a written commitment by most, if not all, retail insurers.
Exclusion clauses are intended to normalise the additional risk that comes with the presence of a material, pre-existing condition or activity. Normalisation is achieved by excluding:
- Insured events that arise out of the presence of the pre-existing condition/activity; and
- Situations where recovery from an insured event is impacted by the presence of the pre-existing condition/activity.
However, the written commitment made it clear that if, notwithstanding the pre-existing condition/activity, the insured event would nonetheless have resulted, the claim would be considered on its merit despite the presence of an exclusion clause.
Of course, one of the risks associated with not being reminded of the past is that it can be forgotten which recently appeared to be the case in the following situation.
Jill lodged an income protection insurance claim which was declined because the insurer asserted that the presence of the excluded, pre-existing condition had given rise to the insured event.
With the assistance of her adviser, Jill commissioned a report from the treating specialist who did not beat around the bush in stating that it was “abundantly clear” for reasons given that, in this instance, Jill’s pre-existing condition was unrelated to the insured event and that the insured event would have given rise to an equivalent claim even if there was no pre-existing condition.
The report was submitted to the insurer and a review of the claim decision was requested.
Unwilling to accept the specialist’s opinion on face value, the insurer sought an opinion from its own consultant medical officer (CMO) who, whilst medically qualified, was not a specialist in the relevant field.
As the insurer’s CMO had not treated or examined the insured, the opinion provided was necessarily generic with that opinion being that the pre-existing condition “is a predisposing factor” to the insured event.
Armed with this, the insurer accepted the generic opinion of its CMO over the specific opinion of the treating specialist and maintained its decline decision; however, the insurer then relevantly added that this was, however, not the main determinant in its decision.
The insurer went on to cite the wording of the exclusion clause and noted that by its mere presence “… we consider that we are entitled to rely on [it]…”
This matter is ongoing and concerning.
While on the subject of exclusion clauses, an insurer was contacted recently and advised that the wording of its standard exclusion clause was, shall we say, less-than-optimal in so far that it contained ambiguous terms and terms that were inconsistent with the policy.
By way of example, the following wording appeared “I hereby understand and agree that the definition of ‘pre-claim earnings’ for the policy I have applied for means: for claims within 12 months of the policy start date...”
Setting aside the unnecessarily archaic language, the question is reasonably asked “What does the reference to ‘claim’ mean? Is this referring to the start of the Waiting Period or the start of benefit payments?”
A subsequent question, also reasonably asked, is why is there a reference to ‘pre-claim earnings’ when the policy refers to ‘pre-disability income’?
The best way to find the right room for an argument is to look for a door titled Imprecision.
(iv) Speaking of arguments
A claim was recently declined on the basis that the relevant policy definition had not been met based on a medical technicality. The insured disagreed with the insurer position and sought to identify what additional information might be obtained such that an insurer review of its decision would be enabled. The insurer was contacted by email with the email ending:
“For the record, [the client] does not want this to be treated as a complaint such that it is referred to the complaints team; he is simply looking to work with [the insurer] in order to resolve the matter of his claim in a mutually acceptable way.”
Pretty clear, eh? Evidently not as the very next day brought the response:
“I’ll refer this to our internal dispute resolution (IDR) team for an independent review.”
Why would an insurer do that, you might ask?
The anticipated answer came with the insurer’s letter maintaining its decision: “Please note this is our final response in relation to your complaint.”
By referring the matter to IDR, the insurer was able to label the file ‘Finalised’ thus closing off the insured’s ability to obtain additional material and seek a claim review, unless the insured was willing to navigate an Australian Financial Complaints Authority (AFCA) complaint.
The arguable skulduggery did not end there.
The insurer IDR response proudly announced: “You have the right to copies of ALL the documents and information we relied on in assessing your complaint” (emphasis mine).
The insured decided to request said documents and information so that the medical basis of the insurer’s position could be considered, and an informed assessment undertaken.
Sometime later an attachment laden email was received and duly reviewed only to find there was nothing even close to a medical referral by the insurer. A further query was raised giving rise to the response:
“The documentation provided to you does not include internal correspondence, which is sensitive in nature. This is confirmed in Section 14.5 of the ‘Access to Information’ section of the Life Insurance Code of Practice.”
One might be forgiven for thinking the representation of: “ALL the documents and information” was misleading especially when it was realised that the insurer representative failed to act upon or advise the content of the next Section of the Code i.e 14.6(b).
“If we decline to provide access to or disclose information to you… we will give you a schedule of the documents we have declined to provide and give you reasons for doing so.”
To quote Julia Roberts from the movie Pretty Woman: “Slippery little suckers”.
(v) COVID-19 claim
An insurer recently declined an income protection insurance claim.
Whilst acknowledging that the insured suffered from an illness, the insurer maintained that the decision to cease work was not ‘solely’ due to the illness alone but was, in part due to the medically advised concern that the insured might contract COVID-19.
For a claim in this, or an equivalent situation, to succeed, it would seem reasonable that at least five criteria would need to be met:
Has medical advice been received that the insured is suffering from a medical condition that increases to an unacceptably high level, the risks associated with contracting an illness present in the community or at the workplace?
Is there an illness present in the community or at the workplace at such a level that it would pose an unacceptably high risk to the insured’s medical well-being?
Has the insured been given medical advice confirming (i) and (ii)?
Is the nature of the insured’s work such that it would be impractical to undertake it at an alternate site where the above risks were reduced to a level that was considered medically safe?
Is the nature of the insured’s work such that it would be impractical for the insured to undertake it whilst wearing the necessary personal protective clothing (PPE)?
The sad irony in regard to the above is that the insurer had to be advised of the relevant criteria rather than it having considered the matter and advised the insured accordingly.
(vi) Learned, but loopy, logic
Sometimes that which appears to be learned logic can, on closer inspection, be seen to be more akin to loopy. A recent example:
A total and permanent disability (TPD) claim was assessed and accepted, with the Date of Disablement being June 2015.
Notwithstanding the backdating of the claim, the insurer insisted that premiums paid subsequent to June 2015, up to the date of claim acceptance, were to be retained.
“The continued deduction of premiums while your client’s claim was ongoing occurred as the trustee has a standard practice to continue insurance cover in place until a member specifically chooses to cancel or reduce their cover. This practice means a member remains covered in the event of death while a TPD claim is ongoing as the TPD claim may not necessarily be accepted.
“The fact that the insurer remains ‘on risk’ from the date of disablement means premiums remain legally payable to the insurer under the terms of the insurance policy...”
The above logic is, however, flawed in so far that, if an insured died while the TPD benefit was being assessed, to the extent the TPD date of disablement was earlier than the date of death, assessment of the TPD claim would take precedence. If the TPD benefit was not accepted, the death benefit would be assessed, in which case premiums from the proposed TPD date of disablement to the date of death, would be payable.
If, however, the TPD benefit was accepted, cover would end at the TPD date of disablement, and no more premiums would be payable such that, premiums paid subsequently should be refunded.
The additional worry is, however, that the trustee’s position was stated to be ‘standard’ which begs the question, how many other insured’s have had premiums unreasonably retained?
Insured lives are drawn from all parts of the rich tapestry of life; the highly intelligent, the highly skilled, the well intentioned and the well-healed; however, the vast majority will share one thing, they will be relative minnows when it comes to matters risk insurance related.
As such, left to their own devices, they can be misled and miss out.
The examples cited above are real and likely concerning. True, they may only represent a small proportion of the otherwise great things that can be found going on in the risk insurance industry, but infrequency does not condone.
The introduction to this article invited the reader that doubted the potential for value add by an informed adviser, to read on. It is hoped that the point is well made.
Col Fullagar is principal of Integrity Resolutions.