Financial advisers should be aware of how overseas travel or residency can affect their client’s risk insurance protection, writes Col Fullagar.
As Australia’s economy starts to improve and the Australian dollar grows increasingly strong, people will no doubt begin to consider taking holidays or working overseas.
Before doing so, however, they may well contact their financial adviser and seek guidance about how overseas travel or residence can affect their current risk insurance protection and their ability to obtain additional risk insurance in the future.
As in all areas of financial protection, it is necessary for an adviser to have a reasonable knowledge of the potential impact of these factors on a client’s risk insurance protection so that informed advice can be provided.
This will enable the adviser to provide appropriate guidance when applications are being completed, so that the relevant questions can be answered in line with the client’s duty of disclosure.
Similarly, when a client review is being undertaken, overseas travel or residence can be highlighted as an activity that may affect existing insurance held by the client (ie, will the presence of particular clauses within the policy be activated by overseas travel or residence?).
Finally, if a client is ever eligible to claim against their insurance, the adviser will be able to inform them how relevant policy wording might affect their ability to claim or the manner in which the claim will be managed.
Application completion
Insurance underwriting in part is the skill whereby risks are categorised and appropriate premiums are charged so that each insured person makes their fair contribution to the claims pool.
When underwriters consider the risks associated with overseas travel or residence, many factors have to be taken into account.
The Australian Government provides a valuable tool to assist underwriters by virtue of the Department of Foreign Affairs and Trade (DFAT) website. DFAT rates the risks associated with travel to, and residence in, virtually all overseas countries.
An important point to remember is that these risks are assessed on essentially a daily basis and the website makes it clear that “This advice is current for [the current date]”.
The risks associated with a particular country may change overnight if a natural disaster or a terrorist act occurs, and advisers should be alert to this when assisting clients at the time of application.
DFAT rates the risk at several levels and the general underwriting attitude to each varies accordingly:
- ‘Be alert to own security’ (eg, New Zealand and Switzerland) — standard rates generally apply;
- ‘Exercise caution’ (eg, Cuba, China, Italy, USA and UK) — standard rates generally apply;
- ‘High degree of caution’ (eg, Brazil, Bolivia) — a war and terrorism exclusion would generally be applied;
- ‘Reconsider your need to travel’ (eg, Zimbabwe and Congo) — a war and terrorism exclusion would generally be applied;
- ‘Do not travel’ (eg, Afghanistan, Iraq and Sudan) — cover would likely be deferred.
Factors that affect the DFAT rating include:
- the risk of terrorist attacks — including suicide and other bombings, kidnappings, etc;
- civil unrest and political tension — particularly at the time of general elections with the likelihood of demonstrations, etc;
- the dangers associated with unexploded landmines and other military ordnance;
- the rate of serious crime, armed robbery, muggings, sexual assault, gang-related violence, and a general lack of security if travel is undertaken outside major cities;
- the potential impact of local laws and customs (eg, the attitude to the use of drugs and alcohol, drink driving, dress codes, etc);
- health issues (eg, what health facilities exist and to what standard, what is the risk of contracting diseases such as malaria, HIV/AIDs, etc);
- natural disasters (eg, earthquakes, flash floods and landslides particularly in the wet season); and
- varying risks within a particular country (eg, while the ‘overall’ DFAT rating for China may be ‘exercise caution’, the specific risk for Tibet and Xinjiang Province may be ‘high degree of caution’).
It may well be the case that, notwithstanding the general attitude of an underwriter to the DFAT ratings, additional information provided by the adviser could alter the position either by improving it or leading to a more severe assessment being made.
Factors affecting the above ratings will include the frequency of travel to the particular country, the length of time that will be spent there, the reason for travel, the specific activities to be undertaken and where in the country the person will be staying.
A further factor might be the mode of travel. Will flights be undertaken by international or local airlines with recognised high safety standards, or is sea travel to be undertaken through dangerous areas (eg, with pirate activity)?
Claim requirements and restrictions
Claims requirements and restrictions can directly and indirectly affect overseas travel or residence.
These factors include:
- the presence of a clause limiting the time a claimant can be paid if they are outside Australia (eg, three months), or directing that benefits will not be paid unless the claimant returns to Australia;
- the presence of a clause indicating the claimant has to be under the care of a medical practitioner where ‘medical practitioner’ is defined as one being registered in Australia. Unless the claimant can find a suitably qualified doctor overseas, they will essentially be forced to return to Australia; and
- the insurer may require the claimant to undertake certain claim requirements (eg, an independent medical examination or an interview with a claims assessor), or the claimant may be required to produce financial evidence — none of which, at a practical level, they will be unable to do unless they returned to Australia.
Policy exclusions
Potentially having a direct impact on a claim involving overseas travel or residence is the existence of special conditions in the policy — such as a ‘war and terrorism’ exclusion.
Exclusions of this type can still be found in some retail term and total and permanent disability policies, and they are also common in many legacy contracts.
Typical wording might be:
‘No payment will be made under the policy if the event giving rise to the claim is caused directly or indirectly by war or an act of war, or an act of terrorism.’
References to ‘war’ may immediately give rise to visions of major conflicts such as the World Wars, Korea, Vietnam, Afghanistan, and ‘terrorism’ might conjure up visions of the 9/11 attacks in the USA, but the position is not necessarily that straightforward:
- Does war have to be declared or not?
- Will the exclusion apply if war has been declared but hostilities have not yet commenced?
- How will civil or guerrilla war be treated?
- Will chemical or biological warfare be excluded?
And in regards to terrorism, how would this be defined? Remember that one person’s terrorist is another’s freedom fighter.
If sufficient ambiguity exists, the matter of interpretation may well end up in court — where issues such as the construction of the exclusion, and the ordinary and natural meaning of the words and the context might be relevant.
Ideally, advisers should seek to avoid policy wording with such a high level of ambiguity attached to it — or at best, alert the client to the existence of potential problems at the time of claim.
Summary
Again, it is necessary for advisers to be aware of the factors that may be important to consider when issues such as overseas residence or travel arise so that informed advice can be provided.
It would be a cruel irony if, as a result of travelling or residing overseas, a client ended up in their own legal war over whether or not they were eligible for a claim payment.
Col Fullagar is national manager, risk insurance at RetireInvest.
