Insurance & Savings Ombudsman, Karen Stevens, supports a law change to help consumers who accidentally leave out information when applying for insurance.
About 10% of complaints to the Insurance & Savings Ombudsman Scheme involve people who have insurance claims declined, or their entire policy “avoided” (i.e. treated like it never existed), because they left out information on the insurance application.
“The two most common things people fail to disclose are their pre-existing medical conditions (39%) and any criminal convictions (29%),” says Karen. “Some cases are clear, where people deliberately leave out information they were asked to provide, knowing that it will go against them. However, in other cases, people accidentally leave out information because they have forgotten, or do not realise it is important”.
For example, we had a case where a health insurance claim for surgery was declined, because when the consumer applied for insurance she had not disclosed she had depression years before. Although it didn’t relate to her claim, the insurer was still entitled to avoid the entire policy, because the information about depression would have changed the terms on which the policy was issued”.
The current law requires a consumer to disclose to an insurer all information a “prudent underwriter” would consider important. “This is extremely difficult for consumers to understand,” says Karen.
“Insurers do tell their customers they need certain information, but my concern is that consumers don’t understand the consequences of not providing the information. That means we have a constant stream of complaints, and some very unhappy people. The ISO Scheme is often in a position where we can’t do anything, because it is the insurer’s legal right to rely on the law and the contract to decline a claim or avoid a policy for material non-disclosure”.
Legislation would mean that an insurer could only avoid a policy where it could show the non-disclosure was deliberate e.g. where a consumer knew he had several criminal convictions, but chose not to tell the insurer on the application; or where a consumer knew she had had angina and chest pain, but chose not to tell the insurer on the application.
“Dealing with non-disclosure in this way would follow recent trends in Australia and the UK; at the moment, New Zealand is way out of step with these countries.”
Karen says the new Fair Insurance Code for fire and general insurers is a step in the right direction, as it introduces a test of reasonableness for insurers: an insurer will have to respond reasonably in relation to what the insured did not disclose.
“Industry self-regulation is not enough on its own. We need to review the law and make changes to stop consumers getting themselves into a situation where they are uninsured and, in many cases, uninsurable in the future.”
The ISO Scheme has been resolving complaints about insurance and financial services for 20 years. The service is free for consumers.
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