Financial horror story shows policy disclosure law unfair
Here’s a moment of financial horror for you.
You have an income protection policy to pay the bills should you fall too sick to work but when you make a claim, the insurer says no.
It says you failed to tell it something you should have when you applied for the policy so it is tearing it up.
You’ve wasted all those premiums on the illusion of insurance.
This happened to a friend of mine recently, Jackie Gower, a money blogger who writes about life in struggle street.
Gower is no fool and she’s not the first and won’t be the last to fall into the insurance ‘‘non-disclosure’’ trap.
She’d bought her policy from a bank and made the application in the branch.
She’d answered the questions asked of her, few though they were, and then signed up for the cover.
The questions, she says, were fairly generic and Gower did what many do: She failed to take them seriously enough. She signed the contract certifying everything she had told the insurer was accurate.
It wasn’t. She’d not ‘‘disclosed’’ aspects of her medical history. When asked if she’d sought medical advice in the last five years, she assumed it meant for anything serious.
She’d answered ‘‘no’’ when she had been to the doctor’s on a number of occasions and she’d not ‘‘disclosed’’ the history of cancer in her family.
Under our current insurance laws, even innocently failing to mention something that an experienced underwriter would want to know before issuing a provide a policy gives the insurer the right to tear it up.
Given that 99.9999 per cent (roughly) of us are not experienced under-writers, the law is deeply unfair.
And it’s not just me who thinks that. The Insurance Ombudsman thinks it too. So does the Law Commission. A fair law would require insurers to ask for the information they expect people to give it.
You’d think they would be scrupulous in this, except they want to put as few blocks in the way of selling a policy as they can.
If they asked people to attach a copy of their medical records to their applications, there would be no issue but that would disrupt sales.
They could require people to give them medical records within three months of taking out a policy and, if need be, recalculate the premiums or close the policy.
That’d raise costs but at least people would know their cover wasn’t an illusion.
Gower’s case has a happy ending.
She got angry, argued strenuously that the bank should have asked for the information it wanted with clear, unambiguous questions. It should have asked for her medical records up front.
She’d damn well kick up a stink in the media, if need be, she told the bank. And it backed down, even though the law was on its side.
Why hasn’t the law changed despite calls for change? I think it is because nobody has proved the harm done by accidental nondisclosure.
No government has ever gone looking for the figures which are buried in insurance company filing cabinets and digital records of claims turned down and policies torn up.
How big is that harm: $5 million a year denied to struggling families? $10m? More? We will not know until someone armed with the power to gather that information goes looking.
Gower won her fight but how many others lack her determination and lose theirs?