Assurers generally ‘very lenient’ at claims stage on non-disclosure

Dr Pieter Coetzer, convenor of the medical and underwriting standing committee at the Association for Savings & Investment SA, says that life assurance companies are in business to pay claims. If they developed a reputation for not paying out, no one would take out a risk policy. It is therefore in the best interests of both the assurer and the policyholder to eliminate non-disclosure.

He says validating health disclosures at underwriting (policy-issuing) stage is usually only possible in countries where assurers have access to the full health records of the client, such as in the United Kingdom, with its national health programme. In South Africa there are practical limitations, which include:

Most policyholders have more than one doctor, and often do not disclose this, or may selectively disclose only those who have favourable information.

Doctors are busy. Some doctors refuse to undertake administrative tasks such as completing insurance forms.

Administrative and health assessment costs to the industry can be significant, especially where more than one doctor or specialist is involved.

Coetzer says the reader’s suggestion for more comprehensive checks by the life industry is impractical, because most clients need the cover quickly and have very short turnaround times on wanting their policies implemented.

Coetzer says the nondisclosure of information is generally dealt with very leniently by most insurers. Only information that materially affects the terms of the policy would be regarded as grounds for repudiation. “This means that the policyholder does not have to mention trivialities.”

Not all non-disclosure will affect the payout of the claim. And policyholders who have made honest and complete disclosure should have nothing to worry about. But, Coetzer adds, it is always better to disclose too much than too little.

RETROSPECTIVE

In cases of material nondisclosure, most companies “do retrospective underwriting, using the information not disclosed to determine what the terms of the policy would have been had full disclosure been made at inception. Any additional premiums that may have resulted because of this are then deducted from the claim amount. In this way, both parties are put into a situation as if everything had been disclosed.

“It is only when the original application would have been declined, or when some health information that would have been required cannot be obtained retrospectively, that the claim is declined in total.”

Coetzer says it is not true that companies investigate health issues at claims stage to look for reasons to decline a claim. “The aim is to verify whether full disclosure was made at inception.”

He says much of the problem can be overcome if everyone truthfully discloses significant health events such as operations, specialist consultations, abnormal scan and blood test results, hospitalisations, medications currently used, current conditions and current habits. You are not expected to remember every minor event such as a sprained ankle.

If you do not know the exact technical details of a health event, such as the medical diagnosis, it is sufficient to mention the year, the name of the doctor involved, and more or less what was wrong. In these cases the assurer can obtain more detailed information from the clinician.

Coetzer also suggests establishing an industry-wide central electronic health database, which could probably be an extension of Astute (see main story above), which could record your health history – but with your permission.