Momentum Health lesson
FOLLOWING THE LAW: THIS IS NOT ENOUGH
The Financial Sector Conduct Authority has to move past compliance.
When Momentum Health declined to pay out client Nathan Ganas’s life insurance policy, it wasn’t being malicious, or greedy. It was following the law. It also wasn’t the first life insurer to refuse a claim based on a nondisclosure that had nothing to do with the cause of death.
Legally, their argument’s sound. Ganas had a condition that would have precluded him from being insured. He shouldn’t have qualified for life cover, therefore the claim shouldn’t have been paid out.
The reason is to protect everyone else Momentum has insured. If large numbers of people aren’t paying premiums matching their risk level, the whole pool’s sustainability could be jeopardised.
The regulator says …
Why then has the Financial Sector Conduct Authority (FSCA) noted that Momentum’s decision to change its mind and pay out the Ganas claim “reflects the spirit of discussions between the FSCA and Momentum?”
This is quite a statement: it’s no longer satisfactory for financial services companies to show they’re following the law. They must show they’re acting with fairness and in customers’ best interests.
A life insurer could be accepting premiums from a client for decades only to refuse the claim at the time of death based on a nondisclosure. There’s an asymmetry there to be addressed.
Surely it’s fair to ask what the company was doing during all of that time to ensure it was accepting premiums in good faith?
Note, in the event of a death-benefit claim, the client has no way of testing the efficacy of the policy before they need it. You only know if you’ll get what you have been paying for when it’s too late to do anything about it.
Client responsibility
There’s a reciprocal relationship in play. The insurer can argue the client must act in good faith too. If you take out a policy, it’s your responsibility to be honest when giving your medical history.
However, consider the variables. Firstly, you’re relying on memory. Can an insurer genuinely expect you to remember everything you may or may not have been diagnosed with, particularly if you don’t receive ongoing treatment?
You might also not know what’s significant and what isn’t. Terminology can also be an issue.
What about the role of the broker? There’s anecdotal evidence of brokers disregarding parts of a client’s medical history when filling out the medical history to ensure policies aren’t rejected, so they can earn commission.
It’s even possible that a doctor may have made a diagnosis you were never informed about.
Solving the problem
Given all that can go wrong, can insurers then still in good conscience place all the responsibility on the client? The industry must now face this question with more introspection.
In the short-term, this may require some kind of trade-off. Insurers must protect their risk; that may mean asking for more thorough medical tests upfront from everybody taking out a new policy.
The ultimate solution, however, is far simpler. Personal electronic medical records: a client’s entire medical history would be available from the start.