Give us a break: no more double standards in insurance!
Sales & Marketing for Professional Services

Give us a break: no more double standards in insurance!

January 17, 2014

by Tony Vidler

One of the more ugly aspects of financial services received an airing this week, and it is about time.  It is an area I have been quietly furious about for a very very long time, and it is a blight on the financial services industry as a whole.

The story that hit the headlines, first raised by Anita Muecke and publicised in Wealth Professional, airs the dirty business of aggressive product flogging to unknowing and unsuspecting consumers resulting in avoidance of claims by the insurers.  (See: Advisers Angry At Claims Experience)

The life insurance business just doesn’t get much uglier than this.  Yet, this is not something new or unfamiliar for those of us working inside the industry.

THE core concept sitting at the heart of any insurance contract is that two willing parties agree to share the financial impact of certain risks.  For the consumer, they take a known and affordable loss called a “premium” in order to avoid a catastrophic and unaffordable financial loss that may or may not happen.  For the insurer, they receive a certain income stream to cover the cost of a loss that may or may not happen.  It is a simple concept, and is enshrined in a contract in order to be binding on the parties.  The contract itself is actually just a reflection of the agreed events to be insured, and the trusted relationship being entered into. So far so good….

…and just this week I have come across the following examples in my own circles:

  • a client with a disability income protection cover, with a knee exclusion on the cover courtesy of past sports injuries, gets hit in a car crash.  Multiple fractures and severe damage to his leg.  Insurer denies claim on the basis of a “pre-existing condition”.    If the clients leg had been amputated as a result of the crash, would the insurer still try to claim it was a result of a pre-existing condition?  What the hell is pre-existing about a car crashing into you and crushing your leg?
  • a client has travel insurance, and 2 days into a one week holiday their teenage child back at home with Dad goes for a routine checkup and is suddenly whipped off to hospital for an emergency heart procedure.  Mum cancels holiday and flies home immediately, losing the booked accommodation and incurring substantial additional airline costs.  Insurer declines claim for costs on the grounds that it was a “foreseeable event” and “not disclosed” as the child had been treated for a heart condition previously.  Honestly, would any mother had travelled off on a weeks holiday if it was foreseeable that an emergency heart procedure might be happening two days into it?

Get real guys.  These are just crappy ways of saying to your customers “We don’t actually care about you at all”.

A final example is worth sharing, though it is not from this week by any means.  For a number of years my business partner & I, along with our 15 or so advisers, had used a wide range of insurers for our clients.  As many advisers do we basically used different insurers for different policies and insured events – a particular insurer had a product that was the most suitable for certain circumstances for example, and they would tend to get the bulk of the business for any client of ours who was managing those particular circumstances.  The products used, and the insurance business written, was spread across a larger than usual range of life insurers because we had over 5,000 clients in the firm, so many insurers were used.  As you’d expect, many claims were made also on a book that size covering the full range of personal risk products.

One year we had a slightly unusual set of events in that 3 different clients lodged claims under policies with the same multi-national insurer in a 2 week period.  One was a Total & Permanent Disability claim (which is pretty much as serious as it gets for a living client!); one an income protection claim; and one a claim under a medical insurance policy.  All three claims received a virtually word-for-word identical letter rejecting the claim within a week or so, all citing non-payment due to an undisclosed pre-existing condition.

It was like watching a John Grisham novel being played out in real life:  “Decline everyone who lodges a claim, and then we’ll just deal with the ones who fight it.”

Eventually, after much wrangling and outright fighting, all three claims were settled satisfactorily for the clients – as they should have been done from the outset.  For the clients, there was additional and absolutely unnecessary distress at a time when they could least cope with it.  For the advisers there was additional stress, time and work fighting for what was simply agreed with the insurer at policy commencement.  For the insurer….actually I don’t care what it cost the insurer in extra work.   It wouldn’t have cost them anything extra if they had simply honored their contracts and treated them with the same good faith that every other party had.

We immediately ceased placing business with that insurer by the way, and actively looked to move any clients we could away from them.  And we made no secret of why we were recommending that clients move.  Some clients moved insurers…some clients just cancelled cover altogether. Some clients blamed us for putting them into contracts with an insurer who would probably not respond at claim time.  It cost us business and clients.

There was no good faith that could be relied upon in the insurance contract.  Therefore, there was no contract of consequence that we could recommend clients should keep.  What else is an adviser to do if you are actually trying to work in the best interests of your client?

To be fair though, we should acknowledge that non-disclosure of material information that is known to the client is a real and pertinent issue.  I have (on one occasion) found myself in a situation with a declined claim where I advised the client he was lucky not be subject to a prosecution for fraud by the insurer….balancing the risk assessment with good faith from both parties, which means the client as well, to create a fair contract is an ongoing issue.

So….to today’s insurance world:  recent years have seen immense pressure and rapidly rising expectations placed upon advisers.  The advisers must lift their game, improve their ethics, enhance their technical skills.  The advisers must assume a fiduciary duty, incorporating the principles of good faith and client care.  The advisers must be responsible, and ensure that any products are fit for purpose.

Fair enough too.  Any professional would agree that these are reasonable expectations of an adviser; and the overwhelming majority of financial advisers have been working very hard to make sure that their professional development, their business systems, their supplier choices….everything about their business operation….reaches these professional expectations.

So why are we still watching with institutions market unsuitable products aggressively and intrusively to unwitting consumers?  

There is a simple underwriting principle that applies universally in the insurance world:  you underwrite and price the risk appropriately at policy application time, or you manage the risk at claim time.  (Previous post: Underwrite at Proposal time, or Claim time?)

Any product which attempts to primarily manage the risk at claim time should be banned.

Any institution which promotes such products aggressively, directly, and intrusively to consumers should be named, shamed and run out of the game by the authorities.

That is the standard which applies to advisers.  That is the standard expected of products and institutions by our customers.  

It must be the standard which should apply equally across the market if we want to have an industry which carries the respect and trust of its customers. Do away with the double standards in the insurance industry.

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