PRACTICE MANAGEMENT

Weird exclusions and what to do about them

Russell Hutchinson highlights some of the strange exclusions within life insurance products and what action advisers can take with insurers.

There are some very weird exclusions out there. In this consumer-focused age there is no reason merely to gloss over those and accept, with a shrug, that “the life insurance industry is strange like that”. We can challenge some of these ideas.

Obviously, insurers can only be expected to insure events that are risks that have certain characteristics – they must be rare enough to be insurable, they must be sufficiently undesirable that the sum insured does not present a moral hazard to sane people, they must be uncertain, and in the future.

I value the insurance industry and I think underwriting and appropriately pricing risks is important. But even so, we have some surprising exclusions.

Exclusion or eligibility criteria?

Some of them are not really exclusions, they are really eligibility criteria which were moved from the application into the policy document in a misguided attempt to make application (usually by phone, online, or in a bank) easier. The result was just to make the contract confusing and make some claims a bit of a lottery. For example, found in several old credit insurance contracts is the exclusion of any event or condition happening to you whilst you are living or working outside New Zealand. This should have been a question in the application – it is a common one in applications for fully underwritten cover – and the product priced appropriately.

But if you were the unlucky recipient of blood products contaminated with HIV you probably have no idea within those timeframes

Some exclusions made benefits procedurally very hard to claim – you are welcome to refer to the requirements for a claim under medical misadventure or for HIV infection as a result of accidental infection due to a blood transfusion in a hospital. Most require that the accident is reported within 30 days and an initial test for HIV is conducted within seven days, and then another one after about six months. But if you were the unlucky recipient of blood products contaminated with HIV you probably have no idea within those timeframes. I suppose a claim is possible, they must simply be very, very, difficult to obtain under those narrow circumstances.

’Criminal act’ exclusion

Exclusions for involvement in criminal acts are common among a certain set of contracts – but again most fully underwritten insurance does not have these restrictions. I have been asked many times whether drink driving is a criminal act – and the short answer is yes, for most drink driving offences it is. It is easy to imagine a circumstance in which an ordinary person may drive over the limit – even just once in a lifetime – and suffer an injury, or even death. Life cover which excludes this is not much good. After all, a predictable outcome is what we are looking for with insurance.

Some go further and make clear that claims arising even from “alcohol usage or drug abuse” will be declined. That appears to require the insured to completely abstain from alcohol. I do not think such a contract can pass muster in the new conduct environment. To be fair, it is possible that no claim has ever been declined on that basis. But if we cannot rely on the policy document, what can we rely on for goodness sake?

But what about that restriction for drug abuse? Is that okay? It presumes addiction is a choice, when most public health systems treat it as either a physical or a mental health problem. In fact, you would almost suspect that some documents have been written by some very judgmental people indeed.

One excludes any form of temporary disability “in respect of an occurrence attributable either wholly or in part to: sexually transmitted diseases; or AIDS or infection by any HIV related virus; …” So, however unlucky you may be in love, catch something awful and they will not stand by you. On the other hand, eat five chocolate cakes for breakfast every day, or smoke a couple of packets of cigarettes a day and they will pay out your claim. That strikes me as odd – in fact when you consider heart disease, cancer, and diabetes (three leading killers) are very heavily influenced by behaviour. It also seems at odds with current thinking – the drive to have sex is, at least, entirely natural. Nicotine addiction is not. But I think we should cover both, subject to normal underwriting.

Activities of daily living

Another one which was brought to my attention recently was a definition of activities of daily living.

“The activities of daily living are specified to be the ability to perform the following: bathing/showering; dressing/undressing; eating/drinking; using the toilet to maintain personal hygiene; getting in and out of bed, chair or wheelchair; or moving from place to place by walking, or a wheelchair or with a walking aid.”

The fact that you are not considered to have fulfilled the last one of these if you can still get about using a wheelchair suggests that a very high bar is being set. In fact, it seems to me to be something of a given that if you cannot even use a wheelchair then you will struggle to achieve bathing and dressing. Even more baffling is that this company has another product in which needing to use a wheelchair is counted as fulfilling the requirement.

What can you do about all this?

The first thing is – call them out. When you see wording you think does not make sense, make a complaint. Ask for an explanation. Get the explanation in writing. Do not settle for a verbal reassurance that the policy document says one thing and claims payments are more generous. They probably are – most insurers I know are usually more generous than their wordings suggest – it’s just that a client cannot absolutely rely on that generosity. Nor should they have to. Insurance should create certain outcomes for people.

Lastly, remember that buying cover where the wordings are flawed in this way creates an exposure because there are clearly other products without these weird limitations.

Russell Hutchinson is director of Chatswood Consulting and Quality Product Research, which operates Quotemonster.