ISO supports law change for non-disclosure

by Maryvonne Gray 24 Apr 2015

ISO supports law change for non-disclosure

The Insurance & Savings Ombudsman says the New Zealand insurance industry needs to follow recent trends in Australia and the UK and change the law relating to information a consumer discloses to an insurer.

Karen Stevens says legislation would mean an insurer could only avoid a policy where it could show the non-disclosure was deliberate.

With around 10% of complaints filed with the ISO involving people who have had insurance claims declined, or their entire policy ‘avoided’,  because of information left out on their insurance application, Stevens says they have to deal with some ‘very unhappy’ people.

“The two most common things people fail to disclose are their pre-existing medical conditions (39%) and any criminal convictions (29%),” Stevens said.

“Some cases are clear, where people deliberately leave out information they were asked to provide, knowing that it will go against them. However, in other cases, people accidentally leave out information because they have forgotten, or do not realise it is important.”

Stevens cited one example of a health insurance claim for surgery being declined because the consumer had not disclosed that she had had depression years before when applying for insurance.

“Although it didn’t relate to her claim, the insurer was still entitled to avoid the entire policy because the information about depression would have changed the terms on which the policy was issued,” Stevens said.

The current law requires a consumer to disclose to an insurer all information a ‘prudent underwriter’ would consider important. But, said Stevens: “This is extremely difficult for consumers to understand.

“My concern is that consumers don’t understand the consequences of not providing the information.

“That means we have a constant stream of complaints, and some very unhappy people. The ISO Scheme is often in a position where we can’t do anything, because it is the insurer’s legal right to rely on the law and the contract to decline a claim or avoid a policy for material non-disclosure.”

Stevens said if legislation was changed so that insurers could only avoid a policy where it could show non-disclosure was deliberate, it would be more in step with countries such as Australia and the UK.

For example, where a consumer knew he had several criminal convictions, but chose not to tell the insurer on the application; or where a consumer knew she had angina and chest pain, but chose not to tell the insurer on the application.

She said the new Fair Insurance Code for fire and general insurers was a ‘step in the right direction’ as it introduced a test of reasonableness for insurers, ie an insurer will have to respond reasonably in relation to what the insured did not disclose.

However, she said: “Industry self-regulation is not enough on its own. We need to review the law and make changes to stop consumers getting themselves into a situation where they are uninsured and, in many cases, uninsurable in the future.”

Stevens’ support of a law-change echoes the call made by Consumer New Zealand recently.

The consumer protection organisation said: “We’ve been calling for legislation here to restrict an insurer’s ability to cancel a policy on the grounds of non-disclosure.

“Until the law is strengthened, consumers who believe they’ve acted in good faith may still be left out in the cold.”

Tim Grafton, CEO of the Insurance Council of New Zealand, maintained the New Zealand was, in fact, one step ahead on the subject.

“We have consistently said in our guidelines to our members that the new Code's requirement to respond reasonably to non-disclosure was arrived at after acknowledging legislative changes in the UK and Australia," he said.

“Clearly, we could not include another country's legislation in the Code because it is a high level, principled approach.

“So, we have no problem about addressing this issue - indeed we are ahead of the curve.  What is important here is insurers' approach and the new Code addresses the issue.”
  • Graham Sanders 24/04/2015 12:31:13 p.m.
    So, it's ok now to select against an insurer provided you can claim it was accidental.
    So, if the insurer makes an accidental error in issuing the policy or in any other respect is that also OK?
    As I learned many years ago, the original legal statement that espoused the doctrine stated something like the following: "Insurance is a contract of speculation... The special facts, upon which the contingent chance is to be computed, lie most commonly in the knowledge of the insured only: the under-writer trusts to his representation, and proceeds upon confidence that he does not keep back any circumstances in his knowledge, to mislead the under-writer into a belief that the circumstance does not exist."
    If the insurer is now to proceed with uncertainty I would expect premiums to eventually reflect that unknown risk onto all policyholders.
    Post a reply
  • Giles Thorman 24/04/2015 1:41:13 p.m.
    The example that Karen Stevens cites is of a client that had had depression years "before" but did not disclose it on her Medical Application. Karen then goes on to say that the Insurer should only be able to avoid a policy if they can prove the non-disclosure was deliberate. Is she really suggesting that the client had "forgotten" that she had suffered depression???

    Depression can lead to many other Health problems aside from mental health issues and so the Insurer could well have been acting totally appropriately.

    I am sure that Karen does not need to be reminded an Insurance Contract is a contract of good faith between two parties and not answering the questions truthfully because you may be embarrassed or because you cannot be bothered too is hardly fair on the Insurance Company OR its other policy holders who will have to pay for the Clients "memory loss".
    Post a reply
  • Lawrence Roberts 27/04/2015 9:32:52 p.m.
    Insurance as practiced in New Zealand is a one-sided arrangement that significantly disadvantages individuals and small businesses due to the complexity of the legislation, precedents, contract conditions and terminology that have evolved. It is fair to say this evolution has been heavily influenced by insurers using every opportunity to ensure the complexity and one-sidedness continues (influencing the legislative process via amenable parliamentarians and ministers, managing court outcomes by settling early to avoid inconvenient precedents and exploiting the financial and personal cost of drawn out legal processes).

    Post-earthquake experiences have accentuated the extents and depths New Zealand insurers can go in minimising or avoiding their contractual obligations. These experiences have their counterparts in post-disaster experiences in the United States. An official report after the Queensland floods gives evidence of some of the dubious actions carried out by insurers. Sadly our current government and ICNZ are unwilling to support a similar such enquiry here (presumably if there was nothing hide there would be open support for an investigation into practices here).

    In this context a potentially unrepresentative insurance example from the Insurance and Savings Ombudsman does not detract from the demonstrable need for insurers to conduct themselves in a way that is a significant improvement over what is now happening. This is especially so when insurance is purported to be based on utmost good faith yet insurers do not offer this up on their part. Unfortunately the revised Fair Insurance Code is little more than tinkering and window dressing. More is needed. Disclosure is one such area of need.

    In a way the need for legislation is underlined by the arguments provided in the two comments above dated 24th April. The arguments seem unduly rooted in a mythical past when all insurers were angels and policy holders criminals looking for an opportunity to strike. As the U.K. has shown utmost good faith is a seriously faulty concept that has to be replaced. That is the case here too and, despite attempts of vested interests to keep the status quo, change must happen. As there is neither willingness nor competence in the insurer camp to make a genuine attempt at this legislation is appropriate.
    Post a reply