When a policy is no insurance
The case of a Southland insurance adviser, who is facing four criminal charges and whose business is being liquidated, has revealed a frightening and little-known risk in the life insurance industry.
Barry Andrew Hansen, who was bankrupted in November, says he plans to defend the charges which he argues relate to civil matters.
His business, Hansen Insurance Service (Gore), is in the hands of the liquidator at the petition of the taxman.
He's is not planning on going down without a fight, and says he is also trying to get the Official Assignee - the government body tasked with handling liquidations of companies - to let him continue a legal battle for damages against the Professional Advisers Association, which ejected him as a member, contributing, he says, to the end of his career as an adviser.
The PAA has acknowledged that its lawyers have been dealing with the matter, but Hansen says he is paying the price for taking on the country's largest life insurer, Sovereign, over a practice that brings shame on the insurance industry.
According to Hansen, he won a life insurance payment of more than $360,000 for a woman whose husband committed suicide while insured by Sovereign.
Death by suicide, something that is all too common in New Zealand, ordinarily triggers a payout under most life insurance policies provided it does not happen in the first 13 months after a policy is written. The reason for the non-payment in the case Hansen tackled, is that the man had had his policy switched to Sovereign about six months before his death.
Ordinarily, there would be no fight over that, but in this case the insurer from which the man's insurance policy was switched was also Sovereign.
This was what is known as an "internal" transfer and it can happen when someone with insurance agrees to let either their bank, or an insurance broker, switch their policy, though the most common types of transfer are from one insurer to another.
There can be many reasons for such changes, but switching, or "churn", is often said to be driven as much by the rich commissions on offer to advisers who can convince people to switch as by any client demand.
In the case Hansen is involved with, the man's policy had originally been written by the ASB and was switched by an insurance broker, Hansen says.
The Sunday Star-Times has not been able to verify the details of the case, and Sovereign will not discuss them, but the giant insurer did issue a statement on its internal transfer policy, and it does seem to show that such situations are possible where there are changes in cover level.
"It is Sovereign's default position to waive the suicide exclusion if the policy being replaced is an internal replacement, is over 13 months old, is like-for-like, and the sum insured is the same or less. An adviser has to complete a business replacement application in conjunction with the client, and state the reasons why the replacement is occurring. At this stage, an adviser can also ask for the stand-down to be waived," the statement says.
An ordinary person can ask for the stand-down to be waived, but most would not understand they could.
Hansen says this clearly shows some people can fall between the cracks of the Sovereign default system, but it is not the only risk that people allowing their policies to be churned can face.
The other risk is that when a new policy is written there is a duty on the policyholder to disclose any information an underwriter would find material, and failure to do so, even innocently, so can mean a claim could be legitimately turned down.
At the very least, the statement from Sovereign shows, the insurer has discretion over whether to pay the claim.
"Obviously every case is different - but for example if a policyholder decided to increase the value of a 10-year-old Sovereign policy from $1 million to $2m then the additional $1m would be subject to underwriting. If the policyholder subsequently made a claim and it was discovered he or she had non-disclosed at the time of the additional underwriting, it is likely that he would be paid out on the value of the original policy, but not the additional $1m."
"Likely" would seem to be the operative word.
Where this story gets ugly is that the last of the four charges Hansen faces is not paying the woman the claim money from Sovereign.
Hansen says there was an agreement to pay the woman the money by instalments.
Hansen says he had alerted the Commerce Commission about the internal transfer issue - something the commission says it has no record of - and that it is only one of a number of dirty secrets the insurance industry has including misleading marketing.
Hansen says he had a heart attack which was not covered by the trauma policy he sold himself from Sovereign, saying he effectively miss-sold the policy to himself. He questioned whether many insurance policyholders understand what they are insured for and when their insurer would be able to cite something like the "wrong kind of heart attack" to turn down a claim.
- Sunday Star Times
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