Personal finance: Confess to insurers now, or it's distress later
One in 10 complaints to the Insurance & Savings Ombudsman involve people who have had claims turned down because of "non-disclosure".
Non-disclosure means not telling an insurer something it would want to know when you take out an insurance policy, and the most common failures are failing to fess up to criminal convictions, or reveal past illnesses.
Insurance & Savings Ombudsman Karen Stevens said about 10 per cent of complaints to the ombudsman scheme involve people who have insurance claims declined and in some cases their entire policy is "avoided", which is insurance industry jargon for treating it as if it never existed (without giving the premiums back).
"The two most common things people fail to disclose are their pre-existing medical conditions (39 per cent) and any criminal convictions (29 per cent)," Stevens said.
Many cases of non-disclosure are entirely accidental.
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."
The law currently allows insurers to treat both accidental and deliberate non-disclosure the same, giving them the right to avoid a policy if the non-disclosure was "material".
Insurers often don't go that far, but Stevens continues to call for a law change to protect people who accidentally leave out information when applying for insurance.
"We had a case where a health insurance claim for surgery was declined, because when the consumer applied for insurance she had not disclosed she had depression years before," Stevens said.
"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." The current law requires a consumer to disclose to an insurer all information a "prudent underwriter" would consider important.
"This is extremely difficult for consumers to understand," Stevens said. "Insurers do tell their customers they need certain information, but 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. The law change Stevens wants would only allow an insurer to avoid a policy where it could show the non-disclosure was deliberate.
"Dealing with non-disclosure in this way would follow recent trends in Australia and the UK.
"At the moment, New Zealand is way out of step with these countries." The new, voluntary Fair Insurance Code for fire and general insurers, which was due to come into effect on January 1 next year, was a step in the right direction, she said.
The code It will require members of the Insurance Council, the industry's representative body, to respond reasonably in relation to what the insured did not disclose.
Life insurers were not members of the council.
"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 said.
Avoiding the non-disclosure trap
Insurance is easily bought online, over the phone or in bank branches. But the speed and convenience of that can mean that people fail to check things like their medical histories, road traffic infringement histories and previous insurance claims before signing the declaration on policies that says they have disclosed everything they should. Here are the ombudsman's tips on how to avoid leaving something out.
1. Answer all the questions on your insurance application, even if you do not think it is relevant.
2. Contact your insurance company immediately if you forgot to include something on your application.
3. If your financial adviser/broker filled in your insurance application for you, read through it carefully before you sign it and take a copy to read again.
4. When you renew your house, contents or car insurance, tell your insurance company of any new events (convictions, accidents, losses, etc).
5. If you can't remember your full medical history, ask you doctor for a copy of your medical notes, and double-check your insurance application.