The importance of full disclosure at the inception of an insurance policy can never be overemphasised. Similarly, updating any changes over the lifetime of your policy with your insurer is just as important.
According to the 2021 Ombudsman for Long-Term Insurance Annual Report, the Ombudsman received 64 complaints from customers regarding life insurance claims that were declined due to non-disclosure. Only 17% of these complaints were resolved wholly or partially in favour of the complainant — this highlights the need for policyholders and potential customers to disclose all relevant information. Full disclosure at inception of a policy provides peace of mind for clients who, when submitting a claim, expect a stress-free process when their payment is due.
Understanding why claims are declined
One of the reasons claims get repudiated is that sometimes there is a discrepancy between the information clients disclose during the underwriting process and what they supply at claim stage. A typical example relates to clients that may have been diagnosed with a chronic condition such as diabetes. Failure to fully disclose this medical history can lead to the claim being repudiated by an insurer. This is viewed as material non-disclosure as it influences the type of cover an insurer would have offered a client at the time of application.
Apart from medical non-disclosures, there are also other areas where clients fail to disclose relevant information when taking out policies. These include the disclosure of information relating to finances, lifestyle, occupation, dangerous hobbies and even disclosure of information relating to the client’s previous insurance history.
Paying all valid claims is what drives us as an industry; repudiation of claims is therefore something that all insurers take very seriously. Insurers should work with clients, prospective clients and financial advisers to ensure that everyone is informed about the importance of fully disclosing their circumstances when they take out a policy.
It is critical for insurers to implement systems that will minimise the occurrence of non-disclosures. As a starting point, it is important to enhance the underwriting process so that teams can obtain pertinent information from the client, without being excessively intrusive — underwriting is an intimate and somewhat daunting process to go through from the client’s perspective. To this end, teams must be empowered to ask the right questions, while keeping the client comfortable.
Getting the most from your insurer
Though it may seem intrusive, the underwriting process is important. Whether dealing with a financial adviser or completing a tele-interview directly with an insurer, it is crucial to disclose all relevant information truthfully to prevent the possibility of claims being rejected in the future.
Here are a few tips:
- Prepare: Underwriting will require specific details regarding your medical history, that of your family (to determine hereditary conditions), financial and occupational information, and your lifestyle practices (like smoking or exercise routines). It is important to have this information readily available.
- Be Honest: It may be tempting to provide incorrect — or withhold — information to try to get a lower premium. However, in the long run, this may result in your claim being declined, or the cover on your policy being withdrawn. Rather be truthful: even if you aren’t sure if the information is relevant, disclose it anyway. It is also important to be honest about your previous insurance history, if applicable.
- Ask: Your adviser may assist you with the completion of the application, which is useful, because advisers have many years of experience and knowledge and can make this part of the process easier for you. Ultimately though, you need to verify that everything disclosed on the application is true. It is also your responsibility to read through the quoted terms and conditions carefully before signing. Make sure you understand the terminology, and the benefits you are entitled to, as well as the conditions relating to the benefits you are applying for.
- Maintain Contact: Insurance is a long-term journey. Be sure to keep your insurer informed of any changes to your occupation, residence, or hazardous activities as the years progress — these are notifiable changes for many insurers. You need not advise the insurer of a change in health, unless it is something that you failed to disclose when applying for the policy. If you are unsure as to what to advise, rather err on the side of caution and provide more, rather than less, information.
As a licensed life insurer regulated by the Financial Sector Conduct Authority (FSCA), an insurance company’s approach to non-disclosure must always be aligned to the stance that is adopted by the FSCA as well as the Insurance Ombudsman. All insurance companies therefore have a duty to ensure that all their customers feel empowered and protected, having confidence that companies will treat them fairly.
Lisa Gibbon is Divisional Executive for Onboarding at Liberty
This article does not constitute tax, legal, financial, regulatory, accounting, technical or other advice. The material has been created for information purposes only and does not contain any personal recommendations. While every care has been taken in preparing this material, no member of Liberty gives any representation, warranty or undertaking and accepts no responsibility or liability as to the accuracy, or completeness, of the information presented.
Liberty Group Ltd is a licensed Life Insurer and an Authorised Financial Services Provider (no. 2409). Terms and Conditions, risks and limitations apply.