In the wake of the Momentum-Ganas case there is no question that something has to change in the way life insurance is written. Effectively a precedent has now been set that has established a new standard in the industry.
What is up for debate, however, is where that change can best happen.
The conundrum is that both clients and insurers need protection from each other. Clients must have more assurance that their policies are going to pay out when they need them, but insurers also have to be protected against clients deliberately providing false information on their application forms.
Who better to manage both of these concerns than those who already intermediate this relationship – the brokers and financial advisors?
“I believe that every broker should look at the way they work,” says Roger Hendricks, an independent financial advisor who runs a practice called DiscloseAll with his wife Sumari. “Industry standards need to change.”
From his own experience, Hendricks has found that brokers have the means to ensure that a client makes the maximum disclosure possible when applying for life insurance. This has substantial benefits for both parties.
“The first thing I ask a client is their consent to look at their medical aid claims history,” Hendricks explains. “I then scan back as far as I can go to look at every doctor they went to, every specialist, and every hospital visit. If there’s anything in there I don’t understand, I go through it with the medial aid. I can also request medical reports from any of the doctors.”
This, in essence, is much the same process that an insurer would follow when someone makes a claim. They go back in the policy holder’s medical history to confirm that there is nothing material in there that they didn’t disclose. They will also request medical reports from every doctor they have seen to confirm every diagnosis that was made.
If your broker has already done this at the time of applying for the policy, it significantly reduces the chances of either party being surprised at claims stage.
“Its not 100% guaranteed that you are now secure, but you have a far better chance of not having a claim repudiated knowing that we’ve done that amount of work on you,” Hendricks explains. “The insurance company also has so much information that they now can make a more informed decision about the policy they are giving, and that means they do better underwriting as well.”
Less than total recall
The reality is that there is a fair chance that any non-disclosure is not deliberate. If you are relying on your memory alone, you cannot be certain that you will recall every relevant detail of your medical history.
“You probably won’t even remember some of the doctors you have seen,” says Hendricks. “Really, it’s a fine line between whether you are lying or if you just can’t remember. There’s too much going on to remember everything.”
Even if you do remember seeing certain doctors, you may easily forget or misunderstand what they told you. Hendricks gives an example of a recent case where a severe illness claim after a triple bypass was repudiated because the client did not mention a visit he had made to a neurologist.
He had gone because he was suffering from headaches, and his GP had recommended that he see a specialist. The neurologist’s verdict was that he needed to stop smoking, which he did, and prescribed medication for anxiety.
However, when the insurer requested a report from the neurologist, the doctor noted in his report that the client had high cholesterol, and a family history of heart disease. Neither of these things was addressed in the recommended treatment, but they were now relevant to the insurance claim.
“He walked out of the appointment thinking that there was nothing wrong with him, and he just had to stop smoking,” says Hendricks. “So how do you draw that line?”
Going through the process of having your full medical history available from the start takes away these questions. If you know you have disclosed everything, you can be more confident that your policy is going to serve its purpose.
Hendricks says that it is the case that more clients receive exclusions or have to pay higher premiums due to the level of disclosure, but they’re happy to accept this knowing that they will ultimately get what they are paying for. He therefore believes that this is a professional service that brokers and advisors should provide.
“We are trained about different products, and we have to deal with compliance documents by the thousands, but nobody is taught about how underwriting works,” he says. “That is a flaw. That is really the first step when applying for insurance, and we should do it properly for the sake of our clients.
“It’s only fair,” he adds. “You’re the client, spending the money, and we’re getting the commission. We should do it correctly.”