Background
In 1998, Keith and Nicole took out health insurance with an insurance company. In March 2014 they received a notice from the insurance company that it was no longer providing health cover, but it had secured cover for its customers with a second (“recommended”) insurance company. Keith and Nicole had 3 months to confirm moving their cover to the recommended insurance company, which would continue to cover any of their pre-existing medical conditions (PEMCs).
In April 2014, Keith and Nicole met with an insurance adviser about their insurance. Keith and Nicole say the adviser assured them that another new insurance company, could offer them equal if not better cover as the recommended company. Keith and Nicole completed an application form and took up the new insurance company’s offer of health cover.
In October 2014, Keith began suffering left thumb pain and he required a steroid injection and consultations with a surgeon. Keith submitted a claim to the new insurance company for the costs of this. In December 2014, the new insurance company sought Keith’s full medical records. These revealed that Keith had a history of a number of health issues. In January 2015, the new insurance company wrote to Keith advising it was cancelling his specialist and test policy benefits, and had added exclusions in relation to his left hand, carpal tunnel, lumbar spine, left shoulder, deafness and tinnitus, and an exclusion for an iron ‘overload’ condition.
Keith and Nicole then cancelled Nicole’s health policy with the new insurance company. The new insurance company’s dispute resolution scheme decided it had acted correctly. Keith and Nicole then complained to FSCL about the advice the adviser provided.
Specifically, Keith and Nicole complained the adviser had not carried out a risk assessment in relation to the move from their original insurance company and its recommended replacement company to the new insurance company. The exclusions on Keith’s new health policy severely limited his cover, and if he and Nicole had been aware this may happen, they would have rolled over their cover from the old insurance company to its recommended replacement company. Keith and Nicole also complained that the adviser was influenced in suggesting they move to the new insurance company because of ‘bonus’ commission he may receive.
Keith and Nicole asked the adviser to pay for an operation on Keith’s thumb ($11,950), a possible knee operation for Nicole ($46,000), and to offer a solution to their issue of their ongoing limited health cover.
The adviser’s view on the complaint
The adviser said he first met with Keith and Nicole in March 2014 to understand their personal situation better. The adviser then prepared a formal written recommendation.
The adviser then met with Keith and Nicole in April 2014. He highlighted to them that any advice he offered was only as good as the information he received from Keith and Nicole. The adviser said he also mentioned several times during the meeting that it was important for Keith and Nicole to tell him their full medical histories, even if they thought some of that history was irrelevant. He told Keith and Nicole that the number one reason insurance companies do not pay claims is because of non-disclosure.
The adviser then went through his written recommendation and discussed the benefits and advantages of taking out cover with the new insurance company, while drawing comparisons to other insurers. The adviser said he was recommending the new insurance company because it had high levels of cover and the Insurealot policy had lower cover levels for certain drugs. The adviser left application forms with Keith and Nicole to fill out.
Later in April 2014, the adviser met with Keith and Nicole again. They had completed 95% of the forms, but the adviser went through the forms with them again mentioning that everything must be disclosed. On the forms, Keith disclosed he had a lower back issue, and a right ankle tendon issue, and Nicole disclosed arthritis, sciatica and the fact she had once had bronchitis.
The next day, the adviser emailed all the documents to Keith and Nicole and said that full medical disclosure is essential, especially conditions easily overlooked, like stress, and insomnia. The adviser said that if Keith and Nicole could not remember specific details they should contact their doctor. After receiving the new insurance company’s offer of terms a week or so later, the adviser met with Keith and Nicole again. The adviser, Keith and Nicole decided that exclusions relating to Keith’s right ankle, and Nicole’s spine were outweighed by the positive benefits of the new insurance company’s policy.
The adviser said that if he had known Keith’s full medical history he would never have recommended that Keith and Nicole change to the new insurance company. The adviser said that he was not influenced in suggesting the new insurance company by any commission he may receive because it did not pay upfront commissions or bonus commissions. Lastly, the adviser said that he had outlined the duty of disclosure to Keith and Nicole several times, and they signed the ‘duty of disclosure’ section on the new insurance company’s application form.
Keith and Nicole’s view
Keith and Nicole said it was important to them that cover be rolled over, because Keith was a builder for 40 years and due to their ages (early 60’s and late 50’s), and it was highly probable that they would be faced with a range of policy exclusions by any new insurer. In response, Russell said it was unreasonable for him to be expected to assume that because Keith had been a builder for a number of years, that he must have PEMCs.
Our review
Benefits of the new insurance company’s policy
We were satisfied that the adviser, Keith and Nicole had discussed the benefits of the new insurance company’s policy over the recommended insurance company’s policy. The difference in premiums between the two companies was negligible, giving weight to the adviser’s evidence that it was the benefits of the new insurance company’s policy which influenced him in suggesting that company to Keith and Nicole.
We also found that it was Keith and Nicole’s decision to cancel Nicole’s new insurance company’s health policy after the company reduced the scope of cover on Keith’s policy. There would likely have been cover under the new insurance company’s policy for Nicole’s knee operation, so the adviser could not be held liable for the costs of Nicole’s operation.
Commission
We also considered whether the adviser was influenced in suggesting the new insurance company because of any commission he may receive. If the new insurance company had suggested Keith and Nicole roll over onto cover with the recommended insurance company, he would have received no commission. The adviser stated he would never have advised Keith and Nicole to move to the new insurance company if Keith had disclosed his full medical history. We had no reason to doubt the adviser and it seemed highly unlikely he would have put Keith and Nicole at such significant risk, and himself at such significant professional risk.
Medical records
Of importance were two emails on file where Keith spoke about the new insurance company’s decision to limit and apply exclusions to his cover. The emails made it clear that Keith held a very strong view that a lot of medical history was not relevant to an insurer’s assessment of whether to cover him, and if so, on what terms. The emails also showed that Keith thought the new insurance company was going to look at his full medical records as a matter of course before offering terms.
We considered whether the adviser was required to inform Keith and Nicole that the new insurance company would not, as a matter of course, review their medical records before issuing an offer of insurance. The adviser argued that it would have been incorrect for him to tell Keith and Nicole that the new insurance company would not look at their full medical records as a matter of course, because the new insurance company could have chosen to do any number of things, including asking for more information from Keith, his doctor, requiring a full medical examination, or for Keith to undergo tests.
In our view, best practice would have been for Russell to advise that the new insurance company could have done any of those things and that medical records are not obtained as a matter of course. To do so would have prevented any misunderstanding and complaint by Keith and Nicole that they believed the insurer would automatically obtain a copy of their medical records.
If the adviser had done this, Keith and Nicole may have had the opportunity to think about whether to seek their medical history from their GPs and send this to the insurer, or at least review their medical history (which could have resulted in more full disclosure).
Duty of disclosure
We noted that Keith and Nicole approached the adviser and asked him to review their insurances. Based on the information Keith and Nicole did disclose, it was not wrong for the adviser to suggest the new insurance company. It was ultimately Keith’s material non-disclosure of his full medical history which had placed him and Nicole in the unfortunate situation they were in.
We also found it difficult to accept that Keith and Nicole had no concept that PEMCs that would have been covered under the previous policy may not be covered under the new insurance company’s policy; they had been insured with the previous insurance company for a number of years and its letter advising of the ability to move to the recommended insurance company had mentioned PEMCs continuing to be covered. Also, when the new insurance company’s offer of terms were provided, there were some conditions excluded that had not been excluded under the old policy.
We also consulted with an industry expert in financial advice, specifically around the issue of best practice when advising a client to replace their existing insurance. Most people are unaware of the extent of the duty of disclosure. An adviser who just says to a client they have a duty of disclosure may not result in the client disclosing all relevant information. More needs to be done by advisers to give context, by asking clients more personalised questions about their medical history.
We formed the view that, in light of the expert evidence, it would have been best practice for the adviser to have:
a) Asked Keith in particular, more questions about his health over the years, perhaps noting he had been a builder for 40 years, and asking whether he had suffered any injuries. He could also have asked Keith whether he had spent any time off work, and received ACC payments.
b) Perhaps used a hypothetical example where a person did not disclose a relevant medical condition they experienced in the past, and the effect this had on the insurance company’s underwriting decision (for example, that the policy was endorsed with an exclusion).
These steps may have elicited more information about Keith’s medical history. We could not be absolutely sure more information would have been disclosed because Keith had a very strong view that a lot of his medical history was irrelevant to an insurer’s decision to insure and if so, on what terms. However, by the adviser not taking these steps Keith lost the opportunity to disclose more about his medical history.
Our decision
We decided that the adviser could have asked more questions of Keith, and more explicitly outlined to Keith and Nicole that the new insurance company would not seek a copy of their medical records as a matter of course. By the adviser not taking these steps, Keith lost the opportunity to disclose more about his medical history. We said that the adviser should pay Keith and Nicole $1,000 for the inconvenience caused, in full and final settlement of their complaint. Keith and Nicole accepted our decision and the complaint was resolved.
