The stand down period
Daniel was going to turn 50 soon and he wanted to reduce his premiums for his life insurance and accelerated trauma cover. Daniel was happy to reduce the sums insured and contacted his insurance adviser to see what options may be available. The insurance adviser reviewed Daniel’s life insurance and accelerated trauma cover and found a policy that could provide similar benefits at a lower premium. The adviser made a reasoned recommendation for the new insurer in his statement of advice, and Daniel agreed to take out a policy with the new insurer.
Daniel had no pre-existing conditions and made full disclosure of his medical history to his new insurer. Daniel took out the new insurance policy and his old insurance policy was cancelled. The new insurer agreed to cover Daniel, but a stand down period was included in Daniel’s policy which excluded any claims that related to symptoms that may arise in the first 90 days of Daniel’s new policy.
60 days after Daniel had changed to his new insurer he woke up at night feeling tightness in his chest. Over the next week, Daniel felt breathless, tired and unsteady on his feet. He could not perform his work duties and was admitted to hospital. After various tests, Daniel was diagnosed with cardiomyopathy.
Cardiomyopathy was a heart condition that was covered under Daniel’s accelerated trauma policy with a payment of $55,000. Daniel filed a claim with his new insurer. The new insurer assessed Daniel’s claim but declined it due to the symptoms arising within the first 90 days of Daniel’s policy.
Daniel was upset but accepted the insurer’s decision. Daniel said he had never been aware of the 90 day stand down period and, had it been explained to him, he would not have agreed to cancel his old policies before the 90 day period had expired.
A few years later, Daniel contacted a new insurance adviser. He explained what happened with his old insurance adviser and was told that his old insurance adviser should have explained the 90 day stand down period, and perhaps asked the insurer to waive it because Daniel had similar existing insurance and had not made a claim. Daniel complained to FSCL.
Daniel felt that his old adviser had not acted in his best interests by not requesting the insurer to remove the stand down period, and by not recommending Daniel maintain his former insurance until the 90 day stand period had passed.
Daniel felt that his old adviser had let him down by essentially leaving him uncovered for 90 days.
We started our investigation of Daniel’s complaint. Unfortunately, Daniel’s old adviser was no longer in the business, but the company that he had worked for addressed Daniel’s complaint. The company gave us its report, including Daniel’s file and both his old and new insurance policies.
The adviser company said that even if a request had been made to the insurer to waive the stand down period, it was at the insurer’s discretion whether to agree or not. We accepted that the decision was at the insurer’s discretion and also that the insurer had reasonably applied the stand down period.
The company also suggested that Daniel’s cardiomyopathy may not have been covered under either his old or new insurance policies.
We requested Daniel to provide us with his medical records and current information about his cardiomyopathy from his cardiologist. We assessed the severity of Daniel’s cardiomyopathy against the policy wording of both his old and new policies and found that neither his old nor new policies would have responded to Daniel’s cardiomyopathy at its current (low) severity. However, Daniel’s current policy would have triggered if Daniel’s cardiomyopathy were to worsen in future.
As Daniel’s cardiomyopathy claim would not currently be accepted, we considered he had not suffered a financial loss, however there was a risk of a claim and a financial loss in the future. There was also a concern about whether best practice had been applied by Daniel’s old adviser by not making a request of the insurer to waive the stand down period, and by cancelling Daniel’s previous policy when he was in the 90 day stand down period.
We arranged a conciliation conference between Daniel and the company to confidentially discuss Daniel’s complaint.
The adviser company and Daniel were able to reach a full and final settlement of the complaint at the conciliation conference. One of the settlement terms was that, in the event that an otherwise valid claim by Daniel was declined due to being related to signs or symptoms that arose during the stand down period, the adviser would step into the shoes of the insurer to pay a sum insured at an agreed capped sum.
Conciliation provides an opportunity for the parties to a complaint to be able to discuss all matters confidentially and without prejudice. At a conciliation, parties can generate and options to resolve a complaint together and agree on the most appropriate option for them.
It is also important to remind clients that they should not cancel existing insurance policies while they are still in a stand down period with a new insurer. They should wait until the stand down period has expired before cancelling their existing policies.