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Traumatic times when buying back insurance

Manuela and her husband, Ferdinand, arranged life, trauma and trauma buy-back insurance through their insurance broker, Stephen.  About two years later Stephen contacted them again, and said he could find better cover with another insurer.  Manuela said she told Stephen that her husband had experienced some minor health issues in the past year and Stephen told her not to worry, the insurer would check with their GP before accepting cover.  Manuela forgot to mention that Ferdinand had hurt his back requiring an ACC claim.

Cover was placed for Manuela and Ferdinand with a new insurer.


Heart attack triggers claim

In December Ferdinand suffered a heart attack and completed a claim form for trauma cover. In March the insurer accepted the claim depositing $100,000 into their bank account.


Non-disclosure of back injury discovered

During the claims process the insurer discovered Ferdinand’s ACC claim, and advised it would exclude from cover any back related injuries.  Manuela and Ferdinand were annoyed with Stephen because he had dismissed the need to disclose any changes in Ferdinand’s health.


Reminder about trauma buy back cover

Lucy, an administrative assistant working for Stephen, emailed Manuela and Ferdinand reminding them about the trauma buy-back cover. 

Generally, once a trauma benefit is paid, the trauma cover ceases.  However, the trauma buy-back cover, purchased when the insurance was arranged, allowed Manuela and Ferdinand to reinstate the trauma cover.  The request to reinstate had to be received by the insurer within 60 days of the one year anniversary of the previous benefit being paid.  Although Ferdinand would not ever be covered for another heart attack, once the policy was reinstated, he would be covered for any other trauma event covered by the policy, at no extra cost.

Lucy advised Manuela and Ferdinand to complete the trauma buy-back application form and return it to her.  She would submit the trauma buy-back cover the following year on their behalf.

Manuela said when she tried to email the completed form to Lucy, Lucy replied the insurer needed the original form, so Manuela posted the form to Lucy.

Ferdinand also wrote on the insurer’s policy schedule, which he emailed back to the insurer, as part of the claim process:

Trauma Cover Buy Back – Yes – Please see attached policy schedule issued 22 November 2012.


Renewal notice – no trauma cover

When Manuela received the usual renewal documentation in November she noticed that the trauma cover was not included.  Manuela contacted Stephen and was told not to worry, the policy would be reinstated the following March, after the stand-down period.


Renewal notice – still no trauma cover

The following November, when Manuela received the policy renewal documentation, she again noticed the trauma cover was not included and contacted Stephen.  Stephen advised Manuela he had no record of receiving the trauma buy-back reinstatement request, either by email or post.

Stephen asked the insurer whether it would reinstate the trauma cover, but the insurer declined because Manuela was by now well outside the buy-back period.  Unless Manuela was able to prove that she sent the trauma buy-back reinstatement request to Stephen, the insurer said it was unable to help.


Manuela’s view

Manuela referred the complaint to FSCL.  She said that she had returned the trauma buy-back reinstatement request to Lucy.  Manuela could no longer find the first emailed request, and had not kept a copy of the posted request. 

Manuela said she gave Stephen the opportunity to discover the error when she called the first time she noticed the trauma cover had not been reinstated.  If Stephen had checked his records, instead of dismissing her concerns, the error would have been discovered in time.

Ferdinand was now uninsurable, because after suffering a heart attack no other insurer would be prepared to provide cover.

Manuela wanted the cover reinstated, and compensation from Stephen for Ferdinand’s inability to be insured.



Genuine intention to reinstate

While we could find no evidence of the buy-back request being sent back to Lucy, we were satisfied that Manuela and Ferdinand genuinely intended to reinstate the buy-back cover.  We could also not see any reference in Stephen’s records of his conversation with Manuela when she first noticed the trauma cover was not in place.


Stephen should have reminded Manuela and Ferdinand

However, regardless of whether or not Manuela returned the buy-back request, it seemed to us Stephen should have contacted them around the time the buy-back request needed to be sent to the insurer.  Stephen did not agree, saying it would have caused Manuela and Ferdinand unnecessary distress. 


Concerns about replacement insurance

We were also concerned that Stephen’s recommendation to change insurer may not have been motivated by ensuring better cover for Manuela and Ferdinand, but rather as income generation for himself through the commission he would receive from the new insurer.  The information Stephen provided did not persuade us that a reasonable process was followed to ensure the replacement insurance was in Manuela and Ferdinand’s best interests.  However, Manuela freely acknowledged that they forgot to mention the back injury.



The only real outcome that would satisfactorily resolve this complaint was for the insurer to reinstate the policy. 


Insurer agrees to reinstate

We contacted the insurer and asked whether there were any circumstances under which it would agree to reinstate Ferdinand’s cover.  We noted Ferdinand’s comment on an email, returned to the insurer at around the time the claim was settled, indicating an intention to reinstate the trauma cover.

After considerable negotiation, the insurer agreed to reinstate the policy, but excluding cover for any claim where the signs or symptoms had arisen between the last date Manuela and Ferdinand could have bought back the trauma cover and the first date they noticed the trauma cover was not in place.


Compensation for inconvenience

Manuela and Ferdinand accepted the offer to reinstate the policy and Stephen offered to pay $250 to cover the premiums necessary to bring the trauma cover up to date.  While Manuela and Ferdinand were pleased that Stephen had offered to cover the trauma cover premiums, they said $250 was insufficient to compensate them for the stress they had experienced over the last few years.  Manuela reminded Stephen that Ferdinand was now not covered for back related injuries as a result of their change in insurers.

We gave Stephen the opportunity to increase the offer, and he agreed to pay Manuela and Ferdinand $2,000 in compensation.  Manuela and Ferdinand reluctantly accepted the offer, continuing to hold concerns about the lack of cover for any future back injury.


Our insight

We were delighted to see the insurer agree to reinstate the policy. Although Manuela and Ferdinand had been through an extremely stressful time, they now had the peace of mind of knowing Ferdinand’s insurance was essentially reinstated.

However, calculating compensation for Ferdinand’s lost insurance cover was difficult.  Although Ferdinand had lost cover for a potential future back injury, he had not yet suffered a loss.  As Ferdinand had not hurt his back again, there was no direct loss.  Ferdinand’s potential future loss would be impossible to calculate. 

The most we could have recommended would have been the maximum compensation available for inconvenience.  When Stephen offered Manuela and Ferdinand $2,000 we encouraged them to accept the offer.