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What’s my cover?

In January 2012, Nikki and Mark took out life policies with insurance company A. Later that year, Nikki developed a thyroid condition.

In March 2015, Nikki put her name down at a local information meeting to be contacted about an insurance review. Lynda, an insurance adviser, then contacted Nikki and they discussed Nikki and Mark’s insurance requirements. Nikki had not intended to move her and Mark’s life cover, and described Lynda as trying to ‘sell her other policies’. Nikki and Mark were currently paying a combined premium of $23.78 per fortnight for their life insurance.

Lynda asked Nikki whether she and Mark had trauma cover. Nikki said she told Lynda she was not sure, and could not see from insurance company A’s paperwork that they did. Nikki provided the details of her insurance cover to Lynda, who said she would look into it.

The proposal

Lynda came back to Nikki and Mark with a proposal that they move their life cover from insurance company A to insurance company B. The combined fortnightly premium with insurance company B was $27.28, being slightly more than their existing cover. However, the new cover provided optional trauma buy back cover which Nikki and Mark did not currently have.

Lynda sent the couple an insurance company B application form on which Nikki disclosed her thyroid condition. Nikki said Lynda did not ask her whether the thyroid condition was a pre-existing medical condition under insurance company A’s cover.

Insurance company B asked for Nikki’s medical notes to review the history of her thyroid condition. It required Nikki to undergo further tests and scans requiring several appointments, over several months, which was quite stressful for Nikki.

Insurance company B accepted Nikki and Mark for life and trauma cover, but with 50% loadings for Nikki on the life premium, and 75% on the trauma premium. The couple accepted the cover with insurance company B and cancelled their existing cover.

The complaint

In 2016, Nikki and Mark complained to Lynda because they discovered they did have existing trauma cover with insurance company A, without a buy-back option.

Nikki and Mark compared the two policies, and from what they could see, there was an additional $10,000 in trauma cover for Nikki with Company B. However, the extra cover did not outweigh the following factors:

  • An additional premium.
  • The need to buy back trauma cover.
  • A 12-month stand-down period.
  • The ability to only claim once annually.
  • The inability to claim for the same diagnosis.

Nikki and Mark saw another adviser who said it would have been better for Lynda to suggest the couple stay with insurance company A, but simply increase Nikki’s trauma cover by $10,000.

Lynda said she discussed the benefits of the cover with insurance company B and compared these to the benefits with insurance company A, including the importance of standalone cover, so that the life benefit was not reduced by any trauma claim.

Our review

We looked at whether Lynda’s advice process was adequate in providing Nikki and Mark a clear outline of their existing cover with insurance company A and comparing that cover with the cover proposed with insurance company B.

In our view, there were some deficiencies in Lynda’s advice process. In particular, there was a lack of written advice specifically comparing the existing policy with the proposed policy.

In Lynda’s statement of advice (SOA), she provided comparisons between the benefits provided by several proposed new insurers. However, when policies are being replaced, the focus of advice needs to be on a comparison between existing cover and the proposed cover. This is because of the inherent risk in losing cover for pre-existing medical conditions when moving insurer.

Best practice

Best practice would be for an SOA to outline:

1) Product and provider differences, stating the specific reasons for the proposed replacement, and why the current policy does not adequately meet the client’s needs.

2) The key differences between the two policies relevant to the client including:

      • product features
      • provider features
      • definitions
      • re-commenced stand-down periods
      • exclusions
      • provider strength and rating.

Other evidence

Lynda said she discussed these issues with Nikki and noted information about the trauma cover being more favourable with insurance company B on the ‘Advice on Replacement Business’ section of insurance company B’s application form. However, there was no written record or evidence of an actual discussion, nor record of the specific advice provided.

There was an email on the file which stated:

“As previously discussed over the phone, we recommend standalone trauma cover. This means the policy ‘stands alone’ and would not affect any other policy in the event of a claim. Accelerated trauma is attached to the life cover and would affect the life cover. We recommend standalone trauma cover.”

It was clear from this email that Lynda and Nikki had discussed trauma cover. However, trauma cover was being discussed in the context of it being standalone cover as opposed to accelerated cover, with the new insurer. It appeared Nikki and Mark remained under the impression, at the time Lynda was providing the advice to move insurer, that they did not already hold trauma cover.

Financial loss?

We then looked at whether there was any financial loss caused by the move in insurers. From our comparison of the policies, (including whether cover was standalone or accelerated, the buyback benefit, the fact total and permanent disability cover was provided under insurance company B’s policy, the future insurability, premium waiver, and waiting periods), it appeared the package with insurance company B provided (marginally), greater benefits than the package with insurance company A.

For this reason, it appeared the increased premiums were likely worth it, and we ultimately decided Lynda had not caused Nikki and Mark a financial loss.

Lost opportunity

However, the couple had lost the opportunity to make an informed choice about whether it was in their best interests to move cover.

It quite clearly came as a shock to Nikki and Mark when they discovered they did have existing trauma cover, and they had suffered stress and inconvenience in having to review all their insurance cover and try and resolve the issue with Lynda. The process of the further thyroid testing was also stressful for Nikki and may have been avoided if Nikki and Mark had been in a better position to assess whether they really wanted to move insurer.

We suggested Lynda pay $1,000 as compensation for the stress and inconvenience caused and in full and final settlement of the complaint. Both parties accepted our suggestion and the complaint was resolved.

Our insight

This complaint could have been avoided if Lynda had more adequately explained the cover Nikki and Mark had with insurance company A, and compared that to the proposed cover with insurance company B.