Seeing the light: transperency

On the vast majority of occasions when clients claim under their life risk policies, the claims process appears to go smoothly and the overall impression left with the client is a positive one.

At times like this, the insurance industry deserves a pat on the back and a hearty ‘Well done’.

Occasionally, however, the process is less than optimal.

At times like this, there is value in looking closely and critically at what we did so we can identify opportunities for improvement.

Delays, inconsistent service, insensitive communication and unanswered claimant questions leave the client feeling something between unimpressed and completely #@*&%$ by the process, as if they are powerless and have no rights.

However, these problems have one thing going for them: they can be seen and the issue can potentially be addressed.

There is another problem, however, which is more insidious because most of the time it goes undetected by both the adviser and the client (all they see is its effects). The problem is unnecessary or excessive claim requirements.

Even when a suspicion arises and a requirement is questioned, the insurer may be tempted to respond: “The onus is on the claimant to prove their entitlement and the policy requires that you provide us what we request because if you do not, we cannot assess your claim.”

Or worse still, when we recently asked an insurer in what way a particular piece of information would be relevant to a claim, the insurer told the claimant in no uncertain terms: “We do not negotiate claim requirements.”

Responses such as these are not only, at best, fluffy and, in respect of the latter can be seen to be dismissive of the client, but they ignore the fact that there is more than one onus of proof when it comes to claims.

Within the claims section of the policy document, wording similar to the following appears: “You must provide full evidence of your claim that meets our requirements,” or “You must provide any requirements which, in our opinion, are reasonably necessary for us to assess your claim”.

There are two key words in the above clauses: ‘reasonable’ and ‘requirements’.

The dictionary definition of ‘reasonable’ is agreeable to reason or sound judgment, logical, not excessive, moderate.

If something is ‘agreeable to reason’, by definition there must be a reason for it and this reason should generally be provided to the client, preferably without being requested but certainly if requested by the client or their representative, the adviser.

The dictionary definition of a ‘requirement’ is something that is needed, that is necessary or indispensable.

The word ‘requirement’ can also mean “that which has been demanded”. For example: “It is a requirement that you read this article.” Some claimants may feel this is the interpretation being taken by the insurer; however, insurers acting in this way are, at best, again acting in a way that could be seen as dismissive of the client.

Going further, however, insurers acting in this way may well be breaching their shared duty to act in good faith.

Numerous interpretations of good faith can be found, including:

“(i) An obligation on the parties to co-operate in achieving the contractual objects;

(ii) compliance with honest standards of conduct; and

(iii) compliance with standards of conduct that are reasonable having regard to the interests of the parties.”

(Sir Anthony Mason, Cambridge Lectures, 1993)

Clearly, an insurer would not be acting in accordance with the above if they ‘demanded’ or even ‘asked’ the client to provide what the insurer knew to be illogical or unnecessary claim proofs. It is arguable that good faith could even be breached if the request was made unwittingly or without due thought or consideration.

To do this would place the client in various states of inconvenience, unnecessary expense, delay and possible threats to their medical wellbeing by virtue of additional stress and financial hardship.

When good faith and the definitions of ‘reasonable’ and ‘requirement’ are merged with the relevant provision of the claim section of the policy, the rights of the client and the obligations of the insurer in a claims situation become somewhat clearer.

Dare I suggest, the insurer’s obligation is to request the smallest amount of evidence possible, relevant to the terms and conditions governing the claim, such that they may assess liability; or, taking the opposite position, in assessing a claim, the insurer should use their best endeavours not to request information that is unnecessary.

The phrase “the smallest amount of evidence possible” refers to that which is necessary to assess the claim, no more and no less.

The skill is, of course, being able to recognise what is necessary and what is not.

The tool that the insurer, the client and the adviser can all use to judge ‘necessity’ is to consider the reason for the requirement being requested but, only too often, a reason is not provided.

If, when requesting claim requirements, the insurer not only advised what was needed but why it was needed, there would be much greater transparency from the insurer and understanding by the claimant, leading to fewer unnecessary requirements being requested.

Let’s consider some examples of ‘what’ and ‘why’ in regards to claim requirements.

1. Independent Medical Examinations

One of our clients recently received a letter from their insurer that read:

“Please be advised that in accordance with the terms and conditions of your policy we have organised an independent medical examination, details as follows….” The letter then went on to inform the client when and where they needed to attend.

The insurer certainly appeared to be taking the word ‘required’ in the context of a ‘demand’.

If an insurer wants the client to attend an independent medical examination, good practice as well as good faith would suggest the client be given a logical reason for its necessity.

Unsatisfactory reasons would include:

• “The policy terms and conditions allow us to obtain one”;
• “We believe it prudent to have you independently assessed every 12 months”; or
• “This is a long-term claim so we want to have it independently reviewed”.

It would be far better to explain: “Our experience is that clients with similar conditions have returned to work by now. We are having difficulty understanding what is different about your situation and thus would like to have you examined by a specialist in this field.”

2. Financial Evidence

Too often, in respect of an income protection claim, insurers request full financial evidence for the three or five years immediately prior to disability starting, to fit in with the particular definition of pre-disability earnings.

The definition of ‘pre-disability earnings’ almost invariably requires a consecutive 12-month average within the above period.

What is not well understood is that the client has the right to choose which 12 months they want used.

The request for, and justification of, financial evidence would be more in line with good faith if it stated:

“To calculate average earnings you can use any 12 consecutive month’s earnings in the three years prior to stopping work. You can either pick the 12 months you would like and send us details or you can send us details for the full three years; we can work out the highest and come back to you for confirmation.”

Of concern is when the request for full financial evidence is made in regards to a TPD claim. In the absence of some compelling reason — for example, there is evidence to suggest the claimant has been working in the three or six-month TPD qualifying period — there appears little justification for requesting proof of earnings.

3. Health Insurance Commission (HIC) Report

These can take between six and 12 weeks to receive, and that is on top of any delay in requesting, obtaining and lodging the authority.

If delays of this magnitude are being contemplated, the client deserves a reasonable explanation as to why the report is needed.

Unsatisfactory reasons include “we require it whenever the benefit amount exceeds $X” or “the policy has been in force for less than Y years”.

This could be seen as nothing less than a fishing exercise, that is, there is no reason to be suspicious but the insurer just wants to have a look anyway.

Predetermined requirements of this nature should be disclosed in the product disclosure statement (PDS) so the client can make an informed choice when applying for cover. If there is some compelling statistical basis for having predetermined requirements, this should be referred to and made available on request.

A satisfactory reason for a HIC might be: “Your policy has only been in force for three months and you are now seeking to claim for a stress-related condition. In the circumstances we wish to undertake prudent investigations to ensure there was full disclosure at the time of application.”

Greater transparency would not only enhance the client’s appreciation of the claims process and perception of the insurers but it would also similarly enhance the skills of the claims assessor.

To avoid transparency, an insurer may be tempted to invoke the Privacy Act:

“In reaching the decision to deny access to this information we have taken into account the Privacy Act 1988, NPP6,1(f), which states in part that access can be denied where providing access would reveal the intentions of the organisation in relation to negotiations with the individual in such a way as to prejudice those negotiations.”

If there is a good reason to maintain privacy, so be it, but the Act should not simply be used as something convenient to hide behind.

Numerous other examples could be provided but the above will serve to illustrate the point; when it comes to calling for claim requirements the onus of proof is on the insurer, with the proof necessary being a demonstration by the insurer that the requirement being sought is reasonable in the circumstances.

Col Fullagar is the head of life risk at Genesys Wealth Advisers.